Internet Sales Tax

Floor Speech

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Mr. MASSIE. Mr. Speaker, I rise today to speak in opposition to H.R. 684 and S. 743, the Marketplace Fairness Act, otherwise known as the Internet sales tax. Or as I call it, the interstate commerce sales tax.

I'm concerned that this new tax on American consumers passed the Senate too quickly without enough debate and has the quiet support of several Members here in the House. Unfortunately, many of my colleagues opposed to the bill here in the House have taken a quiet wait-and-see attitude. They don't want to rock the boat, so to speak. Well, it's time to quit being quiet on this issue. The American public deserves a full and open debate on this bill before any legislative action is taken in this body.

This evening, my colleagues and I will begin that debate. I'm confident that when Members and their constituents grasp the full ramifications of this onerous piece of legislation, they will oppose it as well.

Many States in this country are in dire financial straits. They've lavished overly generous pension plans on their State employees and offered tax credits and financial incentives to their favorite businesses. They've promised more than they can deliver, while sometimes letting essential services go neglected. State governments bear the responsibility for their financial situations; yet they're looking to the Federal Government for a bailout. Make no mistake, this Internet tax is the bailout they're seeking. Without raising taxes, State governments can expect billions of dollars of Americans' hard-earned money to flow to their treasuries if this bill passes. And how would this happen? By passing a bill that proclaims to impose fairness.

Who else is for this bill? Large retailers. They've got lots of representatives up here talking to us. They're on the Internet and they're off the Internet, but they're for this bill. They're weary of competing with small and nimble businesses. And that's natural to want to have economic barriers to entry because it's an economic fact that in the absence of innovation in a market with no barriers to entry, profits go to zero in the long run.

But how do we create barriers to entry in the United States? How do we compete? Through innovation.

America is the country of innovation. You can invent something. You can make a new piece of music. You can be nicer to your employees than the other company is. Or you can come up with a new, more efficient way of manufacturing your products. But I suggest to you, Mr. Speaker, that sending representatives to Washington, D.C. to impose financial hardships on your competitors is not the American way.

Some have said that this bill is about States' rights, and I'm a strong proponent of States' rights; but this bill does nothing to protect States' rights. In fact, this bill changes the very fabric, the constitutional fabric of the United States of America by subjecting people and businesses in one State to the taxes and regulations of another State. This is unprecedented. For the first time in history, this bill would grant States jurisdictions beyond their physical borders. If this bill passes, we'll have a virtual United States of America where borders no longer mean anything.

Justice Marshall ruled that the power to tax is the power to destroy, and we were reminded last week by the IRS's admission that the power to tax is the power to harass.

I urge other Members of Congress to consider the dangerous implications of granting individual States authority over individuals in other States.

Before my colleagues get into the details of this new tax, I'd like to point out that no one, not a single person, has argued that this bill will help our economy. Even proponents of this bill must concede that it increases taxes on American consumers and adds burdensome regulations to small businesses. That's where this debate will begin and end. This bill is bad for our economy.

I now yield to the gentleman from Florida.

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Mr. MASSIE. Thank you to the gentleman from Florida. He makes an excellent point on the sales tax audit burden on small businesses.

I'd like to give you two examples of companies in my district. These are, literally, mom-and-pop shops. One of them, the wife is the CFO and the husband runs the company; and in the other one, the father owns the company and the son works there every day. They were both subjected to sales tax audits in one State.

Let me tell you how the sales tax audit begins and how it ends. So the way it began was with a phone call. And that, for many small businesses, is the worst phone call of their life, of their business life, because they know what they're going to have to endure.

So let me give you the example of this farm store that underwent a sales tax audit. He was required to prove that every sales tax-exempt sale that he made in the previous years was, in fact, exempt from sales tax under Kentucky State law.

The sales tax auditors will pursue you to the end of the Earth if they think there's another dime to be found, so they pursued him with much vigor. He spent weeks looking for records trying to prove that these were, in fact, sales tax-exempt, because if they were not, he owed the sales tax on all of those sales.

How does this kind of audit end?

It ends with a white flag. There's no way to prove, there's no way to find every shred of paper for every transaction that you've ever had in the past years, so you finally settle with the sales tax auditors.

Can you imagine that? You'd be open to sales tax audits, which I've just described, in 45 different States. Now, maybe it only happens once every 10 years in your State; maybe that's the average. But, on average, you'll get 4 1/2 sales tax audits a year, which brings me to the next small business in my district, where the wife is the CFO.

This business was subjected to a sales tax audit and an IRS audit in the same year, in fact, this year. This business owner came to me and said, Can you pass a bill that would keep me from having to go through two audits in the same year? I mean, it's just not fair. I've got a State tax audit and a Federal audit in the same year. This is killing my business. My wife can't work on anything but these audits.

Can you imagine if that business is now subjected to 45 audits in 45 different States? I just can't let this individual down. And what we're talking about, sales tax audits, it's up to the States to decide what's sales tax exempt and what's not, and every State has a different rule.

And the only way to enforce these rules and to know if you've complied--is it for a farm? is it for education? is it for resale?--is for the retailer to submit all of those sales records, information, if you will, on the individual that purchased them to the State where the individual lives.

This is ripe for corruption, just as we saw with the IRS recently. Now they know what music you've downloaded, what movies you've downloaded. Maybe you bought some gun magazines. They're going to know about all of this, and it's just ripe for corruption and for exploitation.

I'd like to yield to my good friend and colleague from the State of Montana (Mr. Daines).

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Mr. MASSIE. Mr. Speaker, I would like to remind my colleagues that Mr. Daines represents the great State of Montana, which operates with a lean government and has, so far, got by without a sales tax. That's the great thing about these United States of America. We have 50 States competing with different models for how to run their governments. This tax, as I call it, the interstate commerce tax, is more about harmonizing tax laws across the United States and taking away the competition between States.

Now, my fair State of Kentucky has a sales tax of 6 percent. But I don't think it's fair that we impose a sales tax on the State of Montana when they've worked very hard not to have one. Their businesses aren't subjected ever to a sales tax audit if they don't have to collect a sales tax. So I think he's too modest in not reminding us that he's coming from the State of Montana that has no sales tax.

This Marketplace Fairness Act could be called the ``Offshore Online Retailers Act,'' because, while as Congressmen and Senators we can force the States to collect these taxes, we can't go into other countries and force them to collect taxes. So what will happen is a lot of our online retailers will move across the border where they enjoy the advantage of collecting those sales taxes, and there's no way to reach them and impose that tax upon them.

Now, some say this is not a new tax, don't call it a new tax, while others say that it's not a tax increase, don't call this a tax increase. Well, I say if it quacks like a duck and it walks like a duck, it's a duck. I'm new to Congress, but if at the end of a transaction, I

have less money in my wallet and the government has the money in their coffers, I call it a tax.

Now, some will say, look, consumers already owe this tax. At the end of the year on April 15, they are supposed to pay the sales tax that wasn't collected in other States. But do you know what? That's just not true. They don't owe a sales tax because States long ago conceded that they don't have any authority to tax an event which occurs outside of their physical borders. They just can't do it without a physical presence. But States resented that they couldn't tax in other States, so they created something called a use tax. I say the use tax is actually a contrived tax. They know they can't tax an event outside of their borders, so they try to tax an event inside of their borders, which is the use of a product. But it's contrived in the sense that it's only owed if you didn't pay a tax on it somewhere else already.

So what kind of a tax is that? I'll tell you what it is: it's an uncollectible tax. And the States haven't exerted much effort in collecting that tax. We are not here to become tax collectors for the States. I just want to remind the States that.

Also, I want to talk a little bit more about my district. A large portion of my district is rural. We don't have stores to buy everything that we would like to be able to purchase. A lot of folks go online. A lot of folks are disabled and can't get to the store to go online. This is a regressive tax. This will punish those individuals who have the least mobility because they're online shopping. It also diminishes opportunities for businesses in rural areas by taxing those businesses that weren't taxed before that don't have a ready marketplace immediately in their vicinity.

Look, we've heard from Big Business, we've heard from lobbyists, and we've heard from State governments. But there's somebody absent from this debate so far, and it's our constituents. I think we need to hear from them. And with that, and to address that issue, I yield to the gentleman from Florida.

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Mr. MASSIE. Well, those comments bring up a very good point, and so do your comments. If this is a finger on the scale for higher taxes, States get to arbitrate and decide what gets taxed in their State. So right now we have exemptions for farm products and whatnot, but some States tax professional services in the transaction. And, of course, this bill opens up financial service transactions in one State to consumers in another State. But where does this end?

Senator Baucus stated in the other Chamber that not just the financial world would be open to taxes on their services, but also possibly attorneys, architects, engineers and accountants. One can only imagine, by not asking the States to do anything to simplify their system in return for the benefit of having out-of-state businesses collect taxes for them, we're giving carte blanche to the States to impose even more taxes on business.

Again, I think I'd like to hear a few more comments from our constituents.

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Mr. MASSIE. I thank the gentleman from Florida for sharing that with us. I think all too often we don't listen as much to our constituents as we should; and on this issue, it's very important because those are in fact the people who are going to bear the burden of this new tax. And I will call it a new tax. It's unprecedented in our Constitution and in the history of this country.

I want to end this discussion tonight the way it began and the way I said it would end. No single individual who's a proponent of this tax has told me that it's going to help the economy. In fact, when I point out that it will increase taxes on consumers, when it will increase the burden on small businesses, and when it will apply pressure to offshore or online retailers, they all ultimately concede those points. This is not good for our country.

The resistance to this bill comes from our constituents, and it's also bipartisan as well. So hopefully by bringing light to this today, we will begin the conversation, begin the debate that all too often doesn't happen out in the open and shed some light on this issue.

I yield back the balance of my time, Mr. Speaker.

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