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Deputy Director, Citizens for a Sound Economy
Before the Oregon House Revenue Committee
On the Matter of S.B. 660 and Internet Taxation
May 11, 2001
Thank you very much for the opportunity to speak to you this morning about a bill of great significance to Oregon consumers, SB 660, “The 2001 Internet Tax Ban.” My name is Ross Marzolf and I am a deputy director at Citizens for a Sound Economy. Today I am here on behalf of Russ Walker, the director of Oregon Citizens for a Sound Economy, and more than 8,000 members and supporters in Oregon.
CSE has been fighting for less regulation, lower taxes, and more economic freedom since our founding in 1984. For the past three years, CSE has been educating our membership and the public at large about the danger that taxes on Internet access and sales could pose to consumer welfare.
Last year, Oregon CSE mobilized grassroots support for an Internet Tax moratorium through a frenzy of e-mails, phone calls, and faxes to Washington County Commissioner Delna Jones of the President’s Advisory Commission on Electronic Commerce. In a conversation that my colleague Russ Walker had with Commissioner Jones last year, she exclaimed, “I got so many faxes, letters, and phone calls and a billion e-mails all with your organization’s name on it.”
Oregon CSE also mobilized grassroots support in 1999 for the successful alternative telecommunications regulation initiative. Thanks to numerous calls, letters, and personal contacts, Oregon CSE was able to push telecom regulation reform to the top of the legislative agenda, and get it passed. This much-needed reform has increased telecom investment in the state and dramatically improved access to the Internet in general, and broadband Internet in particular.
While we were pleased that SB 660 passed the Senate with nearly unanimous support, we are not pleased that the Senate stripped the bill of its most meaningful component: a ban on the imposition of sales and use taxes on Oregon consumers, or sales and use tax collection obligations on Oregon businesses.
Therefore CSE supports the following amendments to SB 660:
Dash A4(in its entirety)
Subsection b only (deals with bit or bandwidth tax)
ALL of section 3 and subsections A, B, C (Which prohibits franchise fees on Internet service over cable systems)
Oregon CSE strongly supports amendments to 660 that would prohibit the state, or any of its political subdivisions, from assisting in the collection of a sales or use tax imposed by another state. Sales and use taxes are a matter that should be addressed between a state’s government and the residents of that state. Other states should not have the power to whimsically enlist Oregon retailers to collect their taxes.
The language of this amendment reflects that of 1998’s “Internet Tax Freedom Act,” sponsored by Senator Wyden.
If implemented, this amendment would stop Internet sales proposals from infecting the Oregon economy and erect a wall of safety for Oregon consumers.
In Washington, D.C., various proposals are currently being debated to create an Internet tax cartel whereby state governments would gain the power to compel retailers from other states to collect their taxes.
Oregon consumers are particularly threatened by such schemes. A tax cartel would place an undue regulatory burden on Oregon businesses unaccustomed with sales tax collection that would be transferred to Oregon consumers in the form of higher prices. A tax cartel could also force Oregonians to subsidize the tax collection efforts of other states through our tax dollars.
These tax cartel proposals have placed Oregon consumers in a state of tax-purgatory. If something is not done this legislative session, Oregon consumers may be enlisted to pay for a costly and inefficient extra-constitutional tax bureaucracy. The Oregon legislature must defend its consumers from such a desperate and ill-conceived proposal.
If other states wish to drive investment outside their borders and compromise consumer privacy through state-sponsored accounting software and so-called trusted third parties, that is their mistake to make. But there is no reason Oregon consumers should fall victim to such a misguided scheme. We must not hire out tax collection to firms who would have an incentive to over-collect taxes.
If we take a step back from the heated rhetoric and reflect on the case for an Internet tax cartel for a moment, its perverse logic becomes apparent. When tax collectors first came up with the cartel idea, their thinking went something like this: “It is more difficult to collect taxes on out-of-state Internet purchases, so we must place a new burden on out-of-state businesses and consumers to collect the taxes for us.”
Of course, such regulation would require retailers to know the specific tax laws of over 7,000 independent U.S. jurisdictions, collect the appropriate tax, and then remit it to the relevant tax authority. The cost to comply with this convoluted system would be passed on to consumers in the form of higher prices.
Once the unjustifiable compliance costs of this regulatory burden became known, the original cartel proposal became politically untenable, so revisions had to be made. To address this concern, the two leading cartel proposals encourage states to “simplify” their tax systems to an unspecified degree and use tax dollars to reimburse retailers, or accountants with whom they contract, for the cost to comply with the regulatory burden.1
This scheme would tax consumers to subsidize sellers so they can collect more taxes from the same consumers!
It is also essential to note that in a federalist tax system, states attempt to attract businesses and consumers by making their tax and regulatory polices more appealing than those of rival states. This leads to greater prosperity across the nation as the ambitions of state regulators are held in check by the constant risk of capital flight. To conspire with other states to limit the risk associated with overly burdensome taxes and regulations is to replace the federalist arrangement with a cartel that would erode, if not completely eliminate, Oregon’s competitive advantage in the West.
If sales taxes are standardized across the nation, tax competition between states will not end; it will simply involve different taxes. States will attempt to lower income, property, and corporate excise taxes to lure business while making up the difference through a higher nationwide sales tax rate that business cannot avoid. This tax competition could prove disastrous to Oregon’s economy, or budget, or both.
We still have much to do to remove regulatory barriers to investment and competition in Oregon and Oregon CSE members understand that. Our activists continue to show up and to demand less government intrusion in the marketplace on a regular basis. However, my purpose today is much more simple. I would like to communicate a very simple message to you on behalf our Oregon CSE.
Oregon consumers should not be required to pay taxes to out of state tax collectors. Likewise, Oregon businesses should not become the unwilling tax collectors for distant politicians who do not live, work or face voters in Oregon.
S.B. 660 must be amended to prevent this tragedy from coming to pass. It is important to reassert the essential component of this legislation that provide taxpayer protection against out of state sales and use taxes.
Oregon does not have a sales or a use tax. We should not pay or collect sales and use taxes for others. Mr. Chairman, thank you again for the opportunity to present this testimony.
1 Cartel agreement introduced in North Carolina (SB 144). http://ncleg.net/html2001bills/CurrentVersion/senate/ sbil0144.full.html