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Statement of The Hon. Andy Kim on South Dakota v. Wayfair, Inc.: Online Sales Taxes and their Impact on Main Street

Washington, March 3, 2020

America’s small businesses are a catalyst for creating employment opportunities and driving growth in the U.S. economy. That is because the 30 million small firms in the U.S. represent over 99 percent of all employers, and support nearly 56 million jobs.  That is why we need to be enacting policies that help small businesses deliver the products, services, jobs, innovation, and income that Americans rely on.

One way for Congress to support small businesses is through well-conceived and targeted tax policy. In my short time in Congress, and on this Committee, I’ve heard that small firms need tax policy that is simple and certain along with policies that level the playing field and create opportunities not just for Wall Street, but for Main Streets across the country to thrive.

The Federal government plays an important role in the setting tax policy and I’ve seen firsthand back home how the changes in the SALT deduction has negatively impacted homeowners in my district in Southern New Jersey and along the Jersey Shore. However, tax laws enacted by states and local jurisdictions also have an impact on small businesses, especially as economy becomes more interconnected.

New Jersey has a fairly simple sales tax system. The state charges a uniform state sales tax rate of 6.625 percent and we do not have local sales taxes. Other states choose to do things differently. Texas, for example, has 1,594 sales tax jurisdictions. Nationwide, according to the Tax Foundation there are 10,769 state and local tax jurisdictions.

This is a critically important issue for small businesses selling their goods and services online and for the millions of others that are engaging in interstate commerce. In the U.S. Supreme Court’s landmark 2018 decision in South Dakota v. Wayfair, the Court determined that states could collect sales taxes from out-of-state sellers. The decision overruled a 51-year-old precedent which established that states could only collect sales taxes from businesses that had brick and mortar locations in the state.

Even the businesses that sell on Amazon—which — collects and remits state sales taxes for small businesses—do not collect local sales taxes, leaving small businesses to collect and remit local taxes in thousands of jurisdictions across the country. 

While sales taxes are an important source of revenue for state and local governments to build roads, maintain parks, and pay teachers, police officers, and firefighters. but small business owners should not be the collection arm for thousands of taxing jurisdictions. Small businesses simply do not have the time and resources.

Also let’s be clear—this is not a tax avoidance issue. Small business owners want to follow the law, but they need clear rules of the road. The landscape post-Wayfair is that millions of small businesses are unfairly faced with overwhelming and expensive compliance burdens. These burdens unfairly limit the ability of small business owners to offer their products and services across state lines.

I’ve heard from numerous companies in my own district about the heavy financial burdens they’ve faced in the aftermath of the Wayfair decision. One company I’d like to highlight today is the International Products Corporation, a small company that manufactures precision cleaners and assembly lubricants in Burlington, New Jersey. William Herbert, the CFO of the company who has submitted written testimony for today’s hearing, has spent thousands of dollars just to account for the many different tax jurisdictions within which they sell their products. Not only this, but he has had to personally spend a couple days each month calculating and filing the returns in each state. Despite the significant cost his company incurred for compliance, they ultimately paid only $958 in total taxes to other jurisdictions last year. It seems downright unfair to put such burdens on our small businesses. 

That is why today’s hearing is so important. This the first hearing in Congress to solely focus on the small business impacts of the Wayfair decision. We need to shed light on the problems that the Wayfair decision has created for small businesses and explore some actions that Congress can take to bring much needed relief. It should be possible for state and local governments to collect the revenue that pay for the public services we rely on, without imposing excessive compliance costs on small business.

It is my hope that this hearing will allow the voices of small business owners to be heard.  I also hope that this hearing will serve as a springboard for Members of Congress to work together to solve this issue—together.  This is not just an issue in my state, but is an issue for all small business owners across the country.

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