25 July 2018 House Judiciary holds hearing on Wayfair case The House Judiciary Committee hearing on July 24, 2018, on "Examining the Wayfair Decision and its Ramifications for Consumers and Small Businesses" explored the reach of the Supreme Court's recent decision on state collection of sales taxes from remote sellers and how Congress might respond, including by potentially enacting a moratorium preventing states from collecting the taxes. As a result of the Court's June 21 decision, states may now begin requiring all remote sellers to register, collect and remit sales and use taxes on transactions with in-state customers regardless of the seller's physical presence, provided that they do so in a manner that does not otherwise violate the Commerce Clause by discriminating against or imposing undue burdens on interstate commerce. Chairman Bob Goodlatte (R-VA), who is retiring at the end of the current Congress, said it is imperative that Congress promptly address issues created by the Wayfair decision, including "the ripple effects of removing the physical-presence standard in other areas of state taxation and regulation" and concerns that states will more aggressively tax financial transactions, streaming video, and legal services. He also cited an example of business activity taxes states may impose now that the physical-presence standard is gone. Goodlatte, who previously released discussion drafts related to remote sales taxes, appeared to advocate a moratorium, saying, "With so many unanswered questions, both sellers and states need time to figure out how to proceed." Ranking Member Jerrold Nadler (D-NY) said "the federal government should not intrude on state tax policy" and "in the absence of examples of discriminatory enforcement by the states, I am skeptical of the need for congressional intervention on the basis of speculative harms." — Grover Norquist, President, Americans for Tax Reform (ATR) Witnesses provided a range of opinions on whether Congress should act in response to the Court's decision. Those encouraging a response included Norquist, who said Congress should establish nexus standards to prevent taxation of out-of-state businesses because state and local officials are hungry to use online sales tax revenue as a funding source. Cleland said Congress should impose a moratorium on cross border sales tax collection "to allow enough time to sort through what states are already doing and then to consider if the current lack of a physical presence standard is the best policy for interstate commerce." Moylan also encouraged a moratorium to "provide the time and space needed for vetting the innumerable unforeseen problems that have arisen in the few short weeks since Wayfair was handed down." Pincus said the Supreme Court's Wayfair decision has created considerable uncertainty and confusion regarding sales tax collection obligations, including whether small businesses should be liable for the taxes retroactively, and backed a moratorium. White urged Congress to pass legislation to protect small businesses out of concern about complying with tax collection obligations across thousands of jurisdictions and the risk of audit. Others did not encourage congressional action. Crosby said there is no immediate problem requiring a congressional solution. Bramble said Congress should not act to prevent states from enforcing their own laws and using the sales tax as a revenue source. Sinewitz praised the Court's decision, maintaining that brick-and-mortar retailers have been taken advantage of as showrooms for online retailers that may be more appealing to consumers due to the lack sales taxes. Chairman Goodlatte asked about the danger of retroactive tax assessments in the wake of the decision, which Norquist said is a valid concern given that states have enacted other tax legislation with retroactive applications. The Chairman also asked whether, given the compliance issues facing sellers and a lack of consensus among states over the details of taxing remote sales, a moratorium on sales taxes on remote sellers should be pursued. Pincus responded that some type of oversight or control is critical. Rep. Karen Handel (R-GA) also asked whether congressional action is necessary, and whether it should be robust or, at a minimum, a prohibition on retroactivity. Norquist said retroactivity is the immediate danger. In his testimony, Norquist recommended the Business Activity Tax Simplification Act, introduced in the last Congress by Rep. Steve Chabot (R-OH), to establish a physical nexus standard for taxing multistate businesses. Chabot asked during today's hearing whether, given the patchwork of state sales tax laws, it may be necessary to relieve burdens on small businesses by requiring states to simplify internet sales tax structures. Rep. Mike Johnson (R-LA) asked whether foreign governments may be emboldened to more aggressively pursue proposals like the Digital Services Tax. Norquist said the decision opened the door to such approaches. In March, the European Commission proposed an interim 3% Digital Services Tax on gross revenues from activities where users play a major role in value creation, which was seen as targeting US companies.
Document ID: 2018-1485 | |||||
