Testifying Before Senate, DMA Cautions Committee on Streamlined Sales Tax

July 26, 2006 – Testifying yesterday before a Senate panel, the Direct Marketing Association offered words of caution to members of the US Senate, which is considering the adoption of a so-called Streamlined Sales and Use Tax Agreement (SSTA).

The proposed tax system would allow states to force online sellers to collect sales taxes for all state and local taxing jurisdictions. S. 2152, introduced by Senator Michael Enzi (R-WY), and S. 2153, introduced by Senator Byron Dorgan (D-ND), would mandate provisions of SSTA, a voluntary agreement that 18 states currently participate in.

Testifying before the Senate Finance Committee’s Subcommittee on International Trade, DMA’s tax counsel George S. Isaacson emphasized that "‘taxation without borders’ results in cost, complexity, confusion, and conflicts.” At a fundamental level, he argued, SSTA is in conflict with Constitutional provisions, as outlined in the Commerce Clause, which serve “to prevent state and local tax laws from hindering and suppressing the growth of interstate commerce.“

Isaacson spoke at length of the abundant flaws of the SSTA proposal, most notably its failure to provide real simplification of the complex system that currently governs the collection of state and local sales taxes.

“There are literally thousands of different sales and use tax jurisdictions in the United States,” Isaacson told the Senate panel. “Of the 30,000 state and local jurisdictions with authority to impose sales and use taxes, more than 7,500 have adopted this kind of tax, and the number grows every year. These thousands of different jurisdictions generate an enormous variety of tax rates, taxable and exempt products, excluded transactions, filing requirements, audit arrangements, and appeal procedures.”

“The recognition of jurisdictional boundaries allows the American federal system to accommodate such numerous and varied exercises of state sovereignty,” he continued. “Federalism does not work, however, when a state (or locality) attempts to export its tax system across state borders. At that point, the state is visiting its experiment on businesses that have no connection – or nexus – with the taxing state.”

“Such an arrangement,” he added, “is not only chaotic as a matter of both tax administration and compliance (fifty state governments and thousands of localities imposing their myriad different tax systems on businesses in each of the forty-nine other states), but the out-of-state companies have no way to influence the very state tax burdens that are imposed on them. In the most real sense, this is ‘taxation without representation.’”

DMA has long held that SSTA creates a barrier to entry for small entrepreneurs, and a barrier to growth for medium-sized businesses seeking to grow operations or expand a customer base.

During Tuesday’s hearing, Gary Imig of Sierra Trading Post, a DMA member company, testified that online selling “allows somebody with a bright idea and very little money to get in the game.” Imig warned that “significant additional financial and governmental red tape and roadblocks will dampen this entrepreneurial engine.”

A complete transcript of DMA’s testimony is available online at http://www.the-dma.org/taxation.

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