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Document 53 of 142.

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May 16, 2000, Tuesday

SECTION: PREPARED TESTIMONY

LENGTH: 1471 words

HEADLINE: PREPARED TESTIMONY OF THE INTERNATIONAL COUNCIL OF SHOPPING CENTERS

BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON OVERSIGHT

SUBJECT - INTERNET TAX ISSUES

BODY:
The International Council of Shopping Centers (ICSC) appreciates this opportunity to present its views to the Oversight Subcommittee of the House Ways and Means Committee on the need to apply existing state sales and use taxes to electronic commerce.

ICSC is the global trade association of the shopping center industry. Its 40,000 members in the United States, Canada and more than 70 other countries around the world include shopping center owners, developers, managers, investors, lenders, retailers and other professionals. The shopping center industry contributes significantly to the U.S. economy. In 1999, shopping centers in the U.S. generated over $1.2 trillion in retail sales and over $47 billion in state sales tax revenue, and employed over 11 million people.

Simply stated, ICSC believes that all goods, regardless if they are purchased over the Internet, via catalog or in traditional retail stores, should be subject to the same state and local tax collection requirements. One form of commerce should not receive preferential tax treatment over another. Unfortunately, existing tax law is structured to favor electronic commerce over sales made in local retail stores. Contrary to popular belief, it is not the existing moratorium on Internet taxes that precludes states from requiring out-of-state retailers to collect sales and use taxes on their behalf. Instead, it is a 1992 Supreme Court case, Quill v. North Dakota, that held that remote merchants are not required to collect sales and use taxes for states in which they do not have substantial physical presence or "nexus". The moratorium - which expires in October 2001 - applies only to access charges and new, multiple and discriminatory taxes on electronic commerce.

ICSC does not support the enactment or implementation of Internet access charges, or new, multiple or discriminatory taxes on electronic commerce. Instead, we believe that existing sales and use taxes should be collected uniformly on all types of retail sales. The taxes which states should be able to require remote sellers to collect are not new taxes. Instead, they are existing use taxes which buyers are currently obligated to remit to their state and local governments. However, as a practical matter, most individuals are either unaware of their tax obligations, or simply do not bother to comply.

ICSC supports electronic commerce and believes it should be fostered. In fact, many traditional brick-and-mortar retailers are incorporating Internet commerce into their businesses in order to obtain new customers and better serve existing ones. However, as a matter of fairness and sound tax policy, Internet-based retailers should not receive a competitive advantage over traditional brick-and-mortar merchants simply because electronic commerce is a new and growing form of transacting business.

Although the extent to which Internet sales will displace traditional retail sales is unknown at this time, the competitive tax advantage that Internet-based retailers currently enjoy could negatively affect many local retailers, shopping centers and their communities in the near future. Not only would traditional retailers sell fewer goods, but their employees would suffer from reduced working hours, wages or layoffs.In addition, state and local governments would receive less sales tax revenues that go to provide essential public services (i.e., education, police and fire protection, road repairs). Governments that rely heavily on sales tax revenues would either have to cut back on such services or increase other taxes on local businesses and residents, such as property and income taxes. If governments decide to increase sales tax rates to make up for lost revenues, lower-income individuals would have to pay an even higher disproportionate share of their income on sales taxes since they are less likely to own computers and purchase products on-line.

It is this reason why many state and local governmental organizations support a level playing field for all types of retail sales. These government groups include the National Governors Association, Council of State Governments, National Conference of State Legislators, U.S. Conference of Mayors, National Association of Counties, National League of Cities and International City and County Management Association.

Our critics assert that electronic commerce is a new and growing industry and, therefore, should not be saddled with "old world" sales tax collection requirements. They say we should not kill the goose that lays the golden egg. Our response is that, while electronic commerce is a growing and important part of our economy, subjecting it to the same sales tax collection requirements that traditional merchants have been subject to for decades would not harm its growth or vitality. Electronic commerce will continue to flourish, regardless of whether or not sales and use taxes are imposed on it.

These critics also claim that forcing Internet retailers to collect sales and use taxes for the thousands of state and local taxing jurisdictions across the country would be too burdensome on electronic commerce and cannot be done. We agree that all businesses, especially small businesses, should not be overburdened by sales tax collection requirements and that state and local governments need to simplify their sales tax systems. However, inexpensive software exists today that can assist electronic retailers in determining how much sales and use taxes needs to be collected on their out-of-state sales.

Another argument made by our opponents is that states and localities are flush with cash and do not need to tax electronic commerce. While it is true that most state and local governments are currently enjoying budget surpluses, there is no guarantee that this economic prosperity will last indefinitely. (In fact, Kentucky and Tennessee are currently experiencing budget deficits. Their Governors strongly believe that collection of their states' use taxes would be extremely beneficial to their economies.) If and when our economy softens, many state and local governments, as well as traditional merchants, could suffer significant financial harm, especially if electronic commerce continues to displace traditional sales tax bases.

ICSC is disappointed that the Advisory Commission on Electronic Commerce failed to reach agreement that all retailers should be on a level playing field with regard to state and local sales taxes. Even more so, we are disappointed at the process of the Commission itself. To begin with, even though a traditional local retailer was supposed to be represented on the Commission, no such individual was appointed.

Second, the Commission sent a report to Congress that was agreed to by only 10 out of 19 Commissioners, clearly short of the 13 votes that was required under the Internet Tax Freedom Act. Third and most importantly, the majority report fails to address the level playing field issue.

Instead, it recommends (although not through an official "finding" or recommendation") that Congress permanently extend the moratorium on Internet access charges, extend for five years the moratorium on multiple and discriminatory sales taxes, repeal the 3-percent telecommunications excise tax, establish special "nexus" carve-outs for Internet-based businesses, and create sales tax exemptions (such as those on "digitized" goods and their "non-digitized" counterparts) that would directly benefit the "business caucus" members of the Commission.

ICSC does not oppose the actual substance of the current moratorium (e.g. its ban on Internet access charges and new and discriminatory taxes). However, we are deeply concerned that the longer the moratorium is extended, the more difficult it will be for Congress to level the playing field for all retailers with regard to existing sales and use taxes. Therefore, we oppose legislation, such as the Internet Nondiscrimination Act (H.R. 3709), that would extend the moratorium for five years but not subject Internet merchants to the same tax collection requirements as traditional retailers. ICSC, however, would support legislation that provides for a short-term extension of the moratorium (e.g., two years), so long as it also allows states that simplify their sales and use tax systems to require remote sellers to collect and remit use taxes to such states.

The U.S. Supreme Court has recognized Congress' authority to enact legislation that would allow state and local governments to require out-of-state retailers to collect sales and use taxes. Therefore, we urge Congress to enact legislation that would level the playing field among Internet-based and traditional retailers.

Thank you for this opportunity to express our views on this very important matter.

END

LOAD-DATE: May 18, 2000

Document 53 of 142.


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