April 22,2013

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In Speech, Hatch Outlines Concerns with Online Sales Tax Bill, Calls for Return to Regular Order

Utah Senator Says, “The Marketplace Fairness Act Is Just The Latest In A Long Line Of Bills Brought Before The Full Senate Without Due Consideration In The Committee Of Jurisdiction. This Has Become Far Too Common.”

WASHINGTON – In a speech on the Senate floor today, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, outlined several concerns regarding S. 743, the Marketplace Fairness Act (MFA) and said the legislation should move through regular order to allow the committee process to resolve a number of technical problems with the underlying bill. The Senate will vote on a Motion to Proceed to S. 743 this evening.

“Today, the Senate will vote on cloture on the Motion to Proceed to the so-called Marketplace Fairness Act.  And, in doing so, the Senate will once again abandon regular order in favor of the whims of Senate Democratic Leadership,” said Hatch. “This is a bill that falls under the jurisdiction of the Senate Finance Committee.  But, the Committee has not had a markup on the bill.   Instead, the Marketplace Fairness Act is just the latest in a long line of bills brought before the full Senate without due consideration in the committee of jurisdiction.  This has become far too common.”  

Below are Hatch’s full remarks delivered on the Senate floor today:

Mr. President, before I begin, I just want to take a moment to say that my thoughts and prayers go out to the good people in Boston, particularly to those whose family and friends were injured or lost their lives in last week’s horrific attack.  I hope and pray that all those whose lives were impacted by these tragic events will have a swift and peaceful recovery.   

In addition, I want to commend all the law enforcement agencies involved in the investigation that brought the hunt for the perpetrators to a successful end.  

Now, Mr. President, over the last few months, I have come to the floor several times to discuss the need for the Senate to return to regular order.  

If the last several years have taught us anything it’s that efforts to force legislation through the Senate without full and fair consideration tend to yield unsatisfying results.  

Complaints about the lack of bipartisanship have more or less become the norm around here.  And, we hear all the time about the desire for so-called grand bargains.
But, Mr. President, bipartisan agreements don’t just happen.

And, I think we’d all agree grand bargains can’t be made out of thin air.
Luckily, the Senate already has a system in place for fostering these types of agreements.  It’s called regular order.

Yet, today, the Senate will vote on cloture on the Motion to Proceed to the so-called Marketplace Fairness Act.  And, in doing so, the Senate will once again abandon regular order in favor of the whims of Senate Democratic Leadership.

This is a bill that falls under the jurisdiction of the Senate Finance Committee.  But, the Committee has not had a markup on the bill.    

Instead, the Marketplace Fairness Act is just the latest in a long line of bills brought before the full Senate without due consideration in the committee of jurisdiction.  

Mr. President, this has become far too common.  

I understand that there are those who feel strongly about this legislation.  And, I admire and respect the sponsors of the bill who have worked hard to address what they see as a major problem with our nation’s tax policy.

But, that simply isn’t enough to justify yet another abdication of the committee process here in the Senate.  

The Senate is organized into various committees of jurisdiction so that Members are able to develop and utilize their own expertise on specific issues.  When a piece of legislation goes through the committee process, it is thoroughly vetted and examined.  This provides an opportunity to resolve technical issues and address various concerns before the bill is brought to the floor for a vote.
Regular order is not a process designed to protect the power of committee chairmen and ranking members.  We have regular order and our committee structure so that we have an organized way of ensuring that our constituents are fully represented, and to make sure legislation is technically sound.

The legislation we’ll be voting on today is a perfect example of the importance of regular order.  
The Marketplace Fairness Act is a bill that will have a significant impact on millions of consumers and businesses throughout the country.  Clearly, this is no trifling matter.
Most reasonable people would agree that a bill of this magnitude would benefit from full and fair committee consideration – including a markup with an open debate and an opportunity to vote on amendments – before it’s brought to the floor.  

However, being reasonable doesn’t appear to be part of the equation on the floor today.   

Now, I want to stress that I am not fundamentally opposed to this legislation.  My goal is not to stop it at all costs.  Instead, I simply want to ensure that it is fully vetted and examined.   

Therefore, today’s vote is, in my view, at least as much a vote on regular order as it is a vote on the underlying bill.   

That said, I do have some specific concerns about the legislation as it is currently drafted.  

To begin with, the Marketplace Fairness Act, in its current form, is a fairly short 11 pages long.  This bill essentially provides two avenues for states to compel remote sellers, or out of state businesses, to collect and remit sales and use taxes.  

Under the bill, a state may either meet specified minimum requirements or be a member state under the Streamlined Sales and Use Tax Agreement, as long as the minimum requirements are met under the Agreement.  

The Streamlined Sales and Use Tax Agreement is a good deal more complicated than the Marketplace Fairness Act.  

For starters, at 203 pages, the Agreement is about 18 times longer.  

Since its adoption on November 12, 2002, the Streamlined Sales and Use Tax Agreement has been amended 28 times, most recently last year.  

The Streamlined Sales Tax Governing Board has done excellent work in bringing states together to cooperatively and voluntarily address the issues of sales and use tax complexity and administration, among other issues.

According to the Streamlined Sales Tax Governing Board, 24 states have adopted the simplification measures in the agreement, representing 31 percent of the population.  

The authors of the Marketplace Fairness Act hope to apply its measures to all 50 states and 100 percent of the population.  However, the bill is comparatively short on details.  

For example, the Streamlined Sales and Use Tax Agreement contains provisions on rules for the sourcing of sales, along with exclusions to those rules. In order to levy the appropriate sales tax, you must determine the location and subject matter of a transaction.

This level of detail is not present in the Marketplace Fairness Act.

It is unclear if the floor established on sourcing requirements under this bill is sufficient to protect consumers from unintended consequences.  

For example, I have received a letter from the American Society of Pension Professionals and Actuaries, who are worried that this legislation “would allow states to impose a financial transaction tax that would apply to American workers’ 401(k) contributions and other transactions within worker’s accounts.”

Another concern I have with the current version of the Marketplace Fairness Act is that it contains a preemption clause which could make it possible for states to expand the reach of their sales taxes through creative legislating.  

While the Streamlined Sales and Use Tax Agreement at least provides an avenue for the input of multiple states, the states that are not subject to the Agreement would, under this bill, be able to legislate knowing that the federal government will compel enforcement of their tax laws on non-residents.  

I am also concerned with the potential transition costs that will come with this legislation.
Retailers have been operating in an environment where they have not been required to collect and remit sales taxes for states where they do not have a physical presence.  This legislation would change that almost in an instant.

Before we enact a new sales tax system, we need to take into account the costs that system will impose on businesses of all sizes and the difficulties these companies will face as they adapt to the new regime.   

For example, there is the issue of vendor compensation.  The Streamlined Sales and Use Tax Agreement currently includes a provision giving states the opportunity to voluntarily compensate remote sellers “as a measure of good faith” for registering to voluntarily collect and remit sales  taxes into states where the seller has no physical presence.    

This is included in the Agreement because, under current law, remote sellers are generally not required to collect and remit the sales tax, and they incur a cost when doing so.  

The Marketplace Fairness Act does not include any provision for compensation of remote sellers.  I believe this is something we must take into account and examine more thoroughly.  

I am also concerned about the small-seller exemption in the bill, which would exempt sellers with national remote sales of less than $1 million from the new requirements to collect and withhold sales taxes.  

This seems like an important concession, but it is not without its problems.  

First of all, the cap on the exemption is not indexed to inflation.  I think anyone who has observed any part of the roughly 50-year process where the Alternative Minimum Tax has grown from a fairness measure targeting the rich to an ever-increasing burden on the middle class should understand how inflation can radically distort policy outcomes over a period of time.  

In addition, there are many who argue that the $1 million exemption may be too low.   In my view, these are concerns that we need to fully consider before bringing the bill to the floor.  

Finally, I want to point out that the bill does not include a provision for a dispute resolution venue.   

Ideally, the bill would give federal district courts exclusive jurisdiction in matters concerning the implementation of this legislation.  

Policy changes with such far-reaching effects inevitably lead to unexpected issues and consequences.  Giving federal courts this jurisdiction would ensure greater uniformity in application of this legislation across the country.

Mr. President, these are just a few of the concerns I have regarding the Marketplace Fairness Act.

I don’t believe these are fundamental concerns.  But, they are issues that need to be addressed.  I am quite certain that, if given an opportunity, the Finance Committee could address these issues without inexorably changing the underlying purpose of the bill.  

However, if we proceed with floor debate on the Marketplace Fairness Act as-is, we won’t have that opportunity.

The Senate simply cannot continue to operate this way.  

Once again, we need to restore the deliberative traditions of the Senate.  That means a return to regular order.  

I know a number of my colleagues have expressed similar concerns about the need to restore the committee process in the Senate.  I hope they will join me in voting No on cloture on the Motion to Proceed to the Marketplace Fairness Act today. I yield the floor.