about access to the best global talent. they say -- look at the silicon valley. they want access to the best talent in the world. one of the things i am saying is that hopefully after brexit, we can reach out to the best people in the world. >> watch at the communicators monday night at 8:00 eastern on c-span two. impactext, a look at the of the supreme court's decision in south dakota versus wayfarer which gives states the ability to collect the sales tax from online retailers who do not have a physical presence in a state. this house judiciary hearing is just over two hours. presence in the state. the house judiciary committee heard testimony on how the ruling might affect businesses, and the role of congress in making laws and online sales taxes.

good morning, the gca the judiciary -- the judiciary committee will come to order. we welc rep. goodlatte: good morning. the committee will come to order. begin -- i begin by recog

myself for an opening statement. welcome to your -- you all, on june 21, 2018, the supreme court reversed the long- standing role that under the constitution's commerce clause, the states may not impose sales tax collection duties on remote sellers with no physical presence in the texas state. the court could have left resolution of this issue to con -- congress, in which the commerce law grants ultimate authority. they said they were eliminating the physical standard because it was wrong to ask congress to address a false constitutional premise of this courts own creation, this reasoning is exactly backwards. through most of american history, it was thought a principle of universal application that the statutes of one state have no force or effect in another. it was only with the new deal that the courts began to weaken the safeguards, to make for --

make way for big government. the true judgment was not the physical presence, and we are in a new world. the courts close and incomplete decision has the potential to unleash chaos for consumers and remote sellers, particularly small business sellers. there are over 10,000 sales tax jurisdiction, each with different rates, roles, product definition, threshold for liability, and the power to audit. compliance software is, as the dissent noted, still in its infancy. its capabilities and expense are subject to debate. the potential costs of audits by thousands of jurisdictions could be staggering. the government accountability office recently reported on the

asymmetry between the states low-cost enforcement tools like letter audits, and the cost to small businesses, that must hire outside counsel to represent them in foreign jurisdictions. retroactive taxation remains a real threat. already, six state jurisdictions have laws on the book, that look back as much as 2 years. they could be held liable for sales taxes that they never collected from the consumers, it would come out of the sellers pockets. just this morning, limburg reported that rhode island appears to be committed to retroactively enforcing its remote sales tax law. these are not just my fears, compliance problems were front and center in a recent emergency meeting of state that -- states that participate in the sales tax agreement. other participants rejected that idea, saying it could invite lawsuits, based on disco nation. northern -- nor was there

consensus on whether a seller could lose the economic nexus sufficient to support tax reliability after a period of time. a small, online sellers liability could add and flow, -- ebb and flow, constantly. another question was how states could handle overseas sellers. as highlighted recently in the atlantic magazine, states cannot effectively enforce tax laws against them. this effectively retains exclusively for overseas sellers, the elated tax subsidy afforded by the supreme court's prior physical presence rule, reducing the competitiveness of u.s. businesses. similarly, the multistate caste -- tax commission has issued a memo, raising numerous questions that must be answered. for example, should tax exempt sales count towards any small business threshold? you state threshold for determining state tax liability

apply to local jurisdictions? should state -- states block class action lawsuit by retailers, struggling to comply. a senior official warned that retailers should not be getting different answers from different states. with so many unanswered questions, most sellers, and states need time to figure out how to proceed. we need to also consider the ripple effects of removing the physical presence standard, and other areas of state taxation, and regulation. practitioners told the wall street journal that, states are more likely to take an aggressive approach on income taxes, now that they have the wayfarer decision. that has already begun. on july 12, 2018, wells fargo announced an earnings missed due in part to a $481 million charge for business activities charge that states may impose, now that the physical presence standard is gone. likewise, there are concerns that states will aggressively stick -- tax things like

streaming video and legal services. even estate that! disclaims the options today -- that disclaims these options today could do it. the court acknowledged that the physical presence rule has permitted startups to use the internet as a means to grow. what does it mean for the e- commerce world that this barrier to entry looms large. it is imperative that congress promptly assessed -- assess these issues. this panel can what -- provide a wide number of views, identifying what the ramifications can -- include. we will be in a better position to assess how congress can

intervene, as is our prerogative. i thank our witnesses for being physically present today, and i look forward to the discussion. it is now my pleasure to recognize the ranking member of the judiciary committee, --. >> thank you, mr. chairman for opening to -- opening today's hearing. in 1992, the supreme court held that a state may collect sales taxes only for businesses from a -- with a physical presence within the state. the internet at the time was just the nation's technology. in the next years, internet commerce has become a huge share of the economy. brick and mortar stores are obligated to collect sales taxes from all customers, putting them at a competitive disadvantage with the internet counterparts who do not have to collect taxes. in an effort to respond, various legislative proposals have been introduced.

including the marketplace fairness act, which i actively supported. one of these bipartisan measures passed in 2013, but we are unable can -- to consider these bills despite the poor. the decision last month held that the state may collect taxes with any substantial nexus, within the state. it overruled the physical present -- presence requirement. the committee today revisits remote sales tax issues. there are two principles that should describe -- guide this discussion. first, the government should not intrude on date tax policy. although congress and the constitution are responsible for overseeing the orderly distribution, but it is up to the states, with the importance

of the input of local electors. second, we should recognize that we already have constitutional guardrails in place to protect against disk a mandatory state tax policy. -- discriminatory state tax policy. it safeguards against policies. it does not remove -- relieve remote sellers from the just share, of state taxes. nor does it justify the congressional intrusion of the states authority to collect taxes a -- or perform critical functions. the courts are well equipped to consider the constitutionality of sales tax collection. this decision provides states with a clear roadmap of passing and enforcing laws that do not discriminate against interstate congress -- commerce. this includes limited attractions within the state, retroactive enforcement, and adopting uniform tax systems that reduce administrative and

compliance costs. in the months since this decision, states have begun an extensive and thoughtful conversation for strategies to minimize the burden. 24 states are already members of the streamlined sales tax agreement, a contract that adopts the best practices among the state, distribution of free tax software, and requires that remote businesses are only subjected to a single audit. there is also competitive market service providers, that in addition to collecting sales tax for remote sellers, also provide businesses with immunity from audit liability. this service is free in 24 states, for the members of the agreement. the other states may pay for

these services at competitive rates. there is a general consensus on tax expert that states should follow the roadmap, and abandon prior models, such as reporting a notification. for example, hawaii, one of the few states that is considering retroactive enforcement, has already announced the reversal this policy. congress of course has a role to play. in the absence of examples of discriminatory forces by the state, we are speculative. in closing, i thank the chairman, and our extensive panel of witnesses, who represent a broad array and view on this matter. unfortunately, the same cannot be said for president trump, who weighed in yesterday morning by twitter, and completely misrepresented several key facts. he wrote, the amazon washington post is going crazy again, ever since they launched the internet tax case 2 months ago. s set aside the fact that it

was decided 1 month ago, and amazon was not a party and did not oppose the decision. the washington post is not a part of amazon at all. the truth is that many online retailers including amazon already collect sales taxes in the states that require it, and the online retailers that did not collect taxes prior to this decision have already begun to do so. i look forward to today's hearing, i yield back the balance of my time. >> thank you, i would night -- i would now like to recognize the ranking member on antitrust law. >> thank you, thank you for holding today's hearing. before coming to congress, i served as the mayor of providence. i witnessed firsthand how local businesses have suffered because of this sales tax loophole. for far too long, this has discriminated against

local commerce. according to a set of -- survey , the vast majority of independent retailers around the country report that the online sales tax loophole undermines sales. this is confirmed by other findings, that consumers choose large companies over local businesses to avoid sales tax. these anticompetitive tax shelter has not only devastated small businesses, it has also been an economic catastrophe were -- for working families. more retailers are shuttered every month, due to the tax loophole, and the number of job losses in the retail sector have been staggering. since 2001, 18 times more jobs were lost in the retail industry then in the coal mining industry. this included 36,000 jobs that were raised in the last year alone, by nearly 700 retail bankruptcies.

they are up 30% from the prior year. this year, retail defaults have soared to record liquor -- levels, accounting for one third of all defaults. last month, the court gave a huge win, where it eliminated the physical presence requirement for sales tax collection, holding that states may collect sales tax. as the court noted, the tax shelter created costs states billions of dollars in lost revenue every year. by providing equal treatment, this decision will significantly reduce state budget shortfalls, which is critical for investments, infrastructure projects, and projects that the community needs to flourish in the 21st- century economy. illuminating the physical presence requirement resulted in lower taxes. some states like wisconsin have signed laws into place that inshore revenue collected will result in tax reduction. going forward, i would like to associate my weight -- self --

to the previous comments. there has been a consensus that congress must even the playing field. this includes the marketplace fairness act, which would authorize states to simplify tax laws to collect sales tax. we are committed to working with all states to ensure that we have a sales tax system that works with everyone. under republican leadership, this committee has been the place where bills go to die. this bipartisan issue has been no different. i am skeptical that my republican colleague -- colleagues will -- on this issue. i look forward to this panel of witnesses, who represent a variety of ideas. before closing, i would like to take a moment to echo the sentiment of my colleague, regarding the tweets by president trump regarding

amazon. pointing to what the president considered negative coverage on north korea, the president of the united states also threatened amazon with antitrust enforcement. as i have said on other matters, this type of discussion has no place in antitrust enforcement, which is a civil law enforcement matter. i have previously said this committee should do more to actively consider the effects of platform dominance, through innovation and small businesses. last year i requested a hearing on amazon's acquisition of whole foods. president trump's brazen attempt at political interference is completely unacceptable, and we should all say so. with that, i yield back the balance of my time. >> we welcome our distinguished witnesses. if you would all please rise, i will begin by swearing you in. please raise your right hand. to you and each of you solemnly swear that the testimony you

are about to give is the truth, the whole truth, and nothing but the truth, so help you god? thank you, let the record show that all of the witnesses answered in the affirmative. our first witness is mr. norquist, the president of americans for tax reform. mr. chad wright is the owner of -- cars. mr. bartlett cleveland is the innovation officer of the american legislative acts -- exchange cancel. -- counsel. mr. andrew moreland is the vice president of the american taxpayers addition. mr. joseph -- is the principal at states inc. the final witness is a partner at mayer brown.

all of your statements will be entered into the record, we ask that you summarize your testimony in 5 minutes to help you stay within that time, there is a timing light on your table. when the light switches from green to yellow, you have 1 minute to conclude. when the light turned -- turns red, that is it. time is up. given that we have 8 of you on the panel, we have worked very hard to accommodate different viewpoint, we need to help -- you to help us with that role. you may begin. >> thank you, very much. the supreme court made a big mistake. it undermined two important principles in american history, the first is no taxation without representation. one of the challenges we have here is that politicians who have collected all of the sales tax they wanted from people who live in their state, decided they would rather have some business in another state to

collect -- do the collecting so the politician does not have his finger on it. and then they yell at them and tell them they're going to go after them if they do not collected. so, it -- they could always have collected this money, in the city and state. they thought it would be easier, politically, not to irritate the people who could vote against them, but to go after businesses who cannot vote against the. we have a revolution on this question about whether it is a good idea to have taxation without representation. second, and this is not -- this is not just for sales taxes. i have been focused on this since i was on the advisory commission at electronic commerce, 1997 to 2000. when that happened, lobbyists came and said what would it take to get you to reduce your opposition? i said, well, i am concerned that you will do this to

corporate income taxes, and individual income taxes as well. if you would support restriction, it would be less of a problem. this has nothing to do with the numbers you were imagining in terms of revenue. the answer was we would have to do that -- never do that. it is not about tales -- sales tax. it has always been about incorporating taxes, but back then, they wanted to be able to tax outside of north dakota, in the successful states. the other is tax competition. we want good government competition between the 50 states. and among the 50 states. and, allowing people to compete on lower taxes, less regulation, better education, better roads, is a great way to get good government. it is -- to tell states they do not have to compete because they can export failures, tells every corrupt mayor or incompetent government -- governor, you do not have to -- you only have to look at who

you tax. europeans have been watching what happened with this, and they have decided they want to tax high-tech companies, and i do not understand how the government is going to go you cannot do that. only we are allowed to do that. you cannot reach into estate and tax a successful high-tech company, only ill and i can do that -- illinois can do that. we have put ourselves into a difficult competent -- position. we were told this would be $20 billion or $30 billion, i talked to somebody from state that said it will be $6 million from that state. we are rearranging the relationship between states, as to whether they need to provide competent government, and tax people who cannot vote against them, in order to get a small amount of money into those governments. i think it is very important that given the mess we are in now, that we delay

implementation until congress has a chance to try and undo some of the damage that this decision made. i think it is important that we not go after small businesses, and the amount of sales it takes to be a relevant factor, to have an imaginary nexus in south dakota, is not the same for southern california. it is a larger state. it is important that you guys nail down all of the other problems that flow from this. i was talking about the business activity tax implication act, which would help on corporate businesses. companies, businesses -- sorry, states are trying to export regulations, no regulation without representation is another piece of the pie. efforts to ensure that we can have one state and only one state tax everything from streaming videos to music to this, pandora's box that has been opened up, --. this pandora's box that has been opened up puts lines around the

damage that can flow from it. you can at least begin to reduce it, this is all about a bunch of politicians that the -- at the state and local level. they are lying to their constituents, that they will be able to find everything that is not there. they will discover that, that they have done a lot of damage in telling that fib. something very much like physical nexus needs to be put in its place. >> thank you, mr. white, welcome. >> members of the judiciary committee, thank you for inviting me to testify today. my name is chad white, i am the owner of class tech cars, and

-- an online small business specializing in reproductive automobile reports located in virginia. i want to thank the chairman and the committee for holding this critical hearing, to address the small business impacts of the supreme court's recent decision. over 30 years ago, i left a career in the hospitality industry to take a job in an automotive body shop and pursue my passion for classic cars. over the next 20 years, i helped to grow that business into a top 10 national vendor, for ford products. what i dreamed of is starting my own business, and making a mark. i began selling items online, out of my home, in 2001. over the last 17 years, i have been able to grow my business to

6500 active listed items, specializing in american-made muscle cars of the 60s and 70s. with the assistance of online platforms like ebay, class tech cars has been able to market and sell products across the country and throughout the world. the internet is a tremendous tool for small businesses, but make no mistake, starting and growing a small business remains a difficult path. every expenditure i make has to be carefully considered. i currently employ 8 individuals, and i am committed to grow my business, but the supreme court's recent decision in south dakota versus wayfarer gives me and millions of other small business owners across the country pause as we consider what lies ahead for internet enabled entrepreneurs. there are many challenges to setting up a small business, but one enormous burden -- small businesses have not had to bear

is having to collect sales taxes in roughly 12,000 jurisdiction across the country. let me be clear, we collect taxes and remit taxes like any other business, where we have a physical presence. i handle this process through a part-time employee, who spent a few hours a week calculating tax and remitting accordingly. i honestly do not know how we will handle having to increase this collection and remittance compliance from the few locations to thousands across the country. i have heard the pitch that free software can solve the problem. we all know that in life, nothing is free. software can get expensive, collection and remittance is one thing, but think about the list of audits, and compliance measures in thousands of jurisdictions across the country. many online small businesses sell in many multiple ways. from the physical stores, over the phone, on the website, or

on marketplaces such as ebay. certified service providers audit production guarantees fall flat when a state of local jurisdiction simply claims there is misrepresentation, or fraud. once a small business receives a demand letter from a faraway jurisdiction, they are left with a lose lose decision. just paying to try and defend themselves in a foreign tax court. small businesses are the lifeblood of the american economy. the internet has a lot of american small businesses who start up and grow in unimaginable ways. so, many others build it with hard work and perseverance. as confusion set in after the decision, i worry about what comes next for my business. i worry about compliance, about costs, and about out-of-state audits.

i have other small businesses -- business entrepreneurs that have asked me if it is even worth it to start an online business in light of these new tax burdens. i wonder what these -- my choice would have been if i had started my business today. chairman, ranking member, and members of this committee, thank you for again, the opportunity to testify on this critical issue. as you examine the challenges ahead, i urge congress to pass legislation to protect small businesses like mine. and millions of others across the country. having to endure this uncertainty and the burdensome tax requirements, and audit risks. some small businesses are the growth of the engine of our economy, and without important protections, we risk preventing new entrepreneurs from starting successful online businesses. thank you, and i look forward to taking your questions. >> thank you.

welcome. >> chairman, ranking member, members of the committee, my name is larry. i am the executive vice president of --, a 40-year-old family-owned business in fort lauderdale, florida. i am testifying on behalf of the national retail association, and i am a director of the georgia retail association. we also have internet sales. we sell appliances, tvs, mattresses, furniture, and other household items. approximately 95% of our sales are through our work and mortar stores. we invested in the website primarily as a means of advertising and providing information, on the products to local customers. about 6-7 years ago, we added a shopping cart to the website, and began to sell over the internet by participating in market places, to glean the

best deals, offer customers a small commission as well. today we have sales in all 48 contiguous states. together these sales make up less than five -- 5% of our sales. we are hopeful that our internet business will grow, but our biggest concern is protecting sales of our brick- and-mortar stores. we have six -- experienced a significant loss of sales, they come into the stores to learn about the products from experienced sales personnel. we regularly find the customers come into the source, learn about the products, and then purchase the products online in order to save the sales tax. state and local taxes in florida and georgia can be as much as 7% to 9%, so customers who are not charged sales tax can get a significant savings on a high- priced appliance or television set. sometimes the customer will

order the product on the phone, right in front of our salespeople. who has -- they have just spent a significant amount of time educating the customer. our profit margins are slim, we cannot afford to absorb the price of tax, and online sales do not have to collect that. we are looking forward to competing in the marketplace in the post south dakota v. wayfare environment. we believe if we have good customer service, without having to overcome tax burden, we will be more successful. there are challenges to meeting sales tax collection requirements, for remote sales, and we are now figuring out how to face these challenges. among the members of 1-2 stores, it is weird for them not to have a website in which they have some sales out-of-state. in discussions and meetings of the small business retail counselor -- counsel, if there were not legislation, the cost

of compliance may be so great that it was not worth selling into other states, where a retailer did not have sufficiently high level of sales. after the supreme court issued its decision, i checked out and investigated software packages that are now available. tracing the services that were offered. i feel confident that we can weakly come into compliance, with whatever collection requirements may be imposed, for a modest fee. this will give us the ability to compete and expand our internet sales. as a starting point to our discussion, software providers asked us how many other states we have more than 200 sales in. 34 states met this minimum level. the packages that we are negotiating with our software provider, will calculate and remit sales tax. it will be the first point of contact for any type of audit. with these 34 states, and appropriate tallies. it will cost less than .1% of

our remote sales, and that is only because it is start up costs. after that, it will be more cost efficient. this includes mapping thousands of products, and they estimate this will take only 2 weeks. more important, the software companies are monitoring daily changes in state and local taxes, and will provide the right amount of sales tax. having participated in discussions with different software companies, i can tell you there are lots of different ways to come by these services. it was clear that they were interested in developing a plan that was economically successful for the retailer and software company. this is just an incidental cost of doing business that should not prevent remote sellers from expanding internet presence. we have approximately 1700 families that work for us. we ask for your help and for your fairness that these 1700 families will continue to

survive. >> thank you, mr. cleveland, welcome to --. >> thank you, mr. chairman. ranking member, members of the committee. i wanted to give a brief background -- we are the largest nonpartisan voluntary membership organization of state legislatures. we are where the rubber hits the road on this issue. alec is dedicated to 3 primary print -- pencils, limited government, free markets, and federalism. we have a long history working with state and federal legislators on the issue of remote taxation. we filed a brief in the wafer -- south dakota v. wayfare case, utah has been the number 1 ranked state for 10 years running on taxation, hopefully

they will not jeopardize that. i ask that the -- these be included on the record, i will ask if the chairman is so inclined. where are we post wayfare, and what should we do? let's take a look with limited government in mine. on federalism, some asserted that the end result of the wayfare case is reinforcement of federalism. actually, at best, it is what i call false federalism. it is an opposition to the federal government doing anything. we know from history that was never the intent. unrestrained, states able to loot other states, has never been allowed except for under brief articles. for those of you who have forgotten your history from seventh and eighth grade, that was a period when the founders had to run back to philadelphia and draft what we call the u.s.

constitution. the articles of the confederation being a failure exactly because of states interfering with the business of other states. the commerce clause was the result. within the commerce clause, it stops states from reaching across state lines, and interfering with interstate commerce. limited government. post wayfare, as we have heard from the chair and others, government is a virtually unrestrained. the government now can be as big as the internet reaches. government, even over those who have no recourse against it. but, this is the first time in our history, in 330 years, that we live in a place where you are now able to be taxed without having representation. the first time that rate was guaranteed was in 1689 in the english bill of rights. the common phrase that started

in england, was picked up here later with no taxation without representation. a modified phrase was taxation without representation is tyranny. that is as true today as it was then. finally, the third point, free markets. the current situation before wayfare and today was confusing and comp look it.'s implication is needed, with bright lights, clear definition, ike some of the proposals we have seen from congress -- like some of the proposals we have seen from congress. merchants should be reimbursed for any roles that are put into place. that not only includes the real costs, but also for the liability that they bear if they do not collect the right amount of tax, or remit the right amount of tax. essentially, what is happening in history is government has conscripted merchants into beings or -- servants of the merchant -- government. it is only fair that they get reimbursed for their efforts. in conclusion, congress needs to act. and they need to act now.

in my written testimony, i suggest a way forward. there are other ways forward, many of which alec would be supportive of. we need to reinstate real federalism, we need to limit government reach to what has always been intended in the u.s. constitution. at least demanding that there is representation before taxation. finally, most require's implication -- simplification. thank you, i am happy to answer questions. thank you. welcome. >> thank you mr. chairman, and ranking member. members of the committee, i am a member of the utah senate, and also the past president of the national state -- legislators. i've spent the last 4 decades as a cpa, where i have defended taxpayers and small businesses, in tax matters of varying magnitudes. i look forward to share my insights, but i need to start

by setting the record straight on a couple of point. sales tax is a tax on a purchaser, the citizens of a state election their state legislatures that impose the state sales tax provisions. it is those purchasers that are the taxpayers. a business has to collect and remit, that is true, just as it collects and remit withholding taxes and complies with other regulations. 6000, 10,000, 12,000 taxing jurisdictions. we heard one witness talk about that. the state of virginia has 95 counties, they have tax and authority. in my own state, there are 240 cities, some 400 special service districts. all of those will make up that number of 12,000, but you only pay tax to one entity, the state tax commissioner. and there is what -- only one audit -- entity that has tax authority. retailers for over 40 states

developed the sales tax system to address the concerns of congress. in 2003, they asked congress to act. they failed to act. transaction parity, which states reluctantly supported, congress failed to act. in fact, the chair of the national governance association, president of the national conference of state legislators, met with leadership to urge congress -- congressional action. it was not even afforded a hearing or a transfer of it. congress did not act. in recent years, state lawmakers across the country have enacted conservative policies, by championing policies that close loopholes, in favor of flutter and lower tax rates for everyone. we did that in utah last week,

in a special session. i had the privilege of sponsoring the legislation to mandate collection of taxes starting 2019, and we lowered other taxes to make it revenue neutral. that is good tax policy. expanding the base, broadening the base, and lowering the rate. through all of this, in 26 years, congress has not acted. i am here today to ask congress to continue to do what this committee and congress has done best over the last 26 years, nothing. to not act. the reason for that? when congress found -- when the supreme court found that physical presence was not a violation, states across the country have now begun to deal effectively with this issue. this is something that states can effectively address, and it is interesting that the decision , it was a 9-0 decision that it

was bad policy, it was a 5-4 paul -- decision saying that congress -- that the supreme court would fix that. it should not be congress that does that. in conclusion, it is true that red states, blue states, purple states, states across the country -- we are not looking for a tax advantage. we are looking for tax clarity. the pay is -- the chaos that has been spoken about, that exists with the tens of thousands of businesses that have closed -- close to hundreds of thousands of employees who have lost their job. it is those small businesses that i am elected to represent. it is those small businesses that are expanding chaos. the chaos of not being able to compete in the market place because online retailers do not have to collect the 6% to 10% tax, they are fighting

desperately to maintain that competitive advantage. in conclusion, this is a tax equity issue. businesses, that want to take advantage of the market in my state and in every state should comply with the regulations in those states do with automobiles, tobacco, or any other commodity. i look forward to questions. thank you. welcome. >> thank you, thank you for the invitation. i am director of the interstate commerce initiative at the tax union, a policy project that focuses on the effects of state attempting to exercise power outside of their borders. in south dakota -- versus wayfare, it undermined decades of growth and innovation.

with the stroke of a pen, the court rewrote our understanding of state involvement in state commerce, and opened the floodgates to burdensome levies on businesses, regardless of location. now, chaos is brick. states are brewing -- growing -- now, chaos is here. it is my view that congress should act by preventing a moratorium on state tax. you will hear that there is no chaos. that states will proceed in an orderly fashion. that they will minimize compliance burdens and returning additional revenue to tax payers in the form of tax cuts. let's suppose that is true. even if we assume that is true, there are innumerable unanswered questions that i

believe demand congressional action. for example, many states require retailers to purchase a sales tax bond, to ensure full and prompt payment of sales tax obligations. it is unclear if a business selling online must now secure a sales tax bond in each state. these can cost thousands of dollars, and are often linked directly with business licensing requirements. which are similarly murky, --. another example, many publicly traded companies face new tax bill, but the deadline for public filing about those burdens for the second quarter is in just 2 weeks. putting businesses in the impossible position of being legally responsible. for reporting on costs that are essentially unknowable with precision in such a timeframe. this is a taste of the administrative complexities. that is before we depart from any supposition that states will affect behave. now the reality of course is that state cannot be relied on to proceed with caution. new jersey is still the same state that held hostages at the border to extract business taxes . massachusetts is still the

same state that attempted to assert that the delivery of a browser cookie while browsing a website constituted a basis for taxing an outfit -- out-of-state business. it is my view that retroactivity remains a serious threat. while some states have statutory language ensuring they do not collect retroactively, many do not. taxpayers must simply rely on it. at least 8 states lack a statutory ban, putting businesses at risk from audits and assessments. what is more, the wayfare jeannie cannot be put back in a bottle now that the court -- genie cannot be put back in a bottle now that the court has

let it out. one very vivid illustration came when wells fargo announced that it had set aside nearly half $1 billion for its income tax reserves as a direct result of wayfarer and future tax assessments. the salt in these wounds is that the majority's opinion was vague. and highly deferential to take -- state tax power. it leaves few options against an unconstitutional state plot. in order to challenge the constitutionality , it would require businesses to sue, taking years and millions of dollars, a daunting proposition for even the largest of businesses. it is my view that congress should immediately move to enact a moratorium to help provide the time and space necessary for both congress and the states to meet the challenges i have laid out

here, and others to be discovered. eliminating the mad scramble would do wonders for our ability to address issues like those discussed today, and to continue the hard work of crafting a more comprehensive solution to effectively govern interstate commerce. a moratorium is a modest step, it is a necessary step, and a step that i hope this committee gave full consideration to in the near future. thank you. >> mr. cosby, welcome. >> thank you, i am the ceo of multistate associates. i advise on state tax policy matters, and i appear on my unprofessional behalf. i have one point to make in my testimony today. there is no immediate problem requiring congressional action in response to south dakota v. wayfare. i applaud the chairman for calling this hearing. it is important that these issues are put on the table. that the -- there is a broad discussion, judgment. in pryor testimony, i have said it is only congress that can

fix the problem of state sales tax collection. was wrong, because i had novel expectations that the court would weigh in. in so doing so, it has eliminated the problem that has -- prior proposals about how to restore to states the authority to require sales tax collection. since the decision, the states have acted responsibly and deliberately in providing notices and guidance to taxpayers. no state has yet attempted to oppose taxes retroactively, as the chairman a -- indicated, and the only state that has indicated they would do so, hawaii, has since rescinded that accommodation. the government still retains full authority. but, even a prohibition of -- or moratorium, or a ban on retroactive taxation, would be devilishly obligated. --

complicated. congress we need to find -- defined terms, since they were only interpreting the clause. congress would be creating new law, there is no way to put the genie back in the bottle , it cannot be done immediately. even a simple prohibition on retroactive taxation would be sought with applications. -- fraught with complications. the first way to -- is that it will interfere with state revenue collections. it will interfere with existing state activities to reduce taxes with the additional revenues from legally owed taxes. even the district of columbia has said they will reduce taxes, the commercial property rate. the senator already indicated that they will reduce

manufacturing costs. and there is guidance saying what exactly the rates will be as a result of the additional collection. in portland, it would jeopardize -- importantly, it would also interfere with the economy. the supreme court said something very important, that the physical presence standard creates revenue and resolves market distortions. it affects development that might be efficient or desirable. overstock.com, one of the plaintiffs in the case, said something the same, immediately afterwards. that it would begin expending physical and digital operations, including supply- chain, marketing, recruiting, in states that previously prevented them from having a physical presence.

i will conclude by highlighting the history of congressional action, it demonstrates a temporary solution that is rarely temporary. they are rarely full solutions. somewhere in this building is a report that was reduced in 1965, after 7 years of hearings. on the appropriate extent of state tax jurisdiction, covering not just state income, but also sales tax. that was in response to a law that was enacted in 1959, it was intended to be a temporary bill, waiting for the conclusion of the willis committee to do its work and come back and adopt more appropriate long term legislation. that never happened. that law remains on the book today, unaltered, except for the 1961 amendment to address the issue of sales tax.

more recently, we had the advisory commission on electronic commerce. that was in response to a temporary prohibition on certain internet taxes. that commission was unable to produce any findings, it could not meet a statutory requirement of a two thirds vote. the report sits there with a permanent moratorium now being on the books. thank you, i look forward to questions. >> thank you. welcome. >> thank you, mr. chairman, ricky members, members of the committee for the opportunity to appear. i would like to make three points, first, we do not yet know the standard for determining when it is constitutional for a state to impose tax applications on out- of-state -- obligations on out- of-state small businesses. states are nonetheless moving ahead to subject entrepreneurs, the engines of our economy, to unfair and costly requirements.

third, small businesses have no way to protect themselves against unconstitutional obligations. the supreme court made clear there are constitutional protections for small businesses. but, it could not decide what they are. the three plaintiffs were large companies. the amount of business a company does is a relevant factor, but how much business is required, we do not know. the court did not hold that the south dakota transaction tests were sufficient even for south dakota. at that level of connection, then a much larger amount must be required to require tax question. -- collection.

a tax collection obligation can still be unconstitutional, based on the burden on a small business of complying with multiple states and the different roles. in other words, a small business cannot be forced to comply with 20 different complex tax collection requirements, each with an accompanying audit risk, even if it does some amount of business with customers in each of those states. finally, wayfare did not address a separate constitutional protection for small businesses, the due process clause, that requires a more substantial and direct connection between an out-of- state business and a state imposing a regulatory obligation such as a tax. a small business has to purposefully avail itself of the benefits of the states market and loss. sales to customers in the states are not sufficient. we do not know what the constitutional rule is, but nonetheless, as you've heard, states are moving ahead to impose tax collection requirements including on small businesses. there is no reason to believe

that states will appropriately collect -- protect these out-of- state businesses who have no ability to hold politically accountable the officials that are making these decisions. the argument does not hold up as a matter of political reality. just look at the ncs statement that was issued after wayfare, that urged states to wait until january 1, not to impose retroactive taxation, to abide by the tax rolls, it is not clear that every state is going to do that, some states have announced that they want to start collecting before january 1, for example. third, and some states i should stay have statutes with thresholds lower than that in the south dakota statute, there is no indication that they are backing away from the threshold. most important, small businesses have no way to protect themselves against unconstitutional requirements. their choice is to comply with the costly sales tax obligation

that could well be unconstitutional, even though the business will be hurt, and hope for relief years later, or decide not to comply and suffer financial penalties if the obligations are later upheld. in virtually every legal context, individuals and businesses subject to a state or federal law that could be unconstitutional can go to court and seek a claim before they are obligated to comply with the law. but, constitutional challenges cannot be asserted until after the victim has shouldered the burden of collecting and paying the tax, and seeks a refund. that is true in federal court because of a law called the tax injunction act. most states have a same requirement.

i think there are ways to protect small business. our laws have definitions of small business. not too hard to figure out who they are and grant them the protection they need. i think it's critically important because all the data indicates that small businesses on the internet have not only been an engine of growth. the internet has been a mechanism for women entrepreneurs and veterans and minorities who have hard time starting businesses to get a leg up for this national market it would be terrible to take that away from them thank you. struck -- thank you. substantial compliance burdens by actual sellers highlighting the ripple effects outside the sales tax and calling for congressional action to address these issues. because of the effects on business growth on the third on

behalf of overstock.com. timothy e matthews the jewelry television. third a statement from engine which represent some of the most innovative and fast- growing companies in the country. fourth, a letter from 16,000 sellers. if a statement of hamilton davis and president and executive director of the american catalog mailers association. six, testimony of cary s alpert founder and ceo of stony creek brands. seven, testimony of william garbo's president and ceo of harriet, cater fresh fines unwise and well. eight, statement of steve l bianco president of that choice. nine, statement of douglas lindholm. 10 a statement of jimmy hayes. state of louisiana.

testimony of everett bernard local tax committee bar association tax section. testimony of jessica pima lujan associate director for center of technology and innovation and competitive enterprise institute. 13 testimony mr. joseph bishop henchmen. executive vice president of the taxol nation. we will now perceive under the five-minute role with questions and i will begin by recognizing myself. i have a number of questions i asked the witnesses to keep answers brief so we can get through as many as possible. first, mr. norquist, is there a real danger of retroactive tax liability for online sellers? can you provide examples of states imposing retroactive tax liability either in the wake of the wayfarer decision or otherwise in the past? buck -- >> yes before washington 2015

michigan did in 2015 -- 16. this is been done, going back 23 years. it's no reason to believe it wouldn't be done. >> mr. cleveland does the brake line physical presence role protector undermines states rights? >> i guess i would say pretty obviously it protects. and that the role is clear and other states can't physical presence with her today commerce clause, states are not allowed to get into the business in other states. >> thank you. mr. morley, conservative groups have long been hesitant to embrace most proposals in congress to address the remote sales tax issue. but what is you believe is the think you know the community? buck it's hard -- >> it's hard to know my hope you have organizations recognizing there is significant amount of turmoil

that exist plus wayfarer. the answer is all -- always been vested here in congress. the congress needs to act, and place regional structures that folks can abide by. the landscape certainly has changed in -- and the policy has come from the same place, that is congress. >> mr. pincus what are the ripple effects removing the standards outside of sales tax collections what sort of business or should be worried about those effects? buck i think there's a broad range accountants, lawyers, architects who provide services over the internet, online education and training services. sellers of digital products such as apps. online software services that are not downloaded but are online services. then there are questions that have been raised earlier about apportionment of corporate income taxes. i give example in my written

testimony. there is a risk as a result of this, wells fargo disclosure indicates, significant increases in duplicate of corporate income taxes. >> in light of the compliance issue facing sellers and lack of consensus front states on important details, some have called for a moratorium on a position on sales tech duties on remote sellers. is a moratorium warranted? and is there a way to implement that will be helpful and fair to all interested parties? >> i think a moratorium is critical. history shows without some kind of control states go off the rails. just to back up and give one example, years ago there was a multi-state compact deal with state income tax, the idea was to promote uniformity because there was a threat of congressional action.

as dennis congress didn't act, the number of states joining dropped away in the uniform and dropped away. so some kind of oversight is critical. a moratorium is one way to do it. another way to do it is to create a vehicle so that if the state moves to him -- impose a tax there is opportunity for those who are burdened to go to court and challenge it before it takes effect. a critical problem in this area is for businesses especially small businesses there is no way to get the constitutional climb adjudicated. and so there is really is no practical limitation on the states. >> people really didn't give much guidance or practical approach to this did they? >> sorry? >> the supreme court really didn't give much guidance or practical approach. >> know the supreme court decided one thing, physical presence is not required. then left open five other questions when a state pack up his constitutional and is not. >> i want to ask a question, overstock told the committee received an estimate of $250,000 for compliance software

and that up costing 1.3 million pill julie tv said it received estimate for enterprise software 2 million, project wound up causing terminal dollars, didn't work and ended up in litigation. are you competent that you can get software for a modest fee based on actual installed cost or contract estimates in the con tract -- contract? >> i'm dealing with three different countries the average price for implementation is around $30,000 and after that first year $20,000 because implementation is a one-time charge for the fees that they wanted charges based on the fact. >> the answer is is not then you been given promises but not promises. >> i got a statement on my desk we're just deciding which company to go with. >> recently issued guidance stating that the state should consider waiting until january 2019 to begin sales tax so

collection requirement on sellers wise that waiting. advisable? >> thank you for the question. i think it gives sellers a reasonable period of time to ramp up their i.t. department and such. i will tell you as a cpa in our state the chairman is a tax attorney with 40 years in the profession. he suggested very strongly that utah adopt october 1 deadline. legislature didn't agree because we wanted to give a little more time, gives us more time to repair. >> rather than utah, how many states out of the 22 with remote sellers on the books are set following the recommendation? buck i don't know the answer to that today. >> in 2015 the state of utah filed an amicus brief challenge in a california law that

applied california cage size requirements to laying hens outside the state. >> utah brief argued horizontal federalism. utah stated each state should not expect internal policies are dictated by another state where the first states citizens have no democratic representation. the brief note of the california regulators have already inspected egg produces for compliance outside of california. you believe that california regulators should be able to tell utah farmers how to run the farms? >> i think that's false equivalency mr. chairman. i think the issue of sales tax deal specifically with the tax imposed on purchaser within the state of utah. if a business wants to take advantage of that marketplace they comply with those laws. >> but you not collecting the tax from the consumer you're regulating an out-of-state business to require the collection of tax. >> the issue of taxation without representation. who is voting on the tax and who that goes on the purchaser.

>> who poses for the audit pays for the audit? >> we have that issue across the economy, remote workforce is a good example. utah chooses to not require withholding taxes and doesn't tax income earned in the state of utah until individual has been in the state 60 days. new york taxes the day you arrive. >> i take it you would agree with me that california regulators should not be able to inspect utah farms for compliance with california cage size requirements? >> while i agree with that i don't believe this applies to the way fair case and i believe it's a false equivalency. >> thank you my time is expired. chair recognizes gentleman from georgia mr. johnson five minutes. thank you, gentlemen we have before us a situation where the supreme court has reversed his own earlier decision and looking at this

exclusive but esteemed but exclusive panel of white males before us today, i'm struck with the proposition that the u.s. supreme court can one day overturn brown versus board of education. just as brown versus board of education overturned the plessy versus ferguson fed separate but equal concept. as i ponder the judicial nominees of president trump, many of whom refuse to say that brown versus board of education was correctly decided. it gives me pause and it should give all of us -- our american people pause that can think what can happen to the u.s. supreme court that is improperly stacked with white ring,

bigoted justices. our society has undergone a drastic transformation in the 26 years since the court decided quail. where'd all participants in the connected world byproducts across the country with the click of a button. according to the census bureau in the first quarter of 2018 9.5% of all retail sales occurred on the internet. and in the wake of the way fair that have been many calls of action for both state and congress, we are here to assist those demands and determine how states and businesses will implement a way fair decision. mr. norquist. you have listened to being anti- tax crusader isn't that correct? >> i certainly support lower

taxes on the american people, yes. >> and you are the founder of americans for tax reform and you are the author of the tax payer pledge or tax payer protection pledges of that correct? >> correct. >> as the true 95% of all republican members of congress and signed onto your pledge? >> roughly that number, they have made a commitment to the people if you read it a commitment to american people to vote against tax increases. >> certainly at your opinion that the way fair decision violates the spirit of the taxpayer protection pledges that not correct? >> while yeah i couldn't get any supreme court justices to sign the pledge. >> you might be more fortunate in the future if president trump has his way. mr. cleveland. and by the way mr. norquist, you are a member of mr.

cleveland's organization, alec, is that not correct? >> mi chris -- and my,? -- am i? yes. >> mr. cleveland, any organization to make a difference in this world and be properly funded and resources and that correct? >> i would suspect there's also many people have very little funding to make a huge difference in this world. >> alex is very well-funded, alec. most of alec 's money comes from corporate sponsorships is that correct? >> i honestly couldn't tell you we are funded like most nonprofit organizations, individuals, state legislators, corporations and foundations.

>> but most of your money comes from corporations isn't that correct? >> i don't know the answer to that. >> is alec a tool for corporations that fund it? >> the cool thing about alec and other organizations, we put our bias right on the website. in fact the exact way i did my testimony. we are a tool of our legislator members who all believe in limited government lesser taxes. >> you went through those three themes earlier. and i definitely understand what alec is about. alec actually is supporting the online retailers versus the mom- and-pop brick-and-mortar who are disadvantaged by the requirement to collect sales taxes. isn't that correct? >> not at all.

if you have the testimony in my comments that i submitted written that is not at all our position. our position is to simplify system so everyone can understand it. i believe everyone should know when they are going to be taxed, what taxes are owed. i think merchant should be equally clear with that. i'm crazy old school i believe in no taxation without representation. i believe in the free market should be allowed to operate without hindrance of that confusion. finally i do believe that state legislators should be empowered in most situations except in interstate commerce as the commerce clause calls for which is a jurisdiction of the -- this congress. >> i think you the gentleman i thank you all for your appearance are today. and with that i will yield back. i recognize the gentleman from ohio, mr. shabbat. >> thank you mr. chairman i

commend you on putting different and good points of view an issue we have been struggling with for quite some time here. i think whatever side you're down the road and you have a very good job in statements with response to questions. i was also maybe advise my colleagues on the other side not to throw the term tool around too much about funding 11 considers how much the trial lawyers and labor unions and radical left-wing environmental groups throw around this place. but with that being said, i like to start out by submitting a recent forbes article titled must be blunt. internet sales taxes our economy sapping to rent mastic terrace which i think highlight some of the difficulty in solving this complex issue. the author raises important considerations that we as members of congress and state legislators should take into consideration as we work through this issue. mr. chairman, asked that that be

entered into the record, mr. chairman. can we get that entered into the record? >> yes. >> thank you very much. mr. white in addition to serving as senior member of this committee also happened to be the chairman of the house small business committee. in fact just last week we had a roundtable with various small businesses from across the country who use various electronic marketplaces to sell the products. my first question to those folks of the table was how, with the way fair decision is going to affect you and what you think our congress ought to do about it and that sort of thing? i will ask you simply as i asked many of them. how will the way fair decision affect your businesses as far as you can see at this point? >> there's no doubt it's going to, i'm going to incur more cost and having to hire more employees, possibly i may even

have to layoff other employees to make room for bookkeepers and accountants to try to collect and remit this tax. >> how much time and resources do you currently spend would you estimate complying with a tax law now. -- now, -- now? >> right now have a part-time bookkeeper that spends 3 to 4 hours a week maybe less than complying with remitting taxes. >> how might that change if you have to begin collecting in multiple tax entities? is been estimated 10,000 i do note that your number is. >> i've heard numbers as high as 12,000 tax jurisdictions. this would completely change the complexity of my business. we would no longer be an auto

parts supplier but we would become a tax collector. >> senator, let me turn to you. south dakota law as to laws in other states, including your state, utah includes minimum sales threshold. however, it seems unclear whether the collection obligation arises only on transactions completed after the threshold is met. it's also unclear whether that threshold once met its creates a continued obligation to collect and remit taxes. or the threshold requirement rises annually. this seems to me if congress doesn't act these and other complex questions raised by the patchwork of state retail sales tax systems will likely be answered through wasteful guesswork along expensive litigation. what we -- would it be better if we relieve small-business burden to simplify internet

sales tax structures within their states so the small businesses could more easily comply, what would your thinking be on that? >> let me set the record straight for utah law and utah statutes. in utah, once a seller reaches the threshold of 200 transactions or $100,000 and it becomes effective for the next quarter. there is no retroactive provisions under our statutory framework nor will there be. >> if you'd asked me this question a year ago pre- wayfarer i would agree that congress should act. as a matter fact is a cpa i was elected in the senate 18 years ago. before i was elected to the senate as a cpa i came to congress seeking a solution to the challenges of quill. you cite the small businesses that might incur additional cost of

the compliance. ignoring completely the thousands and thousands of small businesses that are going out of business because they can't compete because of the differential tax policy where government is choosing winners and losers. it is that an action of congress that caused in january 2016 we announced a change strategy we came to this committee, this leadership. and we said we would prefer congress to act. you have the remote transaction parity. cena had passed the market place fairness nfa act. we were begging this committee to take action. this committee reviews. states were given no other choice but to seek judicial redress on an unlevel playing field to protect those thousands of thousands of small businesses and those employees in the small businesses. so pre-wayfarer i would have agreed with you.

i was one of the many state legislators and organizations to petition congress to act. that congress did what it did best which is nothing. now post wayfarer i believe it's up to the 50 laboratories of democracy to determine what's best for the state recognizing that way fair as we for testimony, wayfarer address one piece of the dormant commerce clause that dealt with whether physical presence should be a criteria in establishing undue burden. the rest has been left, remanded back to the lower court for further action. but in the meantime, states are obligated to act because those general fund revenues, whether states want to do it like utah or brought interbase low in sales tax income tax we will make this revenue neutral as we see those revenues coming in are, that should be up to the states. has a state legislator president pro tem of utah senate, many members of your body have certain state legislatures is a real challenge at the state level when we hear members of

congress saying we know better for the states and the states know for themselves. that's a very real challenge for us there. >> thank you. >> i just want to say to the gentleman that there are couple things that need to be added to that record. first of all, this committee for 15 years or more encourage the states to do a uniform state law on this issue. and the states time and time and time again failed to accomplish that. not so much the fault of the state of utah but actually some of the larger states of the country and with no ideological consistency is this that they had to do it their way. so that's number one. number two, this committee put forth a multitude of alternative proposals that would've solved not only the problem that senator bramble talks about. but also the question i asked about the california egg case.

this issue regarding the reach of states into other jurisdictions to regulate is one that's going to grow and persist and be a serious problem in a nation that is built upon the concept of federalism. i have reshaped the views of the senator but i think it needs to be supplemented. >> if i can make one final point, senate mentioned failed to act a number of times. i think congress deserves a lot of criticism it gets on a whole range of things. but the term failed to act that means we didn't pass the law and when we pass laws that means more regulation which the public also complains about for good reason. new laws mean more regulations, more government, etc. failed to act isn't always a bad thing. >> i agree. the gentlewoman from california is recognize. when i heard the news the

supreme court had made a decision, although we have had various viewpoints on this. i think manny members thought oh gosh this is off our plate because this is not a fun issue to deal with until you read the opinion. you realize actually that's not the case. all they have decided is the substantial nexus issue and we still have a lot of issues that need to be sorted through. i was in local government not state legislature for very long time. so very sympathetic to local control. but we also have an interstate commerce issue here. the court mentioned there is concerned about small business. my concern as a representative in the house but also as a local government official, small businesses that are brick and mortar but also small businesses that are online. both of them need some attention to make sure that

they don't get squashed. one of the things i hope that we can address as we go forward is how to make sure that those small businesses can continue to flourish because small businesses are the engine of our american economy. i would just observe that the big money for states is really in the big actors online and to some extent this decision has actually solved that in terms of the major money coming in. but the person who is selling cross out of their living room is going to have real trouble complying with some of this. mr. pincus i know that you wrote one of the amicus briefs on this. in terms of small business exemptions, online sales tax collections, there's a lot of laws being discussed.

one that i know of, was introduced in this congress, would have granted exemption to businesses with revenue below a certain threshold unless it made those failed through electronic marketplace. however one of the questions i had about this, is the revenue qualifies for exemption but then i make a sale on my website i'm no longer protected as i understand that. and i would have to collect sales tax along with all the complications of potential audits that could imply. is that your understanding? and doesn't really solve the problem? >> i think there's a big problem trying to slice up the responsibilities between electronic marketplaces and tellers. the fact is most every seller today is using multiple channels to reach consumers. they may be on one or more websites, they could be on

ebay, fc, others. they probably have their own website. they may have other more local websites as well that they sell through. the problem was shifting the responsibility of triggering sales tax collection based on marketplace is that just really doesn't work given a multichannel world. >> one of the things i have been concerned about is not only existing small businesses but maybe incoming for lack of a better word, fledgling businesses that have -- haven't even launched and how they might be affected by the electronic marketplace issue. for example, you've got crowd funded businesses that are raising money to kickstart indigo go i think that probably fits the electronic marketplace definition, maybe not. how could we deal with the exemptions with the business that doesn't even have a product yet, that we might

expect to comply with tax requirements of 45 states. and further, at that point we have no idea what the revenue is going to be. so let's say it's $100,000 in south dakota. you don't know so you're going to have to collect all of that information anyhow. is that right? >> i think that's one of the problems with both the level of the threshold and when it kicks in. you know senator bramble indicated utah seems to have a good structure in terms of not imposing the responsibilities until the threshold is met. we can discuss whether that threshold is being sent separately but other states may not be doing the same thing. and it still requires the seller to keep track of all this information and be ready to go into a mode of collecting taxes as soon as the threshold is reached. which is one of the reasons why i think the supreme course -- court focused partially on the level of sales into estate but

also total burden on a small business. i think those are two critical questions that the constitution requires to be addressed that states are not addressing. we are just going to all adoptive threshold level business rule. >> if i made this is as complicated as it ever was. with tremendous is respect for each of the 50 states grappling with this it's really a multistate issue that needs to be resolved. the same problem we have been wrap dealing with here not only will the congress but states have been trying to address and failing successfully to do. i guess now that this is before us, the court has decided and we've got to remand, this could light a fire not only under congress but all the states who have an interest to try and sort through this complicated issue for the benefit of small businesses both brick-and- mortar and online. i think the chairman for

letting me go align -- a bit over. thank you mr. chairman thank you for holding this hearing and all of you for your time and expertise. it does mean a lot to us. many of you are old hats at this game. but don't, this is a sparsely attended hearing but the record is going to matter a lot to us. this is the last week before august recess. lack of present doesn't mean they're not interested, we are all keenly interested in this and your statements, transcript of this testimony is going to help us a lot. i came out of the state legislature in louisiana and i am ashamed to say our state i tried to fix it while i was there for two years, probably right lois on this list. i think we had the highest sales tax in the nation at close second now. it's a big problem, retailers are very concerned about this. appreciate all your testimony. let me go through as many questions as i can. mr. norquist, appreciate all your work.

the question i have can foreign governments use the supreme court's removal of physical standard justification to impose u.s. companies tax burden based on economic nexus like digital services tax? >> there already doing it they're already talking about it. and they are excited about it and we open the door. we can't even protect ourselves. california went after a guy name hiatt who invented something in nevada but maybe thought of it when he was in california. so they sent people to harass him. supreme court says is unconstitutional, illegal you can't send police in california to go after this guy here, here's this huge fine for having done it. nothing. california just sits there and laughs at them. so any state can the law be very reasonable not when is enough money on the table they won't be. they just sit there, the one after the guy to harass the supreme court said you can't do that, we don't care will pay

her bills we don't care what the fine was that you say we are supposed to pay. europeans will add even more contempt for the american court process that does the state of california. >> it's ironic since taxation without representation has been pointed out today one of the animating prince of wales sits started the revolution. >> it's habit-forming, politicians love it. >> one of the ideas simplification act would pervade state overreach in the area of business state income taxes. is there greater need now for bills like that in the wake of wayfarer? >> yes this is always been the target when i've argued with lobbyists who are theoretically working on the other side for the big retailers. there actually working for the spending interests and their position was we just want the money and there's no money in the sales tax. nothing worked well worth looking after looking over the cell stack at a corporate income taxes and personal income tax rate across our

state led in our state make a business deal in our state they want to. >> new hampshire is working on legislature to shield on sales tax from other states versus other good model? what other thing can sellers do to protect themselves from extreme clients burden. >> each state should protect its own small businesses by assisting -- insisting any judicial questions be settled by their state court not somebody else's state court. california state court had no imitations of what they were willing to do to some guy in nevada. why would they care, they don't. so it's important you have the judges here. the other part of no taxation without representation as we objected to the brits arresting, wanting to try our kaizen britain. they wanted to have trials in britain's not here. when they been abusive to americans. that case when you want to go

after small business in new hampshire you will go before new hampshire judge not a california judge or chicago cook county judge. that's not happening. that's a good start and making the case that states have the right to protect their citizens. >> mr. cleveland really appreciate the limited government initially after beer american government. i'm really interested in that. he said instead of states inspecting inevitable increase weapon is a should be wary of increased taxes meaning citizens have less to spend. if you point out many states have not understood this reality. the question i have is how many states have reduced taxes to try and attract new business to reside there, create new jobs and all the rest? if so do you have any data that demonstrates a result of those decisions?

can we show with empirical evidence if that's the right approach? >> my direct answer to the question as i don't have that with me i will check with our tax folks back home. back at the office to see if they do. i will tell you, in my experience every locality, you can't open a newspaper included here in this area, virginia is trying to lure amazon, marilyn is trying to lure apple and vice versa. people are trying to have the redskins moved the stadium somewhere else. we're trying to figure out a place to put a soccer team. they all propose reducing taxes in one way or another peer to highlight the notion that taxes really are a local issue. is not out there is not virtual. by the way louisiana fare to midland, 28th. >> we are a little better than i thought? >> thank you. i yelled back. chair recognizes the gentleman from texas. >> this is an important here in

a sloppy don't know where to start i know there's an array of very important witnesses here certainly one of the strongest advocates against any form of taxation at all. i think it's important to pull as a member of budget committee having to suffer through a republican budget that $2 trillion out of medicare and social security on the basis of having to fund a $2,000,000,000,000.01 percent benefit tax-cut there was propose and passed by this republican majority. i think that is worthy in the midst of talking about internet sales tax which i have been an ally of the chairman. i've respected brick-and- mortar. we're at a point we need to find solutions. before engage in that discussion, let me also say mr. chairman i just came back from the border and i want to affirm

i know my good friend mr. rutherford makes the point of law enforcement do as they're asked to do and work under the rules and guidelines and laws and non-policy since the snatching of children from their parents had no evidence and best practices nor did i have any evidence in law. wrongheaded, mean-spirited policies. when throughout the various detention centers and the place that was cited for reunification, went to the border all of these hard- working americans of which i've worked with because i'm a member of home and simmer security committee. my colleagues were there as she continues to advocate in this issue a thank you for her leadership. congresswoman they were working on the deck they were handed. weather was jails, field of

blankets, this is what they were given, the data not being able to have a grandmother raise a child from babyhood to be considered a peer. finally i reunification issue. we got a chance to see for hard- working individuals there. there without resources they were baffled peer that i can make the court deadline. and i insist that this committee even in these waning days hold a hearing and subject itself to this congress or resolution to deal with this catastrophe in this collapse. frankly i believe this is a disaster and a pox on our house. i wish these children these individuals who presented themselves of the border did not desire to have. i one of that on the record. because i think this is extremely important. let me also indicate to mr. white and sinners we've had legislation were we do 1 million exemption.

i think there is a reality to your situation that we need to address. i understand mr. pincus who i certainly support lawyers trying to clarify who we have not clarified. if you want to comment ebay indicated this would not affect them. so my question is going to go to you it's also going to go to kurt bramble. i'm from texas. is a big state. so long ago we are discussing, we are talking about before wayfarer we are talk about bricks and mortar. what kind of context the businesses had in the state. now we've gone beyond that with criteria. so i just ask the two of you, what kind of impact is on our states now in the state of texas as we stand. and then mr. pincus if you would just give us the purpose of your thinking on your lawsuit and i would simply join with republicans and democrats to try and resolve this in a way that addresses our small

businesses throughout the nation. our states that are dependent on sales tax. and as i said we are cutting so much out of the federal government, so what are we going to be able to pay our light bills with this tax bill that we haven't seen the impact from. but i really want to be able to help our small businesses. so mr. honorable past presidents entered a representative where delighted to have you here. i yield to you. >> texas but i can speak for utah what the impact is in utah. after the way for decision was handed down that didn't change our tax structure at all. because in utah, until we enacted legislation last week in a special session we didn't have a statutory framework remittance of sales tach out-of- state sellers. that was inherent in our compliance streamlined sales tax project or streamline sales

and use tax. agreement. the challenge to small businesses in utah we have heard today about women and minority and other businesses. those are being challenged. the bricks and mortar, people investing their life's earnings in a business are being put out of business because they can't compete fairly, due to a fabricated disparity of tax policy. we are see that in texas we are seeing that across the board. we hear about a small business in utah or in south dakota might be different than a small business in texas. closer million population in texas tens of millions but to that small business. doesn't matter how big the state is. it's government choosing winners and losers through tax policy. and what my bar partisan

advocacy, we want tax fairness we want all businesses to play by the same set of rules. they can compete effectively this was happening across the country and small businesses. some 80% of all employees in the nation work for small businesses is not the large businesses. it's a small businesses that are really the engine of the economy. and that's who we are elected to represent in my opinion. the chair recognizes the gentleman florida. >> very well. briefly mr. pincus. >> just a couple points i urged the congresswoman to look at the amicus briefs that ebay and 50 sellers filed at at sea and filed real-world burdens of those online very small businesses from having to comply with multiple tax

regimes. i think in this level playing field argument it's important to realize that there are advantages and disadvantages to each. brick-and-mortar business has customers that walk in they see the merchandise they can buy it there if it needs service they can get the merchandise there. most important there's no shipping charge. as an online business as a shipping charge which is a real financial cost that the other doesn't. the online business if it's doing business in multiple states it always has a compliant cost for the sales taxes does brick-and-mortar. but the online business in this world is going to have compensable he compliance costs associated with 30 or 40 different state tax regimes is a much higher compliance costs. see you can't just say entire difference here is the tax collection. it's not. shipping, compliance costs there are lots of different pluses and minuses on each.

i think the problem here is a critical question one a state decides to impose a burden on an out-of-state seller that out- of-state seller have any real protection under the constitution. can i make the constitution protection real by going to his court to say this burden is too much under the current regime will we can challenge those things is after you collect the taxes. small businesses can't do that they need another way. chair recognizes the gentleman from florida. thank you mr. chairman i want to thank the panel for being here today. mr. norquist i struggle with you at length in the past about taxation issues. and i know that the physical presence rule is kind of at the heart of no regulation without

representation principle that you talk about. but i like to ask you mr. bramble and yorty touched on it a little bit i believe. correct me if i'm wrong but i think from a previous discussion one of the principles that you also profess is that government should not pick winners and losers among business. through taxation policy. is that correct? interpretation of your position? >> you would not want to use tax policy to punish one product or industry over another or subsidize one product or business over another. and congress and state legislators would get winter off if they quit doing that. >> it seems like, to go to the core is seems to be a fairness issue.

you know to me. anyway. when i hear the conversation there is concern about the launching of these new businesses and the impact that this would have on those who are trying to grow their business yet we are not hearing a lot about the existing brick- and-mortar buildings -- buildings -- businesses that are struggling to compete. against this. my question is do you see this collection online as unfair, number one and number two do you see it as a new tax?

>> if you have to change the law to get more money it's a new tax. you asked about fairness. i spoke with a republican governor who had legislators i'm sorry retail federation people came by and said this is terribly unfair to us. he said will introduce a bill, how much money are we missing? you're not taxing interstate sales. will reduce the sales tax on everyone in our state and will tax all the other guys. complete equity. they walked out and never came back because the issue wasn't fairness. issue was behind them where the city mayor saying if you don't go get us more money we're going to raise your taxes to the property taxes. so they were put out front to make the case. when they came back and said fairness is not the goal money was the goal fairness is the

argument. fairness when people say here's fairness and how you can fairness always raise taxes fairness. any state can get morphine and -- fairness by reducing their sales taxes. lots of states have lower sales taxes than others in lower income taxes. congressman johnson from louisiana asked about how this works. how money walks.com is a website to go to. also the high tax states and how many people leave each year and how much income leads each year in lower tax states and how much money and people moved to those. so is not only good policy to have tax competition but europe wants to get us into a tax cartel. they consider our 21% corporate rate to be unfair. they loved it when we were at the stupa 35 and they were 10 point thunderous and could outcompete us in the world. now we are at 21 they want to yell foul and have tax

harmonization. fairness in the usa call tax harmonization. europe they call it fairness here. always up, never down. >> i do question whether the expansion of collection of attacks that already exists, sales tax that is stared across all states i believe. it's an interpretation of the application that would change and create an expense how is that a new sales tax? >> many states have sales and use taxes you can always in your state collect sales and use tax from your, from one's citizens. the governors and state legislatures don't like to do that because it looks tacky to follow the ups truck around and hit people on the head and takes the money. they'd rather have that take place someplace else in another state with someplace else. those taxes could be raised in the state by any politician

that wanted it to. they want somebody else, they want the hessians to do what they do want to do it themselves. >> thank you mr. bramble could you respond to that very quickly. >> i appreciate the question. first of all, the tax compliant every state has a sales tax when you touched on it the burden on the purchaser and currently every individual citizen millions of citizens are required today to track individual purchases, accumulate those and volunteer report that with their income taxes. that's true across all states that have sales tax. so compliance burden we could talk about millions of individuals who could be required to comply today versus have an estate compliant. the idea of having a business collect tax that is inherent in our tax system. we have employee withholding taxes, why? rather than have the employee voluntarily pay the taxes when it comes to because government

gets the money at the time of the paycheck. is withheld at the time. sales taxes are collected at the time of purchase because of that is some tax policy. broadening the base flow and the rate is sound tax policy. one final point i got to make. a colleague in south dakota has a little adage that he regularly repeats. if you bought it, a truck brought it. it doesn't matter whether your internet seller or your brick- and-mortar store. as a cpa i will tell you a line item in every income statement revenue and expenses is shipping. and shipping costs are inherent. if you carry inventory in your business you paid shipping to get it there. whether it's brick-and-mortar or ups delivers it to your doorstep. there are shipping costs that are assessed on virtually every delivery of every product. >> chair recognizes the gentleman from washington. >> thank you mr. chairman i

just wanted to say i appreciate my colleague from texas remarks on trip to the border. howard asked mr. chairman that we do have an open hearing on the issue of family separation. the department of justice now saying 463 parents were deported already. which was a huge jump from the hundred and 80 that we were told last week in a briefing were deported. so it is a travesty, government sanctioned violence and i really hope that we have a full hearing in this committee. since our state has no income tax, my state of washington, it is extremely vulnerable. nearly 52% in a general revenue comes from retail sales and use tax. so as a result the shift to online shopping has meant that we are no longer collecting

essential dollars that are needed for things like public education. and at the same time our local brick-and-mortar businesses are telling us they are ending up with huge competitive disadvantage to out-of-state retailers. the reality is that states how to address this because we had no other option. we needed to address the very real changes in our economy and shift to online shopping and technology that change the economy. and that's why washington state last year decided it had to act and we enacted a law that rick wires online sellers delivering product to our state to pay our sales tax. absolutely in line with what this sweet supreme court justice cited in wayfarer. and today washington state expects to bring in $432 million in its first year to pay for are very essential services. so those start by going to mr. norquist. because i'm very confused by your statement that washington state is one of the state the

collects retroactively. that's simply not true. but i wanted to give you a chance to defend that remark. >> can you turn your microphone on? >>.foods inc. department of revenue washington 2016 i can read the sites retroactively taxing interstate not sales-tax different issues. >> exactly. so let me just say. mr. norquist you said in response to the chairman's question about retroactivity in this issue. you said washington state. i want to correct the record and make it very clear, mr. norquist is my tank time reclaiming my time. thank you very much. i want to stay for the record that are washington state law does not allow for retroactive

collection on this issue. i want to make it clear i'm not asking for your comment. thank you very much. i am reclaiming my time madame chairwoman. please instruct the witnesses there not to answer question unless they are asked. this is my time i'd like to have an additional amount of time allocated to me. all right, moving on. senator bramble. >> hang on a second, the chair did not really appear but yes the chair will graciously award additional time. >> mr. bramble, several of the witnesses today have argued that wayfarer may create a patchwork of uneven rolls across the country. and i'm just curious particularly in your role both as a state senator and within csl, can you talk about your views on that issue.

[ captioner transitioning ] for the testimony, but in the state of utah, there are over

600 tax jurisdictions. every business that has physical profit -- presence in the state operates beginning january 1 was so into the state remotely will make tax commission, and those revenues will be allocated to the various political subdivisions. not all states, i guess you could say colorado, the vast majority of states, have 10 or 12,000 textures the six, and 10 or 12 audits >> in our state we have strong bipartisan support for our legislation. we work closely with republicans who understand we are trying to protect our brick- and-mortar republicans. let me ask you another question, what protections in general exist to ensure that state remote sales tax laws don't harm those small sellers, what

is the economic threshold for states to require remote sellers to collect taxes on sales within the state? >> starting from a 6000 view, the commerce law still in -- exists. what wayfarer decided was that physical presence was no longer a criteria for establishing an undue burden. states like utah, we establish a small exception. many of the states that are part of the sales project have protections for audits for compliance, standard eyed -- standardized is a -- stipulations. states will be looking for ways to streamline, simplify, and to make ease of compliance.

right now, compliance with our sales tax laws, washington and utah, you don't have a state income tax and utah -- >> you are now approaching 2 minutes on this. i'll -- let you wrap up the sentence. >> and utah, it is easier to comply because you have a tax return that you remit on on a state that has individual income tax. post wayfarer, that will solve that problem. >> i now yield 5 minutes to myself. first of all, before i get into my questions, i do feel compelled to express my incredible disappointment in the derogatory and inflammatory comments from my colleague, from georgia, regarding the u.s. supreme court. while there may not be many members listening, this is a very important issue that is going to affect every single state in this country, every small business, large business, and every consumer.

i think we deserve to be focused on this and not distracted in that way. most of the states, including my home state, are actively involved in the multistate tax commission, the streamlined sales tax board, the federal tax administrators, all working together to come to some sort of agreement around many uniformed state bar -- law. the progress over that in the past decade, i wondered if there was from your perspective , mr. cleveland, some hope and progress in that, or is congressional action necessary and prudent at this point in time? >> thank you madam chair. there is always hope. i was part of the streamlined sales tax process for a bunch of years in another capacity. there was always hope that something would get decided. that said, most of the evidence ways that it is time for congress to step in, now that

we are in a world where things are fuzzy. if i may add, my good friend is a great guy. but, contacts -- context and facts matter. when pointing out a policy, it is pretty important to understand the context. he knows, he was on the board. he was the final say of these principles. that was all within the context of federalism. there is not a chance that any policy has ever been passed suit this is to suggest branding a tax form on people, who have never defended themselves against the government, has ever passed and ever will. >> i have never been a big fan with the internet sales tax, with 25 states out of gate with these taxes. it is clear we need to understand what the framework is. let me go to mr. northwest. do you think the appropriate action from congress should be

a reaching bill, or should we try to target at a minimum prohibiting retroactive activity out of gate? >> retroactive activity is the immediate danger. any state can charge, we charge you for x amount and send bills out to people. you have seen the tax on chick- fil-a in various cities like chicago, they can pull the stunt there. any number of products and businesses could be gone, based on who is on what board of directors, a tremendous political threat to go after people with long threats of retroactivity. taking that off the table would be extremely helpful delaying implementation until you can get something done i think would be extremely helpful. the other questions of protecting against corporate income taxes being sent across state lines individual income

taxes sent across state lines, those are very important. the other team doesn't care about sales taxes. it is all about corporate and individual income taxes. that is where the money is. there just isn't much cash worth fighting for on sales tax. >> thank you very much. with that, that concludes my questions. i recognize my colleague from rhode island for 5 minutes >> thank you madam chair. i want to start with witnesses tonight. witnesses have testified that remote sales tax collections will not be easily implemented across different text or conditions, especially small businesses. is a sales tax compliance software available to determine the correct rate in all states? >> i am in negotiations right now with three different companies. it is going to come down to basically how much it deals with our retailers.

the answer is and is under $35,000. i will be able to collect sales tax, one of the stores we have is in georgia. in georgia in atlanta, two houses that live side-by-side collect different sales tax. we do that on a brick-and- mortar sampling, because we have stores in georgia. the software will allow me to go directly into the zip code, the state, the zip code, and the actual packs of the physical building itself, and we will know immediately what sales tax to collect. we will be able to collect it. at the end, they will file the returns for us, and they will be the ones to step up and defend us if there is any kind of image -- issue. >> are there enough competitors and that state to offer different options, and to help drive down the prices for what you just described? >> there are three major buyers right now. my guess is if congress doesn't put a huge moratorium on this,

there will be 20 of them in a couple of months. there is nothing drives -- that drives more business, than if the businesses out there. all of their companies out there now, their main business has been brick-and-mortar companies. they now see an opportunity to now be on the internet. >> my response relates to what you just said, as written testimony, without a moratorium, this is all across the country, particularly smaller ones that use the internet to help reach wider audiences, there is daunting litigation risks and tax compliance responsibilities. >> i would disagree with that. between two and three weeks to implement, and they want to do what is called the nexus study, which will go in and look at my sales for the past 12 months. the senator said they are on a 90 day basis.

these guys want to go back a year. they will break down all of my products. they will find out what is taxable in every state and district, so it closes not in one district, but it is in another, we will know exactly what the taxes are, and this is not an obligation. it seems like there is a freight charge. >> the bottom line here is that the freight number cost eight or 9%. the answer very simply is that our customers, whether they are physically in georgia or florida, or anywhere else, they are customers. that is what they are. it is not a customer because they live in that state or here. they all expect to get the best deal that is possible to get, and it really needs to be that the retailers that can survive into the best job they can, and offer the best solution for a price standpoint, as well as a product standpoint, as well as customer service. that's the winners. >> if you consider with the

decision was made in 1992, about 2% of the country had access to the internet, you would think the improvements in technology would now make it significantly easier to attract sales across stars distance -- jurisdictions, an increase, sailors to collect taxes. >> i went out there is a person in this room right now doesn't -- who doesn't have a smart phone. >> part of the way fair solution, any solution to easier would be a tax increase. if a retailer does not withhold the sales tax at the point of sale, the consumer still owes the taxes and state to a sales tax? >> absolutely, that has never changed. the liability is there. if the taxes there, it is a question of who is collecting it. it is interesting to listen to this, because so many folks for years are asking congress to act to argued against it for years. i do find myself saying

perhaps, but there is no emergency now, because the court has done work for you. >> is there any support that you are aware of, or the argument of collection of taxes that are already owed constitutes a new tax? >> no, not economic policy, illegal, or anything like that. >> according to a 2017 report by the gao, third-party merchants collected taxes on less than a third of all sales in 2017, do you think that is an accurate estimate? >> yes. >> are you aware of plants of amazon or other platforms that don't currently collect taxes on behalf of third-party merchants to do so? >> i am sure they are all violating -- collecting taxes. >> i want to talk about an article titled amazon tax

ruling, disrupting the disruptors. that letter is from the streamlined sales tax governing board, and the careless should of local governments, national association counties, national league of cities, the international city and county management association, and governor finance office associations be made part of the record. >> without objection. >> i think we are wrapping up. that concludes today's hearing, thank you so much to each of our distinguished members of the panel. without objection, all members have five legislative days to submit additional written questions for the witness, or additional materials for the record. this hearing is adjourned.

>> supreme court nominee brett kavanaugh continues to meet with senators on capitol hill. follow the confirmation process on c-span, leading up to the senate confirmation hearings and the vote. watch live on c-span. watch anytime on c-span.org. or listen with that free c-span radio app. >> here on c-span this morning, "washington journal" is next, live with your phone calls and a look at today's headlines. that is followed by "newsmakers" at 10:00 eastern with democratic senator ben cardin of maryland. later, secretary of state mike pompeo testifies about u.s. policy towards russia and north korea. coming up on today's "washington journal," a look at