The Senate voted 69 to 27 Monday to pass a bill that empowers states to collect sales taxes from Internet purchases. Under the bill, states could require out-of-state retailers to collect sales taxes when they sell products over the Internet, in catalogs, and through radio and TV ads.
The issue is getting bigger for states as more people make purchases online. Last year, Internet sales in the U.S. totaled $226 billion, up nearly 16 percent from the previous year, according to government estimates.
States lost a total of $23 billion last year because they couldn’t collect taxes on out-of-state sales, according to a study done for the National Conference of State Legislatures, which has lobbied for the bill. About half of that was lost from Internet sales; half from purchases made through catalogs, mail orders and telephone orders, the study said.
This bill would give states too much power to reach across state lines to enforce their tax laws. States could audit out-of-state businesses, impose liens on their property and, ultimately, sue them in state court.
The following is the caption on the feature image of this article:
Sen. Patrick Leahy, D-Vt., president pro tempore of the Senate, right, and Sen. Thad Cochran, R-Miss., left, walk to the floor of the Senate during a vote on legislation to collect sales tax on Internet purchases, on Capitol Hill in Washington, Monday, May 6, 2013. (AP Photo/J. Scott Applewhite)
It’s not too difficult for one to picture them as senators in togas walking to the forum in ancient Rome. This has to do with statism instead of fairness for the states that are hurting. This came about from the result of a supreme court decision in 1992.
In 1992, the US Supreme Court in Quill Corporation v. North Dakota held that a state cannot require out-of-state sellers to collect sales taxes when such sellers ship goods into the state since such out-of-state sellers have no physical presence in the state. Quill Corporation conducted a classic mail order business in North Dakota. Quill sold office and equipment supplies to North Dakota customers, but had no salespersons, stores or other physical presence in North Dakota. Quill Corporation advertised in North Dakota, mailed catalogs and flyers to North Dakota households, and shipped purchased goods to North Dakota customers via mail or common carrier.
Since Quill Corporation had no in-state physical presence, the US Supreme Court ruled, North Dakota could not require Quill to collect sales tax from North Dakota customers on such customers’ purchases.
North Dakota in 2013 is completely different than it was in 1992. It’s one of the largest oil producers in the US, and the state government is not struggling for need of money from out-of-state sellers to operate. There are 13 of 30 Republican Governors that support this legislation. If 5 of these 13 include North Dakota, South Dakota, Wyoming, Nebraska, and Iowa, then it’s not because they are struggling. These five states have the lowest unemployment rates in the nation and doing great collecting revenue.
I’m very proud of my Senator Ted Cruz for the speech he made on the senate floor in opposition to this bill.
What the Supreme Court has said is, if you are physically in a State, the State can force you to collect its tax. But if you are not physically there, the Constitution does not let you haul someone in from a distant State and force them to collect your taxes because you do not have any accountability to those individuals in a distant State.
In terms of the small mom-and-pop retailers, they are losing their sales to the big-box and big Internet retailers, all of whom are already paying these taxes.
So what do we have here? We have a bipartisan coalition, unfortunately, that it appears is going to pass this bill in this Senate. But the coalition is driven by the fact that you have big business united. You have the big business bricks-and-mortar companies and the big business online retailers all together because the impact of this bill is to hammer the small business online retailers, to make it harder for the little guys to compete. So you see a strange alliance here in Washington, but one that I think is exactly backwards of what we ought to be doing.
I think it is fundamentally unfair to ask a Texas business to collect taxes for California Governor Jerry Brown or for New York City Mayor Bloomberg and a nanny State, in particular, because they cannot hold those politicians accountable. They do not have a presence there. They do not vote there. They do not have influence there. But yet they are being dragooned into collecting those taxes. I think that is fundamentally not right.
Let me give you an example of how this will hurt small businesses. There is a woman in Texas named Ann Whitley Wood who wrote a letter to our office. She lives in Dallas and had created an online consignment store. Even though it is largely a one-person operation, she may come close to doing $1million in sales–which, keep in mind, are not profits; those are gross sales. Her letter said:
“Legislators must understand that it is both possible and common for a small seller like me to reach about $1 million in sales with a near-one person operation.”
She estimates it could take her 6 weeks a year to comply with the sales tax procedures for all of the collecting States. That impact on a small business is crushing. A giant corporation has accountants, has lawyers, has people designed to deal with that. For a small business, it hits them in particular.
I point out even more fundamentally, the Internet has been this incredible haven of entrepreneurial freedom. It has enabled people to start businesses with nothing, out of their garage, and sell all over the world. It has transformed the ability for single moms and Hispanics and African Americans and people with nothing to go and start a business. Because it used to be that you needed this big distribution network, you needed warehouses, you needed trucks, you needed all of this, so it was difficult for someone to start a small business.
The Internet has transformed all of that. There are 2.3 million Hispanic small business owners. The Internet has been critical to their being able to open those small businesses because it lets them communicate with the world and get their products out.
I believe the Senate should treat the Internet as a safe haven, that it should be treated as free from taxes and regulations that would hamper the entrepreneurial spirit and make it harder for the little guy, for small business to be created, to grow, and thrive. When they become gigantic corporations, they will have a physical presence in the State, and then they will be subject to the taxes. But do not hit them when they are getting started on the Internet. I think it would be absolutely foolish to do anything to impinge on the entrepreneurial freedom of the Internet.
In conclusion, I want to say three very simple things.
No. 1, in my judgment, we should not be taxing the Internet, period. No. 2, we should not be increasing the burdens on small businesses, particularly at a time of economic challenge, period. And, No. 3, we should not be favoring politicians and big business at the expense of the little guy, at the expense of the single mom trying to start a small business to feed her kid, at the expense of the Hispanic immigrant trying to start a small business and work toward the American dream.
We should not be standing with politicians looking for more tax revenue and big businesses looking to make it harder for their competitors to survive. Instead, we should stand up with the little guy, the small business, with the American people.
I urge the Senate to reject this bill. If the Senate does pass it, I would urge the House to listen to the American people and reject the bill as well.
I yield the floor.
Unfortunately, the fix was already in and Cruz was not able to turn one vote on final passage. Actually 5 GOP Senators who voted No on the cloture vote proceeded to vote Yes on final passage. Listed below are those 5.
Richard Burr (R-NC)
Saxby Chambliss (R-GA)
Dan Coats (R-IN)
John Hoeven (R-ND)
John Thune (R-SD)
Perhaps the House will reject this bill, but don’t be presumptuous. The statists are going to do what they want, and the only power that WE The People have is to vote in more like Ted Cruz, Mike Lee and Rand Paul. In 2014 24 of the 33 seats have the incumbent running for reelection. The other 9 seats are Massachusetts and 8 open seats. Listed below are the votes of these 24.
6 Voting No running in 2014
James Inhofe (R-OK)
Mitch McConnell (R-KY)
Jeff Merkley (D-OR)
James Risch (R-ID)
Pat Roberts (R-KS)
Jean Shaheen (D-NH)
16 Voting Yes running in 2014
Lamar Alexander (R-TN)
Thad Cochran (R-MS)
Susan Collins (R-ME)
Chris Coons (D-DE)
Dick Durbin (D-IL)
Mike Enzi (R-WY)
Al Franken (D-MN)
Lindsey Graham (R-SC)
Kathleen Hagan (D-NC)
Mary Landrieu (D-LA)
Mark Pryor (D-AR)
Jack Reed (D-RI)
Jeff Sessions (R-AL)
Mark Udall (D-CO)
Tom Udall (D-NM)
Mark Warner (D-VA)
2 Not Voting running in 2014
Mark Begich (D-AK)
John Cornyn (R-TX)
Cross-posted at Unified Patriots