Advisory Commission on Electronic Commerce
3401 North Fairfax Drive
Room 331
Arlington, VA 22201-4498
Dear Commission Member:
I am responding to your “Invitation for Proposals Related to Electronic Commerce
Taxes.” Enclosed please find a copy of my bill, S. 1433, and responses to the “Criteria for
Evaluation of Alternative Proposals” for your review. The tax-free status of e-commerce, i.e.,
the subsidization of electronic commerce, is a matter of extreme importance to our cities and
states. This subsidization of e-commerce posses a real threat to “Main Street” merchants and
our local government services such as police and fire departments.
I have introduced revenue-sharing legislation that imposes a five percent excise tax on all
Internet retail sales transactions. This is a straightforward, efficient way to administer an
e-commerce tax. My bill utilizes the federal framework already in place to collect these taxes
and then returns the revenues directly back to the states, without siphoning off any monies. As
you can see, the advantage of this approach is that it provides a single set of rules, definitions,
and reporting requirements and, thus, is not overly burdensome on any size business. Moreover,
the five percent tax rate is fair and does not discriminate against e-commerce.
The revenues returned to the states will help meet local educational needs by investing in
classroom teachers and other educational projects. The scarcity of teachers in public education
has reached a critical level. The current teacher shortage comes on the heels of record student
enrollment. Fifty-three million children entered public schools this year -- half a million more
than last year-- and that tide is only expected to rise. For these reasons, I targeted the funds for
education. However, after hearing from several mayors, I am open to amending my bill to
remove the current spending restrictions.
I hope you will agree with me that e-commerce must be treated the same as traditional
“bricks and mortar” sales. Please do not hesitate to contact my office if you need additional
information.
Sincerely,
Ernest F. Hollings
Criteria for Evaluation of Alternative Proposals
Simplification
1.
How does this proposal fundamentally simplify the existing system of sales tax
collection (Some examples may be: common definitions, single rate per state,
clarification of nexus standards, and so forth)?
This is the obvious strength of a federally imposed tax. There would be one uniform rate, one
set of definitions, deductions etc. Additionally, industry will not be burdened with keeping
track of where sales occurred or where deliveries were made. All sales will be taxed regardless
of origin or destination.
1.
How does this proposal define, distinguish, and propose to tax information, digital
goods, and services provided electronically over the Internet?
This legislation seeks to treat e-commerce just like traditional commerce. If an on-line retail
transaction would be taxed in a traditional “bricks and mortar” setting, then it would be taxed.
1.
How does this proposal protect against onerous and/or multiple audits?
This approach would reduce if not eliminate the possibility of multiple audits because only
the federal government would administer the tax.
Taxation
1.
Does this proposal impose any taxes on Internet access or new taxes on Internet sales?
No.
1.
Does this proposal leave the net tax burden on consumers unchanged? (Does it impose
an obligation to pay taxes where such an obligation does not exist today? Does it
reduce or increase state and local telecommunication taxes? Does it reduce or increase
taxes, licensing fees, or other charges on services designed or used for access to or use
of the Internet?)
While the answer to this question depends in part on the current tax laws of a state, this
legislation is really a collection vehicle and not imposing a “new tax.”
1.
Does the proposal impose any tax, licensing or reporting requirement, collection
obligation or other obligation or fee on parties other than those with a physical
presence in a particular state or political subdivision?
This issue would be eliminated because the federal government will collect the tax, regardless of
physical contact.
1.
What features of the proposal will impact the revenue base of federal, state, and local
governments?
This will not raise money for the federal government. There is an automatic appropriation
clause which guarantees that the funds collected are not subject to the federal appropriations
process. The funds collected will be directed toward education, but this should free up
additional state funds for local government services. Because this legislation would allow for
the collection of catalogue sales and Internet sales taxes, this should produce a noticeable
increase in state and local government revenues. I am, however, willing to amend this bill and
delete the current spending restrictions so that funds can flow more easily to local governments.
Burden on Sellers
1.
Does this proposal remove the financial, logistical, and administrative compliance
burdens of sales and use tax collections from sellers? Does the proposal include any
special provisions with respect to small, medium-sized, or start-up businesses?
This proposal treats all companies the same, regardless of size. It will impose a duty on sellers
to collect these taxes and remit them to the government, but sellers will be free from keeping up
with many different tax systems.
Discrimination
1.
Does the proposal treat purchasers of like products or services in as like a manner as
possible through the implementation of a policy or system that does not discriminate
on the basis of how people buy?
Yes. This tax targets all situations other than the traditional, face-to-face, transaction. Thus, it
treats Internet transactions, other telecommunication transactions (e.g., catalogue sales), and
out-of-state deliveries the same.
1.
Does the proposal discriminate against out-of-state or remote vendors or among
different categories of such vendors?
No. Remote sales of every kind are treated equally, and this legislation does not affect
traditional vendors.
International
1.
How does this proposal affect U.S. global competitiveness and the ability of U.S.
businesses to compete in a global marketplace?
It utilizes a current framework to produce a uniform system. Thus, it is least likely to hinder
U.S. global competitiveness.
1.
Can this proposal be scaled to the international level?
Yes. Indeed, a uniform federal tax could be most easily modified to agree with an international
agreement. These concerns are most likely to be addressed by the federal government.
1.
How does this proposal conform to international tax systems, including those that are
based on source rather than destination? Is this proposal harmonized with the tax
systems of America’s trading partners?
Currently, this legislation does not address this concern, but this model could be amended.
Technology
1.
Is the proposal technologically feasible utilizing widely available software to enable
tax collection? If so, what are the initial costs and the costs for required updates, and
who is to bear those costs?
This proposal would more than likely be the least onerous in terms of technological costs. It is
anticipated that this legislation would require minimal software products because this is a
uniform system.
Privacy
1.
Does the proposal protect the privacy of purchasers?
This legislation does not anticipate the need for additional consumer protections. Sellers should
not have to obtain additional personal information from their customers to comply with this tax.
This legislation is open for additional privacy protection measures.
Sovereignty/Local Government Autonomy
1.
Does this proposal respect the sovereignty of states and Native Americans?
This legislation does not preempt state or local government taxation of this area.
Moreover, all funds collected are remitted back to state governments to boost state
and local government budgets. Finally, this legislation is consistent with the powers
conferred by the commerce clause to the federal government to regulate interstate
commerce.
1.
How does this proposal treat local governments’ autonomy and their ability to raise a
greater or lesser amount of revenues depending on the needs and desires of their
citizens?
This legislation does not preempt state or local government taxation of this area.
Constitutional
1.
Yes.
Is the proposal constitutional?