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

Document 51 of 142.

May 16, 2000, Tuesday

SECTION: PREPARED TESTIMONY

LENGTH: 1485 words

HEADLINE: PREPARED TESTIMONY OF MR. LES LEDGER OWNER, LEDGER FURNITURE ON BEHALF OF THE NATIONAL RETAIL FEDERATION

BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON OVERSIGHT

SUBJECT - A LEVEL PLAYING FIELD SUPPORTING EQUITABLE STATE SALES AND USE TAX COLLECTION OBLIGATIONS FOR ALL

BODY:
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 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 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 $31,000 in payroll and social security taxes and $51,000 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 51% 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.

END

LOAD-DATE: May 18, 2000

Document 51 of 142.


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