LEXIS-NEXIS® Congressional Universe-Document

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

Document 16 of 142.

June 29, 2000, Thursday

SECTION: PREPARED TESTIMONY

LENGTH: 1053 words

HEADLINE: PREPARED STATEMENT OF TOM STEMBERG CEO STAPLES, FRAMINGHAM, MASSACHUSETTS

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

SUBJECT - INTERNET TAXATION

BODY:
INTRODUCTION

Mr. Chairman and Members of the Committee, my name is Tom Stemberg. I am the CEO of Staples and I am honored to be here today to testify on behalf of Staples, the office supplies superstore, and our e-commerce business Staples.com.

I thank you Mr. Chairman for holding this hearing to consider the viewpoint and concerns of retailers who were not represented on the Advisory Commission on Electronic Commerce, which submitted recommendations to Congress on the issue of Internet taxation. Let me say at the outset that Staples supports the goals of states and most of our nation's Governors to develop a system of taxation that provides uniformity, simplicity and fairness to all retailers, regardless of whether transactions occur in stores or on the Internet. We are very concerned, however, that the current moratorium and the extension of the moratorium passed by the House last month will serve to make the Internet a very unfair market from a taxation perspective.

As a first priority, I would like to clear up a common misconception about taxes on the Internet. Despite the recent assertions of some Members of Congress and the media, the Internet is not tax-free. The Internet tax moratorium that was extended by the House last month does not preclude the imposition and collection of state and local sales and use taxes. The Internet Tax Freedom Act, contrary to its misleading title, merely established a moratorium on the ability of state and local governments to impose new taxes on Internet services or electronic commerce. Nevertheless, reputable media sources such as National Journal in its May 13 th issue proclaimed in a headline "House Extends Ban on Internet Taxes" and NBC Today Show news announced that the Internet would be tax-free for five more years. Local and Internet retailers, so-called "brick and click" retailers, are still required to assess and collect sales taxes on Internet purchases when the purchased items are shipped to a state where the retailer has a store or other facility. Consequently, local merchants that sell on the Internet must collect sales taxes in states where they have physical presence, while those retailers who sell only on the Internet, largely escape state sales taxation.

This "physical presence" test was reconfirmed in a 1992 Supreme Court decision Quill v. North Dakota. Ironically, Staples has since acquired Quill, an office supplies direct marketer. We wish that we could simply assert that the litigant was wrong, but, unfortunately, such an assertion would not change the state of the law.

To explain our concerns, let me offer an example of how Internet taxation affects brick and click companies: If a Staples Internet purchaser lives in Chairman Gekas' home state of Pennsylvania, Staples is required to charge the purchaser 6% state and local sales taxes for any Internet purchase because Staples has a "physical presence" in Pennsylvania. If you buy these same items from a so-called "pure-play" Internet retailer (one that has no retail stores or facilities in any states or just one or two states), you are not charged sales tax because the Internet retailer does not have physical presence in Pennsylvania. This effectively means that Pennsylvania consumers are getting up to a 6% discount from Internet retailers that do not charge sales tax. This also means that companies that have made investments in Pennsylvania, in both facilities and a workforce, are being penalized on their Internet sales to Pennsylvania residents for having made those investments.

Staples has made investments in stores or distribution centers in many states - 44 states as of today. This means that most consumers are paying sales taxes (if they live in a state that has a sales tax) when they purchase from Staples on the Internet. When one considers where to buy thousand-dollar plus computer equipment, fax machines, office furniture or other high value merchandise, this 4-8% "discount" is likely to make a difference in a person's purchasing decision.

Of course, even if one decides to purchase goods from a pure-play Internet retailer that does not charge sales tax because it does not have physical presence in the state of the purchaser, that state probably applies a use tax which is required to be remitted to the state in lieu of a sales tax on goods where sales tax has not been collected. However, a number of Governors have testified before Congress about the significant difficulties they face in enforcing this use tax, thus these Internet goods remain virtually sales-tax free. Most states simply do not have the desire or the resources to conduct home inspections to determine if goods have been purchased without payment of a sales and use tax.

If Congress moves to extend the current moratorium, as the House did last month, we believe that the only fair and equitable solution in the short-term is to expand the moratorium to include all existing sales and use taxes on Internet transactions so that the original Internet Tax Freedom Act truly lives up to its name. Extending the Internet tax moratorium without addressing this taxation inequity will perpetuate an unfair advantage to Internet pure-play retailers. We simply ask for a level playing field. Otherwise, retailers which sell locally and on the Internet will continue to be at a significant competitive disadvantage.

As I said at the beginning of my testimony, Staples certainly understands and supports the position of state and local officials that the sales tax base must be protected to ensure adequate funding for state and local government. We cannot, however, be subsidizing our Internet competitors who compete for the same customers that we do in a given state simply because we have invested in facilities and people in that state. The extension of the Internet Tax Freedom Act moratorium, without the revisions we have suggested, will result in the Congress aiding and abetting efforts to circumvent nexus or physical presence through the creation of questionable corporate tax mechanisms for the sole purpose of avoiding sales tax on Internet sales. Such a result would not only be poor tax policy, it would create chaos as the Internet would simply be unfair to those who have already made substantial investments in states.

END

LOAD-DATE: July 6, 2000

Document 16 of 142.


Search Terms: internet W/10 sales W/10 tax, House or Senate or Joint
To narrow your search, please enter a word or phrase: