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Search Terms: internet W/10 sales W/10 tax, House or Senate or Joint

Document 7 of 142.

June 29, 2000, Thursday

SECTION: PREPARED TESTIMONY

LENGTH: 1532 words

HEADLINE: PREPARED TESTIMONY OF MR. ROBERT BENHAM OWNER, BALLIET'S ON BEHALF OF THE NATIONAL RETAIL FEDERATION

BEFORE THE HOUSE COMMITTEE ON THE JUDICIARY SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

BODY:
Good morning, Mr. Chairman. My name is Bob Benham. I am the owner and operator of Balliet's, a women's specialty store in Oklahoma City, Oklahoma. In 1999, Balliet's sales were nearly $6,000,000, with a net profit of 1.9%, the stores best since the banking bust and oil price collapse of the mid-1980's. Balliet's has been in business since 1936 and employs 33 wonderful people, for whom we provide health care and other employee benefits. Our payroll and benefit cost for 1999 was $1,230,000. We collected $483,000 in sales taxes and paid $11,200 in property taxes. Balliet's is a "bricks and clicks" retailer, with a 14,200 square foot store and a 50-page web site (www.balliets.com). We have embraced Internet technology while remaining firmly grounded in the fundamental skills of retailing.

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. I am immediate past chairman of the Independent Stores Board of Directors of the National Retail Federation. I have been in retailing since 1966 obtaining experience with May Department Stores Company and Federated Department Stores Company. I was president and CEO of Halls Merchandising Inc. for 15 years before my family bought Balliet's in 1991. 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 information, products and services from around the world. As this new medium evolves, so too 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 as recent legislation passed by the House of Representatives failed to address the broader state sales and use tax inequity that exists today. Not only did the ACEC findings lack the supermajority 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 other taxes, 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 storefront retailers and low-income consumers.

Retailers 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 strict 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 log onto the Internet and buy it for 8% less? Consumers should pick winners and losers based on factors that 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.

State 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 tax. Sales tax revenue is used to fund basic state and local governmental services including police and fire protection, school funding, and road construction and maintenance.

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, affluent 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 buy only locally (and thus pay sales tax at the sales counter).

Opponents of sales tax equity argue that collecting sales and use taxes will retard the growth of the Internet. Considering the recent rate of growth of the Internet, it's clear that Internet retailers need no special tax advantage. Those companies simply seek to retain an unfair competitive advantage.

Why do dot coms fail? Some for the same reasons that main street retailers fail: poorly conceived strategies, inept management, flawed execution.

Tax equity opponents also maintain that the Internet is "the driving force of the new economy." Wrong. The driving force of the new economy is the American free enterprise system, just as it has always been. The net is just the latest manifestation of American innovation and competitive drive. Retail businesses of all types - Internet, catalog, storefront - should succeed or fail in an open, fair competition on the field of combat, not because Congress chooses winners and losers.

Mainstreet retailers are part of the fabric of our communities, sponsoring Little League teams, buying tables at local charity events, giving door prizes to non-profits, holding fashion shows for worthy organizations. In 1999 alone, Balliet's, at our cost, produced 5 fashion shows that helped local charities raise over $200,000. In addition, we donated over $7,000 in cash and merchandise to various worthy causes. That's nearly 10% of our net profit.

Mainstreet retailers are angry about the unfair competitive advantage given to catalog and Internet retailers. We are concerned about the growing erosion of the sales tax base in the communities where we live, work and raise our families. It's time for Congress to restore basic tax fairness to all retailers.

In summary, we ask for no new taxes on the Internet, tax equity for all forms of retail trade, and tax simplification. Congress has a responsibility to my business, my employees and my community to eliminate this existing tax inequity.

On behalf of the National Retail Federation and small and independent retailers who believe in the American dream of equality under the law, open and fair competition and the right to succeed or fail on our own merits, we thank you Mr. Chairman.

END

LOAD-DATE: June 30, 2000

Document 7 of 142.


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