tv Supreme Court Decision on Online Sales Tax CSPAN July 10, 2018 3:33am-4:34am EDT
decision that come out a few short weeks ago from justice kennedy's final decision. so thanks to the congressional internet caucus hosting this event conjunction with the academy, the cochairs of the internet caucus and on the senate side senator soon and that underlay he disses the second in our series of the oldest court deals with the evolving technology. other events on july 23 generally have the supreme court is engaging with technology or how to engage with the policy issues in the future.
and then to introduce our panel we have amanda keller from the international municipal lawyers association and george isaacson that argued the case in front of the supreme court and also counsel. we have jennifer platt is from the international council and finally mike and thank you all for being here and we are open for discussion. before we start i like to give the background and it comes from us south dakota statute that allows the state to compel online retailers on
sales made to south dakota resident that the only companies on my retailers with sales of over $100,000 or more than 200 different transaction so those are the companies that fell under that purview with the larger retailers are affected. like those that did not plot -- comply with the 19 to precedent --dash in 1982 which actually to make it legal to collect sales tax unless they had a physical presence in the state. and consumers are still
technically required to pay a use tax when they shop online with a low compliance rate. this has been the status quo of the e-commerce ecosystem and then to overturn the now the statute has been upheld. and then with the dissent with justice breyer so that implication are those that the polities where they had those latitude of internet sales tax
statute so with that background we will ask each of you for those immediate implications with with online retailers with municipal governments so what does this look like from each of these perspectives i can jump in the upper state and local government to take a step back to understand with the effect of the quill decision. so to touch on this one of the most obvious impacts were state and local government were to collect sales and use
tax for many years and estimate very how much money was at stake and talking like $8 billion per year of lost revenue it was up to 30 billion per year that was a huge amount of money these were taxes that the collection percentages of consumers would pay the use tax but now that the decision that the quill decision has overturned that would be collected by state and local government if that should happen immediately that would take some time for those laws to go into place and that decision and to draft this
legislation and from the local perspective there were some state laws that might for head -- for them from collecting the sales tax use and it is a very good effort and from that perspective that has a uniform sales tax and preempting it could have a higher sales tax rate than the state then there will be questions on what will happen when they have to amend the local tax code? today you plied a higher rate to brick-and-mortar? and then the last thing that
the money is a good thing but it wasn't just about the billions of dollars at stake with that secondary impact as a result of this decision so specifically with brick-and-mortar and then you lost the main street. and not only impacts you like it increases property values around it and there were a whole host of secondary impact but from that perspective and then to move forward on
electing the sales taxes time. >> and with those immediate implications is the role that congress plays that is the venue for the policy issues and justice kennedy recognized and not to be appropriate that require cross-border and the chief justice in his dissent and in this issue in this room house and their attention and those senators from the chief justice to say that any
alteration to disrupt the development to the economy should be undertaken and then went on to say that the majority decision disregards what they pose on retailers. and then through the tail with over 10000 jurisdictions of the sales tax for the tax rate with tax-exempt goods and services and a different standard to determine to have a substantial presence in the jurisdiction especially on small businesses with disproportionately on small businesses and then to connect small and micro business and
then we would hear more about that from mike. but then the courts decision has the effect of opportunities for commerce and a good reason that more have the competing interests. they concluded that physical presence is no longer required as justice kennedy we are to it that it is now behind us but you recognize that the other elements in the commerce clause that imposing these cross-border complications and they remain to be litigated. with that opportunity for congress with that chaotic
condition and that they should be deprived so what should be the rules of the road? and then what should be set by congress with greater simplification and for retroactive liability in the system that makes it revenue that they are desiring and that is necessary to achieve that with the transition. to set moratorium to allow the company to adapt to their is a
lot there a lot to react to to go back to the question with the immediate impact and two points from brick-and-mortar and those that are part of the marketplace the idea that the internet is tax-free that it will be wiped away by this decision the internet has never been tax-free. the tax has always been owed now there is a means to collect it. now it is functional that we have seen entry into the physical market we have seen online sellers moving into the physical marketplace because
that is the best way to reach your customer base. and with the previous standard with the artificial hurdle that stops some tellers from entering the physical marketplace because of the concern of a nexus that was not currently there. now we see online retailers just like using the pop-up opportunities from other locations but the other positive aspect of this and there is a goal for congress and then over the decades to come up with legislation to address this.
it will be more of a challenge with the push to see how the state implement with the ruling from justice kennedy. and with the chaos that they are not automatically draw the line but as those the thoughtfully and without a glee in the coming weeks that will be clear and those that are streamlined today there are thousands of online retailers. it might be done and to be as
free as possible. >> thank you for this discussion it is very timely and important and two-way fair for congress to act. and where ebay is equation i have been there less than a year and a half so that they have on a single issue but in a year and a half it is apparent there is a misunderstanding of the mechanics of how this works and just was certain the laws and not to be underestimated through that process. even a is not a retailer.
it is 23 years old and has always been day 1100%. online marketplace meaning that nothing on the site that you buy or sell do they own we don't have inventory or warehouses with logistics or trucks we connect buyers and sellers and it is what they have done so what this has allowed with other marketplaces it is the empowerment of small businesses with empowerment of entrepreneurs and those reaching customers they never thought they could before.
that has happened in no small part to how we look at the small businesses on the internet. the startups and not to burden the small business in ways that create market entry problems within that unnecessary red tape and headache small businesses had that we have seen before. so keep the court case pretty simple. we were disappointed with the 50 years of precedent should be left alone. but looking at the case it is clear that justices were focused solely, not solely but focus on large retailers and
how those operated in the marketplace. and with justice kennedy in the majority opinion made very clear that small businesses under the commerce clause and as you go through the due process clause interpretation as well are completely different than large retailers. ebay had $6 million a lot of those are you and i like an old camera or whatever but hundreds of thousands of those are small businesses. several of which are bigger businesses but we are encouraged to see in justice kennedy's opinion how a small business should have a
reasonable degree of protection. with those into a estate. but south dakota's law of $100,000 or 200 transactions, if you extrapolate that across the country that is 37 or $38 million threshold. so we are very concerned be a member of the sales tax and use agreement that 30 consumers are in that. so to look at that degree of protection because south
dakota a very small say only four states are smaller, as others try to come down to that standard other than look at the standard which is a number that should be big enough to keep small businesses out of this equation so they are not subjected to send out different jurisdictions across the country. and then it is clear for congress to act. >> so one thing we should touch on in the comments with the next steps for local state and government.
but some people are claiming and that state municipalities and to passing the laws make the south dakota statute. but one of the questions around that is even if if the states and local governments have this process but just the sheer number of the government can lead to chaos despite the best of intentions, how do you react to that? even with the good process or the president without -- south dakota law that they may try to lower those thresholds with the different legislative
features to the court provided a pretty clear pathway. and i did a great job to outline what those standards are for other states and we expect one of them is to expect the part of the stream mine sales tax agreement. so there is some publications that are missed in those transactions. so there are those simplifications that are suggested and the supreme court provided a clear pathway for state file in encouraged
and like metro one -- massachusetts going back to october 2017 or june so that retroactive application of the mandatory tax collection and other states that said we see our obligation on july 1 like kentucky or vermont. shortly unrealistic and then to acquire the software but then to integrate the software so the state is unsympathetic and then to require the
i just want to jump in on one thing that you said. with that chaos and implementation forgive me don't remember the name of the court defendant in the south dakota case that reminds me who that was? so if i recall correctly and for that declaratory judgment to say we will comply. i could be wrong but my understanding it was essentially overnight. so there is a huge company versus those small businesses but it is possible for companies to start complying with
not meet anticipate. >> one of the biggest concerns that we have is that in rejection of the physical presence will will -- rule, that they are powered in ways you start to acquire business that has no physical connection to that state for those sales. and the concern about that is that it goes back to the old tax adage you don't tax me, tax the guy behind the tree. and then to be 3000 miles away
and then to say to them a lot more to appear in tax court. with that dynamic of the out-of-state jurisdiction and cross border region. >> wisconsin because governor walker wanted to announce there would be a tax cut because of the additional sales tax purchases they would get a corresponding tax cut. the real concern is when they try to get every dime how does that apply to small businesses?
because wisconsin relies on the 2013 statute it will result in litigation and we will see more across-the-board so talk about a tax moratorium we are in total support to allow congress or the state i wouldn't presume to give a legal analysis any better but the way foyer -- way fair court did not say was unconstitutional you cannot use physical presence as a determining factor. for now go back to court to figure out if it is constitutional. even south dakota still have to figure out if their law is constitutional we shouldn't
race to get a head just for political benefit in order to collect the revenue as quickly as possible be met an important misunderstanding that the tax is not on the business for the consumer. so it is a consumer in wisconsin that paid the taxes and as far as the regulation on the business not physically located in the state are a number of examples that wineries they don't like certain state shipping or wind distribution lies to say we will not sell to those states. so now like wisconsin or others were a seller finds it too burdensome to avail itself they can't talked out and say sorry we don't sell to that seat. i think that is the cost of
what this decision said if you do business in the state in the bill yourself to the consumers that you need to be collecting sales tax of that. >> i think one of the important question that we touch on this quite a bit is where can congress go from here? a lot of people are interested in moving forward with the majority of dissenting opinion that recognize ultimately this question can only fully be resolved by congress. so what were legislation like?
what would be a compromise where we are at now with uncertainty versus before? >> i think on one level can only be resolved by congress at this point. from my perspective consider the laboratories of democracy. an opportunity for state to go out and work on tailoring legislation specific to their needs. i'm not necessarily opposed to congressional action but when you talk about faith right south dakota is a very different state than new york or california maybe we will see more litigation as a result is until we find our
solutions i am not opposed to congressional action but if it happens careful to weigh the states rights as you consider this. it is money that is sorely needed by state and local government and it has been known for a long time personally looking at the liability concerns that you think it would be appropriate for congress to legislate. my only understanding from that briefing is that it appears at least 40 states have their own state law to prohibit retroactive liability know i was just reading that from the briefs and i believe other states are acting differently for there is a scenario we could agree where congress could come in to prevent that party for those small businesses.
long -- heartache. but that in this area. >> maybe this would be helpful. in the european union they have the that taxing the european commission that requiring companies to comply with 2827 taxes was a burden on commerce from the european union states that suppress the development of cross-border sales electronically as opposed to instead to amplify that system had to be administered similar to the international fuel tax like in canada. you take 28 jurisdictions that were too complex in europe and compare that to the 12000 jurisdictions in united states.
it cries out for action simplify the quid pro quo that is state can export their tax systems across the state border as well as the municipalities, there should be simplification so what should federal legislation like? act quickly to go against the retroactive liability it is interesting to join the colorado brief they did not disclaim they did not disclaim state would have that issue themselves that is a threatening construct that direct marketers are seriously concerned about congress should act to say no retroactive liability and congress should establish a moratorium a six-month moratorium letting companies
make the adjustment who are obligated to collect and then adopt very reasonable amplification documents in addition to those items that are a part of the streamlined sales and use tax that jennifer is referring to. in rate amplification one rate per state for all commerce make sense. companies should not be subject to 4060 but then there over 500 home jurisdiction one audit on behalf of all participating state. there is no reason why the definition of profit should var vary. in his dissenting opinion the chief justice says why should twix and knickers fee subject to different tax in the same state?
it is sent why should teachers in one state he in another state? this doesn't take any money away from the states all the guys is take the american economy that is increasingly reliant on those electronic coffers to rationalize that. these are the steps that congress can take without in any way harming states in regard to the revenue they anticipate getting in will be getting as a result of this decision be met i would like to say i wish that the point that george just laid out we could've had that conversation three years ago before this case moved forward to the supreme court and they made their decision.
the things that are built into the marketplace or with the remote transaction parity act is now congress has now carried it and a lot of what we have been saying is there is the pathway and it would have been a win for everyone but that is not the conversation we have been having the from a practical standpoint you have to look at state where the votes are. the job 24 states and none of the big one for the most part like california or texas or new york or florida. it will be really difficult to get those states to submit their taxing jurisdiction to a third-party. they said they won't do it.
so that would have allowed for this date to grant collection authority and other states would've had other simple vacation standards. if congress does take up legislation that will have to be the practical conversation there is a number of other conversation and other topics that need to be dealt with like foreign sellers that is functional and fairness issues but i can tell you our membership is split at this point and then they have the ability to forward with their restored right so from a
practical standpoint there will be challenges to moving quickly however let's let the process work and have regular order and hearing would be the opportunity to discuss more robustly with the folders then to have conversations to see what is possible there would be challenges rather quickly. >> everything about simplification or the need for federal legislation we definitely agree with that i do think that we will see significant legislation throughout the state as they try to meet these different thresholds by the court. the marketplace fairness act
and the parity act was they both failed to do among other things is to have a real small business exemption myself the coda that truly protect small businesses that are starting up and getting on their feet that we can see on ebay and across the country every day. $1million it is like the austin powers. $1million. and then he laughed but look at that from a business perspective to say $1 million for national sales we have businesses on ebay that employees are taking home $40000 a year it isn't an accurate depiction of a number and today nobody could give us any data as to why $1 million should be but now we have the
standard. south dakota with a 37 million national standard. it doesn't have to be that high but at a level by sales or employees that truly takes into account the businesses of the size and the sophistication of the tax department and how they can fix that and as part of any federal legislation leaving a small businesses out of the complete the money isn't in the micro small businesses and what they do online. with wayfarer the exception the top retailers online currently collect in all 50 states justice robert in his dissent said 86 of the top 100 collect so they are out there that isn't an argument for
ebay. small howler exemption is mandatory and if we can get to a place where it was a real number and we can get to a much easier place and how to find a permanent bill. >> great. i want to be time for audience questions before we get to that we would be remiss if we did not talk a little bit about justice kennedy's departure from the supreme court today. obviously he wrote the majority opinion and now everybody is on the edge of their seat waiting for the new announcement of the supreme court justice. so with his retirement if there is more litigation area,
and they get to the supreme court, what effect will is retirement? >> an interesting question and others that speak to this better than i can but if you look at other cases they don't normally divide the more traditional liberal and conservative line so if you look at the lineup of this case in the dissent is the chief justice with justice kagan and breyer and then justice inferred along with kennedy and thomas and alito so it is hard to predict what justice kennedy will do without knowing who the specific justice is our tax law ideology or their states right or federalism principles
so it is an interesting question but i would not be able to know until i know the candidate or the action. >> even after you know it is hard to predict. look at this very strange collection on the majority side. having the chief justice joining with the liberal members of the court justice ginsburg joining with the conservative members of the court, the court does not have a great appetite for state tax cases and it took 25 years years before they decided to look at this issue if i'm practicing law 25 years from now that made mark where i go after max. >> it would've been a whole lot better if he retired ten days earlier left mac but we
knew he made it very clear with the dna case in and wanting to leave you will so we certainly understood that we are thankful that he left language in that opinion for the future court to look at that makes it very clear distinction when looking at the commerce cause house states should be treating the threshold of small businesses. so it is completely to be determined one factor that is a concern out there for other industries on ebay we sell good and that is what we talk about today but what does this opinion do for other types of
for other simplifications the states could undertake to overcome the physical presence. it's the supreme court said their version is no longer. >> speaking for three other justices went through a series of different possibilities with regards to how congress could act in including the physical presence test and having the exception for come trace in the states but in fact simplify and make more unified systems. one of the things i'm encouraged by and agree with its time for industry, the states to have a serious conversation. the issue isn't whether the states should be deprived of revenue but it's how can you
simplify the system to make it work for all of the participan participants. i would hope the panelists on this table, the people attending the hearing would see congressional action as an opportunity for that kind of discussion followed by real action for greater simplification. >> [inaudible] that is a good question because the result of the decision, what it has done is moderate states to be able to tax without rules which i hope isn't a way that it's interpreted that some states are viewing it that way but there is no restriction on them. states can inform tax liability through the full faith and
credit clause of the constitution that there is no way for them to effectively enforce this requirement on companies outside of the united states so korea with effective ways to advantage companies located in canada or for that matter located in hong kong or the uk because for the u.s. customs they will not intercepted for the purpose of enforcing the state sales taxes, so it is an action by the supreme court probably inadvertently over the u.s. companies. >> your comments have been focused mainly on the obligations for smal that small businesses are going to have to shoulder. do you see any implications from the elimination of the presence for other types of say local business obligations or
localities, major credit experts on president sellers which many times are based on the receipt or some other type of business regulation. >> whether they have implications for other kinds of taxes and regulatory obligatio obligations. >> i'm not thinking like state income tax but more local business licenses. >> absolutely. there's a brave new frontier historically sovereignty has covered the scope of the regulatory authority is that the states can tax and regulate companies located in the jurisdiction but not outside of it. but wayfarer has introduced the notion as long as companies have some kind of contact in the state they may be subject to the regulatory obligation and tax
collection is a regulatory obligation, not a tax obligati obligation. i suspect the states will export death. california already says if you want to sell in california we will govern with size they have to be grown. there may be no limit to the ambition to states have to regulate companies outside of the borders. >> i do think there is a market limit to it. if you don't want to sell eggs in california, don't sell eggs in california but it's a big market so if you want to reveal yourself to the market then you will live by the regulation and that's a market decision, a business decision. if i think licensing or you kind of go down the rabbit hole like
that, you don't do business there. but i don't know that's something that has even been discussed. the states are so excited about getting this authority they are not contemplating any kind of expansion into some rabbit hole. >> let me remind you that the purpose of the clause is to create a free market among all the states. so when your reaction to the taxation or if you don't want to sell to those states to be subject to the regulations don't so it is to constrain the market to what the objection of the commerce clause was. >> if i could add to that we should all take a step back and think do we want a functioning
national economy where you don't want to sell into california, if there is a lot of egg sellers on ebay i don't know but i will share that. let's say you don't want to share a specific type of electronic because you are overregulated in imports from china i don't think that is the same type of functioning national economy that any of us want to have and i think as we go forward to the next beta we should be thinking because our ability to get to those sellers is different in the domestic sellers and it can get into a whole lot of different issues. >> i agree. we have significant concerns we can all join together to have that conversation and perhaps in
this runs about an hour and a half. [inaudible conversations] good morning, everyone and welcome. i'm for national security directodirector of the bipartisn policy center and it is my pleasure to welcome you in attendance today and those watching on c-span and online on a beautiful monday morning after a glorious weekend here