The latest after the Supreme Court decision requiring online sales tax
Just weeks after the U.S. Supreme Court’s decision to allow states to collect sales tax for online sales, another hearing is underway.
This time it’s a congressional hearing weighing the merits of a number of possible restrictions including a moratorium on state implementation of sales tax, a prohibition against retroactive sales tax collection, and exceptions for small businesses that sell online.
Chaired by Rep. Bob Goodlatte (R-Virginia), this week the House Judiciary Committee listened to testimony from those on both sides of the sales tax ruling. Some testimony charged that Congress’s inaction in establishing a fair and simple solution to the interstate commerce conundrum has caused thousands of local stores to go out of business because of unfair taxation policies.
However, some states don’t think Congress should be involved. Richard Cram of the Multistate Tax Commission, an intergovernmental agency that seeks uniform tax laws, said, “We do not believe Congress needs to get involved in this issue. States are capable of handling implementation of Wayfair in a fair, efficient manner.”
The commission has 16 compact member states that govern the commission, and while all states are reported as members, the other states only participate or support agency projects.
The commission generally favors putting the tax reporting and submitting burden on consumers. Many states have already implemented or plan soon to implement online sales tax collection post Wayfair.
Much of the congressional testimony in favor of the Wayfair ruling presented the plight of small businesses who have lost out to unequal taxation policies that have allowed online retailers to avoid sales tax collection that local stores must collect. The policies have arguably devastated many local businesses forced to pay the tax.
In recent research, Prime Numbers by Civic Economics, commissioned by the American Booksellers Assoc., researchers estimate that Amazon’s total retail sales in the U.S. in 2016 (the most recent figures available), including third-party merchants, exceeded $130 billion.
The study reports that those sales represent 44,000 empty storefronts and 637,000 displaced retail workers, and only minimally are offset by Amazon’s employment in distribution facilities and new retail stores. More damaging are Amazon Marketplace sales by third-party companies on Amazon’s platform.
Marketplace sales grew from 46 percent of Amazon’s retail sales in the U.S. in 2014 to 56 percent in 2016, more than doubling in volume over the same period. According to the study. Amazon’s direct sales grew at a much slower pace, resulting in a significant shift toward third-party sellers, which are left to their own discretion to decide whether and where to remit sales taxes, research authors said.
The U.S. General Accounting Office recently released estimates that third-party sellers only collect and remit between 14 and 33 percent of potential sales taxes to local jurisdictions.
Based on that range, Prime Numbers estimates the total uncollected state and local sales taxes in 2016 was as much as $5 billion, resulting in shortfalls that leave states, cities, and towns scrambling to fund schools, first responders, infrastructure, and other services.
The researchers estimate Amazon’s third-party sales grew from $11.7 billion in 2014 to $16.1 billion in 2015 and increased even more in 2016 to reach $23.0 billion. Revenue Amazon receives from third party sellers increased 96% from 2014-16 as Amazon’s direct sales increased 35% in the same time frame.
For now it’s more hurry up and wait as additional testimony is expected before the committee presents their findings to Congress.