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NCSL Officers' Letter to Senator Byron Dorgan Regarding Concerns With S. 2775.
May 25, 2000 The Honorable Byron Dorgan Dear Senator Dorgan: On behalf of the National Conference of State Legislatures, we want to express our appreciation for your steadfast support of states' sovereign authority to determine tax policies that promote economic growth and prosperity while allowing us to raise the revenues necessary to fund vital services. Your efforts to fight unwarranted pre-emption of state tax laws during the enactment of the Internet Tax Freedom Act were instrumental in preventing further unfunded federal mandates on the states. It is in this spirit that we write to express our deep concern about the legislation you are currently drafting, "The Internet Simplification and Equity Act." We commend you for trying to craft a bill that would endorse state simplification efforts and would lead to eventual congressional authorization to impose a duty to collect on remote commerce. We know that you have the best interests of states in mind. However, we have serious misgivings about the need for any legislation at this time. We fear for the changes that could be made to your bill during the legislative process, which would complicate our efforts to streamline our systems. We also have strong concerns about particular substantive elements of the draft. Moratorium Extension The National Conference of State Legislatures remains totally opposed to any extension of the current moratorium, which does not expire until October 1, 2001. We are concerned about tying any extension of the moratorium to reform of the state sales and use tax systems. This linkage perpetuates the myth that the collection of sales and use tax on electronic commerce transactions is covered under the moratorium, and as you well know, it is not. Tying an extension of the moratorium to federal authority to require remote sellers to collect sales tax sometime in the future will create serious problems. We are concerned that as technologies converge and as industry mergers continue, consumers will soon be receiving their telephone, cable television and Internet service from the same vendor. The vendor could bundle all these services for one price under the banner of Internet access. If states and local governments are prohibited from taxing Internet access, then states and localities would have to find new revenue sources to make up for the loss from not being able to tax telephone and/or cable services. And traditional phone and cable service providers could be at a competitive disadvantage to Internet service providers. General Concerns It is our strong belief that states should have the opportunity to simplify state and local sales tax systems before bringing a Compact proposal to Congress for authorization. As you are aware, NCSL along with the other national organizations representing elected state and local officials have endorsed the "Streamlined Sales and Use Tax Collections System for the 21st Century." In January of this year, we adopted model legislation to authorize our state revenue departments to engage in multi-state discussions to develop a more simple, uniform, and fair system of state sales and use taxation that removes the burden imposed on retailers, preserves state sovereignty, and enhances the ability of U.S. firms to compete in the global and information economy. As of May 19, 2000, both chambers in 12 state legislatures have approved our model legislation, another four states are in the process of considering this legislation, and in seven states the governors issued executive orders to include their states in the multi-state discussions. These states are committed to adopting model legislation for consideration in state legislatures in the 2001 session. We should be given an opportunity to craft a proposal without Congress mandating what the simplified system must include. Under your proposal, Congress would have to vote twice, once now and then again sometime in the future. Therefore, due to the risks of onerous amendments throughout the legislative process including a conference committee, we firmly believe it would be more prudent for Congress to refrain from any further action until the states have acted on simplification. Other Specific Concerns Single Use Tax Rate. Our major concern with your bill is the language mandating a single use tax rate for remote sales. A single rate - even if it only applies to remote sales - is a deal killer in a dozen or more states and raises a host of problems. First, it preserves a dual system for nexus and non-nexus merchants that will prevent states from simplifying the sales and use tax system for "clicks and mortar" retailers. Sellers with physical stores and remote operations will face two sets of tax rates, frustrating efforts at simplification for all types of retailers. The Streamlined System being developed by the states would create a single system for all retailers. Businesses and technology companies tell us that the rate issue is the easiest one to overcome with technology. It is not necessary to mandate a single rate in a simplified system. Second, the dual system will lead to continued litigation over nexus because different rates will be charged based upon the seller's nexus status. The Streamlined Sales Tax System being developed by the states would make nexus irrelevant and treat all sellers the same. Finally, we anticipate that some state legislatures could not support a blended rate that would increase tax rates for some taxpayers. The alternative - choosing the lowest rate in the state - could cause powerful cities to oppose such a system. Businesses located in areas with high tax rates that now "self-report" use taxes would have incentives to buy from remote vendors. Role of NCCUSL. States have already begun discussions on a simplified system and state and local government representatives have been working on simplification since the National Tax Association project began in 1998. NCCUSL has no experience on state and local tax policy. Your legislation unfortunately ignores ongoing state efforts and designates NCCUSL to develop the model legislation and judge whether states have complied. We oppose this role and believe it should be left to appropriate state officials to develop the system. De Minimis Threshold. Your draft specifies a $5 million de minimis threshold for remote sales. Any threshold should be set by the states and depend directly on the simplified system developed by the states. A highly simplified system that imposes no burden on remote sellers would not require a very high threshold. The threshold must be set by the states in the context of the overall system. We would respectfully request that you not introduce your legislation and reaffirm your past opposition to extending the moratorium for any period of time. We are certain that in the next year, we will be able to show you and your colleagues significant progress in our efforts to streamline the states' sales and use tax systems. Thank you for the opportunity to share our concerns. Sincerely, Representative Paul Mannweiler Senator Jim Costa Senator Steve Saland Representative Daniel Blue Representative Matthew Kisber Senator Steven Raushenberger
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