Copyright 2000 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
May 16, 2000, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2440 words
HEADLINE:
TESTIMONY May 16, 2000 LES LEDGER OWNER LEDGER FURNITURE HOUSE
WAYS AND MEANS OVERSIGHT INTERNET TAXES
BODY:
May
16, 2000 Statement of Les Ledger Owner, Ledger Furniture, Copperas Cove, Texas
On behalf of the National Retail Federation before the Oversight Subcommittee
Committee on Ways and Means Good afternoon, Mr. Chairman. My name is Les Ledger.
I am the owner/operator of Ledger Furniture in Copperas Cove, Texas, a small
mainstreet furniture store first opened by my parents in 1950. Today, we have 14
employees (if everyone shows up) with an annual sales volume of around $1.8
million. I am testifying today on behalf of the National Retail Federation, the
world's largest retail trade association, representing 1.4 million retail
establishments that employ more than 22 million Americans. In addition, I am a
past president of the Texas Retailers Association and the International Home
Furnishings Association. The growth of consumer shopping on the Internet is
expanding at a rapid rate. In 1999, 40 million Americans shopped online, up from
17 million in 1998. The total of goods and services traded on the Internet is
expected to reach $300 billion by 2002. The Internet provides retailers the
opportunity to reach millions of people in markets never before imagined and
provides consumers instant access to goods, products and services from around
the world. As this new medium evolves, so to should government policy to ensure
that no one is left behind, and that everyone competes on a level playing field.
In 1998, Congress enacted a moratorium on any "new" Internet
taxes until October 21, 2001, while creating a special advisory
commission, the Advisory Commission on Electronic Commerce (ACEC), to address a
host of Internet and remote commerce tax issues in the interim.
Unfortunately, most of this debate has ignored a broader inequity that currently
exists in the state sales and use tax systems that
disadvantages mainstreet retailers and low-income consumers. Both the ACEC, as
well legislation passed by the House of Representatives last week, failed to
address the broader state sales and use tax inequity that
exists today. Not only did the ACEC findings lack the super-majority consensus
mandated by Congress for approval of its recommendations, it did not include a
"mainstreet" retail representative, as was dictated in the original statutory
language. Like many others, retailers oppose new taxes on the
Internet, including "bit" and/or "access" taxes, and even the
existing telephone "excise" tax. However, the retail industry
feels that Congress must also address the broader more complicated state sales
and use tax inequity as well. Existing sales and use
tax law creates an "unlevel playing field" among retailers.
Presently, 45 states and the District of Columbia impose sales and use
taxes on purchases of tangible goods. Under current law,
retailers are required by the states to collect these taxes
from a customer and immediately remit this sales tax to the
state. However, based on two Supreme Court rulings, some out-of-state retailers
(those without a physical presence in the purchaser's state) are not required to
collect and remit a state's sales and use tax. In this case,
the consumer still has the legal responsibility to pay a "use"
tax directly to his or her own state. Since many Internet sites
and remote sellers aren't located in a purchaser's state, they do not have to
collect these taxes. Exempting some out-of-state sellers from
having to collect sales and use taxes creates an "unlevel
playing field" among retailers. Refusing to address the existing state sales and
use tax inequity in the same context as other Internet
tax issues ensures that an unlevel tax playing
field will continue to exist. If the current inequity is not addressed soon,
resolution of this issue could be deferred for years, with the result being
continued erosion of the state tax base and continued
discriminatory tax treatment that disadvantages store-front
retailers and low-income consumers. Retailers only want a "level playing field"
- where a product is taxed (or not taxed) the same regardless of how it is
ordered or delivered. All retailers, regardless of the channel or channels in
which they do business, should have the same collection responsibilities - no
matter if the transaction is made in a traditional store, through a traditional
store's own website, by a strictly e-commerce retailer or through any other type
of remote seller. Government tax policy shouldn't determine the
winners and losers. In the retail industry, where a 1-2% net profit margin is
standard, a 6-8% tax differential (the average state sales and
use tax rate) is a significant pricing advantage. Why would
someone buy something in a store when they could pop onto the Internet and buy
it for 8% less? Consumers should pick winners and losers based on factors which
they decide are important such as selection, service, convenience, etc.
Tax policy shouldn't provide one retailer a pricing advantage
over another. A "level playing" field does not mean a new tax -
consumers are already required to pay "use" taxes. Under
current law, if sales tax is not paid on an out-of-state
purchase at the time of sale, the purchaser is required by state law to pay a
comparable "use" tax to his or her state, usually when they
file their state income tax return. Historically, states have
not enforced collection of "use" taxes, but they do exist.
States and local government services will suffer as their revenue base
decreases. On average, sales and use taxes account for
approximately 40% of a state's total tax revenue (more than
$150 billion in 1998). With projections of on-line sales estimated to exceed
$300 billion by 2002, state and local governments could lose as much as $20
billion in uncollected sales taxes. Sales tax
revenue is used to fund basic state and local governmental services including
police and fire protection, school funding, etc. An "unlevel playing field"
disproportionately hurts the poor. In 1998, 55 million people had access to the
Internet. According to a recent Commerce Department study, wealthy individuals
are 20 times more likely to have Internet access. With an average Internet
household income of $70,000, an "unlevel tax playing field"
would benefit those with higher levels of income and shift the
tax burden to lower income individuals who can only buy locally
(and thus pay sales tax at the sales counter). My conclusions
are drawn from personal experience in dealing with a business that is not
required to collect sales taxes and that currently operates
only 7 miles from my store. Our store is located next to Fort Hood, Texas. The
Army/Air Force Exchange operates a 17,000 square foot furniture store at its PX.
We can see the number of people who leave our store and buy from a facility that
is not required to collect sales tax. The reason they leave is
because my price will always be 8.25 % higher, because I am required by the
state of Texas to collect and remit its sales tax. I don't have
to wait to see the effect that tax- free purchasing has on my
business. I already know how it feels to compete with an entity that has a
government imposed tax subsidy. As consumers purchases shift to
the Internet where some sales are exempted from sales and use
tax obligations, the impact on my business and my community
will be significant. Last year alone, I collected $149,000 in sales
taxes that funded schools and police and fire protection
efforts in my community. In addition, I paid $3 1,000 in payroll and social
security taxes and $5 1,000 in local property
taxes. If my sales suffer as a result of this
tax inequity, I will be forced to lay off employees and the
revenues I collect and pay to the state and federal governments will diminish
significantly. Almost 5 1 % of Texas' revenues come from sales
tax collections. Should this revenue stream decrease
significantly, Texas will have to seek other sources of revenue. Although Texas
doesn't currently have a state income tax, it may be forced to
move in that direction if tax-free sales continue on the
Internet. In an interesting twist, federal revenues would actually decrease
under this scenario if Texans began deducting their newly-imposed state income
taxes from their Federal income taxes.
Congress has a responsibility to my business, my employees, and my community to
eliminate this existing tax inequity. A level
tax playing field is fair and it is practical. As a retailer,
my bottom line and, therefore, the survival of my store, is affected by numerous
factors beyond my control including the economy, the weather, and numerous
federal and local government regulations. While I've learned to live with many
of these, I cannot and should not be expected to compete at an 8%
tax pricing disadvantage compared to my Internet and remote
commerce counterparts. Congress can act to address this disparity. It can level
the sales tax playing field by giving States the authority to
collect sales and use taxes from out-of-state sellers once the
States have adequately simplified their sales tax structures.
LOAD-DATE: May 22, 2000, Monday
