Transcripts For CSPAN2 The Communicators 20121022 : vimarsan

Later, a live discussion on chinas incoming government and that nations growing international role. Well, the issue of an Internet Sales tax has reared up again and, in fact, the u. S. Congress and many states are looking at this issue, and thats our topic this week on the communicators. Now, we want to start off by talking with the chairman of the california state board of equalization, Jerome Horton. Mr. Horton, california has recently changed how it manages or its taxation policies when it comes to the internet, hasnt it . Guest yes, peter, it has. It broadened the definition of whats taxable in california to include online retailers who meet certain criteria. Host now, you said youve broadened. How was it before, and now who is included . Guest prior to the law, the sales tax didnt apply to companies that had affiliates and worked through various different groups here in the state of california. The law broadened the definition of who actually qualifies to include those individuals. So now online retailers who have affiliates in the state of california who also have some form of brick and mortar either directly or indirectly working through other groups and partnerships and so forth have nexus in california by the definition of California Law and, therefore, are required to collect and report the use tax to the state of california. Companies that are now included would include amazon, best buy and walmart that are making sales online. There are other criteria that you have to make a Million Dollars, i believe, in total revenue and 10,000 a year to california consumers or something along those lines. Host now, mr. Horton, how much in revenue does the state of california expect to generate through this new taxation policy, and whats the rate of taxation . Guest peter, the rate varies depending on the destination where the product is delivered, but its somewhere around 9. 75 . The total revenue that the state of california anticipated that it was losing was 1. 4 billion. We believe that this new law will allow us to collect, generate an additional 317 million a year of which approximately 83 million is attributed to amazon alone. Host now, 9. 75 , is that the same as the state sales tax . Guest the tax rate is exactly the same as the state sales tax. It varies the total rate varies because we have in california a destination tax, so it depends on where the product is actually delivered, and there are other, other transit taxes and Bradley Burns taxes that are included in the overall rates. Host Jerome Horton is chairman of the california state board of equalization. Thank you for giving us an update on whats happening in california. Now, we want to introduce you to a couple more folks. First, Steve Delbianco of a group called net choice, and joe crosby with the retail leaders association. Mr. Delbianco, what is your group, and whats its position when it comes to this Internet Sales tax. Guest net choice is a coalition of Ecommerce Companies and online platforms. If you had the authors of our constitution in here today, theyd have said they were really worried 225 years ago about the colonies erecting tariffs and trade barriers to protect their own businesses, so article i in the u. S. Constitution says that the states cant regulate interstate commerce, only congress can. So our position, california has decided to get aggressive at determining who has presence in california, but thats in keeping with this constitutional provision. California is simply saying that if you have presence here through some interesting definitions, youve got to collect for california. So it really doesnt interfere with interstate commerce because theyre considering any who has an affiliate this to already be a california company. Host so two things. Name a group thats name a corporation thats a member of netchoice, and are you, so are you sportive of what california has done . Guest oh, our members are folks like ebay, paypal, overstock, facebook host amazon . Guest amazons not. Host okay. Guest companies that have platforms for ecommerce that enable a lot of other businesses to get online as well, and our position is that california has probably taken too aggressive a step at asserting you have presence in california simply because you paid for an advertisement there. But im gratified to see that california set a very, very reasonably high, smallseller exception. And they have to do a million a year in california and 10,000 a year through these partnerships and affiliates, and at that level of smallseller exception, i think thats a pretty appropriate one of insulating the small firms from burlds they could never afford to bear. Host joe crosby is with the retail leaders association, whats your groups position on an Internet Sales tax . Guest thank you, peter. We represent retailers across the board including some of the larger retailers of the country and in the world, and theyre interested in seeing after 20 years of discussion and debate a level Playing Field created, as steve says, through the congress. The congress ultimately has the authority to regulate interstate commerce, and we think its appropriate with some of the simplification included in those legislations to make it so that all retailers above a certain threshold can collect taxes in all the states where taxes are legally due. Host so, mr. Crosby, what california did, is that simplification in your view and do you support it . Guest well, we support the activities california has undertaken, and i think the important thing to understand is california, as steve said, is doing everything it can under the limitations that the Supreme Court has placed upon the states. Ultimately, congressional interaction is necessary, intervention is necessary to insure that retail is treated similarly across the board so that anyone who is selling is collecting tax where the tax is owed and doing so in a way that they can do easily enough with whatever similarlyifications Congress Might impose. Host and we want to introduce you to one more member of our panel, this is Cara Griffith with state tax notes, she is the legal editor and our guest reporter. Thank you. Thank you so much for having me. Its a pleasure to talk to you guys and get your thoughts on this. As you both mentioned, weve got several bills pending before congress, and it seems as toe we need though we need some sort of federal intervention to get this issue taken care of. Are we going to see any movement on the bills that are pending . Guest thats a great question. It is a foolhardy thing to protect congressional action especially when theyre out now and will be coming back for a relatively short period of time. Were optimistic, were working very hard. Theres a lot of interest, as you know, this year has been unprecedented in terms of the Attention Congress has given to this, so were continuing to work dill gently on it and are hopeful that when congress resumes its work, that therell be an opportunity to move this forward, one of the various bills that is out there. Guest yeah, carrie, there has been movement, and i testified at each of the last two hearings on these bills, and i think that movement is constructive because its focusing on Congress Role on protecting interstate congress and what kind of implications they can require before they allow states to export their burden on businesses that arent even having in those states. So thats a conversation im glad were having, and were having an opportunity to talk about multiple rates per state. The states havent all agreed for a single filing form. So i think were on the right track, but will it happen in 2012 . I doubt it. Now, in terms of the simplification that we need, um, what are your thoughts . Are one of the bills better than another . Are there things that congress should focus on that they havent yet . Guest the legislation differs in the kind of minimum simplifications, the quid pro quo it puts on the states in order to let them export their tax collections. They all include the notion that states have to provide some sort of software. But you see, its not enough to have software that looks up a rate for a given home address. Softwares also got to do Electronic Filing for the states, automatic remittance to every state, and looking beyond software, there has to be compensation for vendors. Software installation is expensive, handling questions from customers in 46 different states and handling audits is going to be expensive for business. Were going to need to streamline the rates and definitions. These bills dont even area require every state to have the same definition for items that are taxable. Now, in terms of providing software, where are the states going to come up with the money to do this . Weve such a difficult period of budget area concerns. Is that going to be a factor . Guest joe and i have both been engaged with the streamline sales project, joe even longer, and streamline has several Software Vendors who have agreed to develop, certify and Deploy Software as long as they get to keep a piece of the sales tax thats collected, and they dont always do all the integration that the vendors and retailers and Small Businesses of america need. And thats where some more congressional leadership is going to be needed. Guest and i think these things can definitely be worked out. For me, its exciting that after almost 15 years of working on this sitting next to steve here that were not talking about whether this should be done, but how it should be done, and i think that shows how the debate has evolved. Its been going on for much longer than that. I think theres a general recognition now that theres no principled reason either legally or economically that sales taxes should not be collected on remote sales. And with regard to the simplifications, the bills do vary somewhat, in fact, they vary from bills that have been out there previously. And i think it reflects congress normal balancing of the needs of interstate commerce versus the sovereignty rights of the states. And the Supreme Court has stepped in here, as you know, and said, well, here is the line. But its up to congress ultimately to determine where the line should be placed, and i think thats what theyre doing now in the discussioning thats being engaged on in capitol hill, what is the right balance to insure that the Playing Field is level for all sellers while not unduly burdening sellers that dont have a physical presence in a state or putting too much of a burden on smaller sellers. So i think all those things are going on right now, and i agree with steve this is moving forward in a productive way and hopeful well get activity soon. Host but, mr. Crosby, if you represent a macys or a walmart, they sell online plus brick and mortar. Guest right. Host so wheres the lost revenue for them . Is there lost revenue for them . Guest the revenue is the states revenue. So the retailers are simply collect it on behalf of the states. Host but one of the arguments that brick and mortar places have said is we lose revenue because its cheaper to buy online. Guest the competitive advantage of a seller thats not required to collect tax has, Jerome Horton was just talking about the rate on average in california, its about 9. 75 . So you have that differential. Of course, the consumer has a legal responsibility to remit taxes where theyre not collected from by the retailers, the socalled use tax, but very few folks do that. For most consumers, by now this is your last Taxfree Shopping day. Thats not entirely accurate, it wasnt taxfree, but it wasnt going to be collected from the seller, and then youre up to you and the man in the mere roar to mirror to determine whether thats going to be paid or not. Host fairness is when everyone plays by the same rules. Every business collects and files sales tax for every place that has a physical presence. So every Online Company collects and files where they have stores. This is a move to let states force businesses who dont have a presence in their state to collect. And that really shifts a disproportionate burden on those, we call them remote retailers, folks that are out of state. In california i know that mr. Horton told us part of his wall was to Kaptur Walmart capture walmart and target. Com. Whats new is that amazon began collecting a week ago in california, and amazon, as mr. Horton said, is a big part of their expected revenue. So if, in fact, the fairness argument and the level Playing Field is really so important, well, i guess a week into it wed expect a lot of of stores in california to see growing sales as customers flock into their stores instead of buying online. Well, dont hold your breath. Thats not likely to be the case. People buy online for convenience, for choice and for lower prices without even getting into the sales tax. Host is e bay, mr. Delbianco in your view, an exception since its often many used items . Guest well, i would say that less than half of e pay is used ebay is used items. Ebay is a platform, like a classified ad, a platform for other sellers, and its a fabulous platform for companies who would otherwise never reach that audience. And ebay is a california company. But with ebay was only looking out for the interests of small sellers from the United States who occasionally had california purchasers, right . Should a small pennsylvania business that uses ebay to reach customers suddenly have to collect, remilt, file and face audits from california because it has a handful of customers . Im glad they said the answer to that was no. They had to be doing at least a Million Dollars in california before they had to start looking in the eyes of the challenging of collecting for that state. Host carrie griffith. But if you had an ebay seller who reaches that limit, then they are guest if they are a million in california plus at least 10,000 a year that they spend with a california web site or publisher which would be the nexus to california since that california business would be in the eyes of the boe, theyd be acting as their agent. Okay. Guest id like to just take a moment to get back to the idea of fairness, and fairness is a concept that, ultimately, is interpreted by the individual, and steve posited it as its only fair because of the physical presence that the retailer has there. But certainly theres fairness when you have a marketplace, a country where there are very few limits to very few barriers to commerce that all of the sellers are affected. And certainly although people shop online or in stores for a variety of reasons, if you just looked at all the news articles coming out of california, youd be hard pressed to convince me that not paying tax wasnt one of them because that was deriving all of the reporting on this. I find it hard to believe that the papers would cover it like that if there was, in fact, no interest by consumers. Guest if i could follow up on that, its a great point. But you can also learn a lot about watching what the most affected company is telling its wall street analysts and purr sunt to the securities and Exchange Commission rules, amazon. Com told analysts, they probed them and said youre about to start collecting sales tax, isnt that going to put a dent in your sales . Oneseventh of the u. S. Economy is the largest market for amazon. The answer was an unequivocal no. Theyve begun collecting in many states, and they dont see an appreciable hit to their sales. People arent buying on amazon to avoid the sales tax. They pay the shipping, they have to stand in line at the post be office or ups store if they want to return something. So its really not about the sales tax. And if california businesses are looking for to save them, they have another thing coming. The biggest threat is the walmarts and targets and shopping malls, and its really not the internet. But in terms of fairness, and lets kind of take it to the Small Business, collecting sales tax seems to be a huge burden on and some of your Small Businesses are going to be below some of the thresholds, but still going to be some of those that are relatively small, theyve got a National Presence because theyre online. It seems very buddensome burdensome for them to have to figure out their sales Tax Liability for thousands of jurisdictions. Is it fair then to ask them when they stand to lose money that they nonetheless have to collect and remit sales tax in. Guest you know, i think certainly there is, obviously, an Administrative Burden to collecting sales tax that all sellers that collect sales tax today face, and i think thats one of the important things about the congressional legislation, is making sure that the Small Business exception is set at a level so as not to burden those small retailers and sufficient not through just the simplifications, but also through the provision of software that works, that those smaller and even midsized businesses dont pay any more than necessary to deal with the collection costs. But i think its also important to note there are small sellers across the country who are supporting this legislation, including small ebay sellers. There are folks on both sides even when you get down to the Small Business level. T not as if its monolithic, you have Small Businesses on both sides of this, and you have large businesses. Ebay has not been a fan of this legislation in the past despite the fact it doesnt sell anything, many of its small sellers have come out publicly in favor of this legislation. Guest , you know, fairness is a big position of it is where you sit right now. Amazon, for instance, will be collecting for over half the u. S. Population by 2014 because they have regressively expanded their presence, Distribution Centers. In california theyve got two Distribution Centers coming up to get sameday delivery. That means theyre collecting in more and more places, and after a while if your already collecting from most of the country, you would probably take any little bit of simplification as a way to reduce your costs, and you also like the idea that it imimposes new burdens on your competitors. A lot of what amazon has done is to shift burdens that it never had to bear before it became a 50 billion company and amazon at this point would love to see those burdens imposed on even the tiniest of its competitors. Is there, in looking at the bills with their differing thresholds, is there one that is better . Do you have an opinion on what the threshold should be to define a Small Business . Guest you know, the streamline sales tax governing board has done a study on what Small Businesses were spending out of their own pocket, and it concluded it was about 17 cents for every dollar of tax today collected for businesses that were under a million a year in sales. And that kind of burden was foremost in the mind of flying to come up with trying to come up with a small seller exception. Over time that number has been all over the map. Its somewhat constructive to take a look at last year based on the United States retailer top 500 that the top 500 retailers here account for about 90 of the uncollected sales tax. So the states could potentially grab 90 of the sales tax that they want to collect and set that small seller exception at the number 500 seller. Thats 5 million a year 15 million a year in sales. If californias oneseventh of the national economy, a million times seven is seven million, so theyve given the equivalent of a 7 Million National exemption there. Of. Guest looking at that, the figure of the washington study and the three month sales tax study, it think it helpful to boil that down to real numbers. Lets say the sales tax rates about 7 , youre collecting 70,000 in taxes, and if your costs are 17 of that, its costing you about 10,000 a year or onetenth of 1 of your sales to comply with sales tack collection. Its not an insignificant sum. Win thing i need to one thing i need to point out, at least one of the bills sets the threshold at a million. Over a million the costs drop quickly and significantly. The other thing, i think, that is important is that study was done before any of the simplifications that have been put in place by the streamlined states or that are contemplated by the federal bills were put in place. Presumably, combine with the the provision of sort ware, that will software, that will reduce those costs to a burden where something can be dealt with. Host Steve Delbianco and joe crosby, is there a state in your view thats done it well and done it right . Guest many states maintain a single tax rate across the entire state. They dont allow the local cities and counties to add a mosquito abatement tax, they might even restrict states from having sales tax holidays on school supplies. I mean, rules like that are what makes collecting sales tax across the country insanely complex. So my own state of virginia has done a pretty good job of being simple and attractive to businesses. They exempt digital downloads from taxation to encourage that industry, and theyre not members of the streamline sales tax because they want to maintain what they call a businessfriendly environment. Guest i think the Balance Congress has to strike b, many of those things that make the sales tax more complex are things that consumers and voters like, sales tax hold days, caps and thresholds so that youre not paying tax on the full price, you pay it on a much reduced price. Those are things that consumers and voters like, so its a balance on one hand between those desires of the voters in the states and the desire for fairness and also, frankly, for the states to be able to maintain their taxes in a way that makes sense so to the extent that the tax is being posed, its actually being collected. And a number of states have done things like california. All of them, you asked is there a model, i think ultimately its congress thats the model because theres only so much each individual state can do. Theres no way for an individual state to impose it tax system on another state, nor can they solve the larger problem that the Supreme Court decided without congressional intervention. Host Cara Griffith, next question. Assuming in the Perfect World that we had one of those bills enacted this year, how long would it likely take to get presumably Software Still has to be developed and then implemented. Any sense of how long that would take . I mean, are we looking at like a five year down the road, or would it actually be next year and we roll it out relatively quickly . Guest some of the legislation is in congress, so it requires such trivial things for the states to do that many of them would begin to demand tax collection immediately. After all, Software Vendors are eager to get paid to cover them. I think the bigger question is not just how long it would take, but how much it would bring in. Some of the numbers that weve heard are exor by about the exaggerations exorbitant exaggerations. The most this could be is about 12 billion nationwide of new tax revenue. That sounds like a lot, but its over 50 states, and it represents just about half of 1 of total state and local government tax revenue. This isnt the silver bullet. Guest certainly, the revenues wont save the states from any one tax, but they all certainly would be happy to have that money coming in this on legallyowed taxes that arent being collected today, and the other thing is this is not simply about revenue, its about fairness. Now, steve, in putting those numbers together you looked at only business to consumer sales. Guest thats right. Guest so 93 percent of internet commerce is business to business, not business to consumer. There is a substantially higher level of use tax with business to business sales, but its nowhere near 100 , so i think steves 12 billion number probably understates it because it excludes 97 percent of e ecommerce. On a base that is, you know, what is that 16 times more than b to c sales, even a small, uncollected amount can generate substantial additional revenue above the 12 billion that steve articulated. Okay. Now, you know, in the more likely scenario that we dont have a bill pass this year, are we going to see more movement on streamline sales tax . Guest next year . Itll be back. It always comes back. The states are in a fiscal crunch. Streamline sales tax has lost some of its steam and is badly in need of a reinvigoration, so i think it will come back. And after all, theres a lot of Large Companies willing to lobby to bring that bill back this year, and theyre in alliance with tax collectors whod like to see the extra revenue. So it will be back next year, and i hope that conversation drives straight this on the minimum simplifications, single audit, being able to challenge the states in Federal District court if a state doesnt adhere. Host are there any states we should keep an eye on where there could be further legislation or action . Guest i think assuming that nothing happens in congress this fall, therell be some action in the states. A lot of states have already done what they can and are now relying on congress, but i could see potentially some action in massachusetts and maybe wisconsin and potentially michigan. And theres a few others. Pennsylvania, although theyve already done some things on the regulatory side. But it will definitely if it doesnt get enacted, it will come back. Theres no doubt about that. And i think that the issues that the federal government is dealing with its own finances and the likely impact on state governments of the changes make this a very attractive thing to consider if youre on the one hand going to reduce federal funds to the states, you should at least give the states the tools they need to collect the taxes theyre already imposing. Host joe crosby is with the Retail Industry leaders association, Steve Delbianco is with netchoice, and Cara Griffith, our guest reporter, is with state tax 2340e9s, the legal editor. Thank you all for being on the communicators. Guest thank you, peter. Thank you. Watch and engage with cspans road to the white house coverage as the president ial candidates meet tonight for their final debate at Lynn University in boca raton, florida. Coming up next, Campaign Advisers to president obama and republican president ial candidate mitt romney debate defense policy. Then well turn to health care as congressional staffers discuss what to expect in 2013. And later, the Heritage Foundation hosts a discussion examining chinas incoming government. Youre watching cspan2 with politics and public affairs. Weekdays featuring live coverage of the u. S. Senate. On weeknights, watch key Public Policy events and every weekend the latest nonfiction authors and books on booktv. You can see past programs and get our schedules at our web site, and you can join in the conversation on social media sites. Also today the u. S. Institute of peace hosts a discussion on societys role