Washington, D.C.–U.S. Senator Mike Crapo (R-Idaho),
Ranking Member of the U.S. Senate Finance Committee, delivered the following
remarks at a hearing entitled, “Examining the Impact of South Dakota v.
Wayfair on Small Businesses and Remote Sales.”
The text of Ranking Member
Crapo’s remarks, as prepared, is below.
“Thank you, Mr. Chairman. And thank you to our
witnesses for joining us today in person.
“The Supreme Court’s 2018 Wayfair decision
significantly changed the sales tax landscape for states and online
businesses. Post-Wayfair, states can require online sellers to
collect and remit sales taxes from residents of sales tax states.
“The decision highlights the challenges for both the public
and private sector to evolve with the rapid growth of e-commerce. The
share of commerce conducted online has grown dramatically in recent decades due
to technological innovation. The COVID-19 pandemic, and the resulting
disruptions to normal life, have further fueled its growth.
“The Internet has been a boon to both buyers and
sellers. Sellers have gained access to new markets, while buyers are no
longer limited to brick-and-mortar retailers in their vicinity. However,
as Wayfair acknowledges, the growth of e-commerce put traditional
mechanisms for collecting sales tax at risk.
“The Government Accountability Office reported in 2017 that
state governments were losing out on billions of sales tax revenue as a result
of online sales in the pre-Wayfair environment. Many states and
municipalities rely on sales tax revenues to fund essential services. In
fact, 45 states and the District of Columbia impose taxes on remote sales that
exceed an economic nexus threshold.
“The Tax Foundation notes that in 32 states, these sales
taxes account for more than one-fifth of total state and local tax collections.
In 11 states, general sales taxes account for more than one-third of total
state and local tax collections.
“By giving states the ability to collect sales tax from
residents even when a sale occurs remotely, Wayfair attempted to address
the disparate treatment of brick-and-mortar stores and online sellers.
Notably, it does not result in sales tax being imposed on residents of
non-sales tax states.
“However, in light of states’ expanded rights and sellers’
access to new markets, online businesses, and small businesses in particular,
face new responsibilities and challenges.
“The different standards and thresholds between states and
localities can create a burdensome and complex system that makes compliance
difficult for small businesses. Sellers now must either learn to comply
with the rules of myriad tax jurisdictions where their customers reside, or
hire specialized advisors.
“This compliance can be time-consuming and expensive,
especially for small businesses and for merchants in states that do not levy
sales taxes, but that must collect and remit sales tax to other
jurisdictions. While states and multi-state organizations have taken
important steps to attempt to ease these burdens, a comprehensive solution to
this problem remains evasive. The right of states to levy taxes, and
empower their municipalities to do the same, is well-founded on the principle
of state sovereignty.
“On the other hand, as stated in Wayfair, ‘States may
not impose undue burdens on interstate commerce.’ Accordingly, a balance
must be struck between ensuring states can collect sales tax due and ensuring
that business activity is not stifled, particularly as the risk of recession
rises.
“Businesses should be able to determine the taxes that are
due, collect them, and remit them to the relevant authorities with minimal
headache and expense. A sales tax system with more consistent thresholds
and standards would allow businesses to more efficiently comply, and provide
tax certainty, reducing the risk of future audits and penalties.
“Our witnesses will share their important perspectives,
including on the challenges small businesses are facing and how tax advisors
are approaching the post-Wayfair landscape.
“I look forward to hearing what steps can be taken to ease
the burdens facing small businesses, and how states, multi-state organizations,
and even Congress may have a role in creating a more efficient and less
burdensome approach.”