MINUTES OF THE SENATE COMMITTEE ON REVENUE AND ECONOMIC DEVELOPMENT. Seventy-Eighth Session February 13, 2015

Transcription

1 MINUTES OF THE SENATE COMMITTEE ON REVENUE AND ECONOMIC DEVELOPMENT Seventy-Eighth Session The Senate Committee on Revenue and Economic Development was called to order by Chair Michael Roberson at 3:41 p.m. on Friday,, in Room 1214 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to Room 4412E of the Grant Sawyer State Office Building, 555 East Washington Avenue, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file in the Research Library of the Legislative Counsel Bureau. COMMITTEE MEMBERS PRESENT: Senator Michael Roberson, Chair Senator Greg Brower, Vice Chair Senator Joe P. Hardy Senator Ben Kieckhefer Senator Ruben J. Kihuen Senator Aaron D. Ford Senator Pat Spearman GUEST LEGISLATORS PRESENT: Senator David R. Parks, Senatorial District No. 7 Assemblywoman Marilyn Kirkpatrick, Assembly District No. 1 STAFF MEMBERS PRESENT: Russell Guindon, Principal Deputy Fiscal Analyst Joe Reel, Deputy Fiscal Analyst Bryan Fernley, Counsel Tony Rivano, Committee Secretary

2 Page 2 OTHERS PRESENT: Deonne Contine, Executive Director, Department of Taxation Bryan Wachter, Retail Association of Nevada Carole Vilardo, President, Nevada Taxpayers Association Chair Roberson: The Senate Revenue and Economic Development will discuss the online sales tax issue. Deonne Contine (Executive Director, Department of Taxation): I will present an overview of the Streamlined Sales and Use Tax Agreement (SSUTA) and the challenges it intended to alleviate. I will also address the situation with respect to federal legislation relating to online sales. Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct (1992) was a U.S. Supreme Court ruling concerning the use tax. In its ruling, the Court held that a state might not require a seller that does not have physical presence in that state to collect use taxes on sales in that state because that requirement would burden interstate commerce. The Court pointed to a patchwork system of sales tax collection across many states, which included over 6,000 state and local taxing jurisdictions. Quill Corporation is an office supply retailer with no physical presence in North Dakota. The Quill case covered catalog sales transactions; customers would order merchandise through catalogs and receive deliveries inside their state. While the Quill decision predates Internet sales, the holding from Quill is the backdrop for the issues we have related to Internet sales. In the ensuing years since the Quill decision, many states, state government officials and the business community have met to discuss ways in which they can work together to provide some consistent rules and to encourage the U.S. Congress to act so that states would be able to collect revenues from online sellers as opposed to the use tax being the way they would be paid. This project led to the SSUTA. There are 24 states that participate in the Agreement. The SSUTA is administered by the Streamlined Sales Tax Governing Board (SSTGB). The SSUTA created consistent rules and administration, and the

3 Page 3 SSTGB has been working to help the U.S. Congress understand that this project is in the best interest of states and to urge it to enact legislation. Nevada is a member of the SSUTA, which was enacted in 2005 with 24 participating states. Nevada Revised Statutes 360B include the provisions covered by the SSUTA rules. Nevada receives some voluntary payments through SSUTA. These payments are from sellers who support the SSUTA concept and want to be a part of the solution. Although these sellers are not required to collect and remit online sales taxes to Nevada, they do so. Nevada collects voluntary sales taxes through various entities amounting to approximately $30 million a year. Nevada must comply with SSUTA guidelines and submit to an annual compliance review. Senator Kieckhefer: Of the $30 million that is voluntarily remitted to the State, what would be the estimated total collections if the federal law were enacted and all states participated? Ms. Contine: I do not know, but estimates have been done for other entities. With respect to Nevada, it is possible that the voluntary payments could stop. We do have online retailers with a physical presence in the State, and they are remitting payments. These retailers are primarily large box stores, which collect and remit payments to the State for their online sales. It may be possible to review the national online sales figures and take a percentage of those sales based on some formula. We can then look at Nevada s collections, but I do not know what that amount would be. Nevada undergoes an annual SSUTA compliance review. In each legislative session, we may have a cleanup bill arising from SSUTA. The SSTGB may feel Nevada is inconsistent or not complying with SSUTA rules. I have provided the Committee with an article (Exhibit C) and a letter (Exhibit D) covering the status of federal legislation. The Marketplace Fairness Act was proposed legislation in the U.S. Congress that would have enabled state governments to collect sales and use taxes from remote retailers with no physical presence in their states. The bill passed the U.S. Senate, but did not pass the U.S. House of Representatives. Late last month a new measure, The Online Sales Simplification Act of 2015, was introduced, and as explained in

4 Page 4 Exhibit C, this legislation covers a seller origin rule. The seller origin rule implies that the sales tax is based on where the sale takes place and where the seller is located. The rate of the sales tax is based on where the seller is located. With few exceptions, the law would take away the ability to assess the destination s state use tax. To prevent remote sellers from flocking to the states that do not impose sales taxes, i.e., New Hampshire, Oregon, Montana, Alaska and Delaware, known as NOMAD states, the Online Sales Simplification Act would require sellers to collect a tax using a flat rate or report sales information, by state, to a registry or clearinghouse. The NOMAD states would also be required to participate in a distribution agreement. The agreement would cover the common exemptions to be applied by NOMAD state sellers. In a letter dated January 29, Exhibit D, to Chairman Bob Goodlatte, Committee on the Judiciary of the U.S. House of Representatives, the Streamlined Sales Tax Governing Board outlines its concerns with the proposed legislation from the perspective of purchasers, retailers and states. Since the inability to assess the use tax to its residents is a significant problem for states, SSTGB does not support the proposal and is not sure if the proposal will be successful. Assemblywoman Marilyn Kirkpatrick (Assembly District No. 1): There have been a number of developments regarding this issue in other states, such as California and New York, dating back to at least Online retailers such as Amazon have challenged states that require an online retailer to collect sales taxes. In response to these challenges, Nevada enacted A.B. No. 403 of the 75th Session, which revises various provisions governing sales and use taxes to ensure continued compliance with the Streamlined Sales and Use Tax Agreement. Uncertainty remains as to how the matter would sustain legal challenges. Given this backdrop, Nevada should continue collecting online sales taxes that it is entitled to while ensuring fairness as to how the tax is collected. Online taxes are being collected in Nevada; however, much of the tax collection remains voluntary. Thus, codifying online sales taxes in statute will help Nevada collect while making it fair in the context of competition for online retailers. This action would also benefit the business community and brick-and-mortar stores that invest in overhead and employees.

5 Page 5 Many states have passed resolutions to encourage the U.S. Congress to be a part of this solution. Senator Debbie Smith has been working through the National Conference of State Legislatures (NCSL) in lobbying Capitol Hill on this issue. I have been working with staff to come up with language similar to legislation that was upheld in the courts. The language contained in my bill will also be similar to legislation that New York has in place. It addresses the issues of the nexus and affiliates to determine who should be responsible for the tax. With respect to Ms. Contine s testimony, there are online retailers that currently pay the tax voluntarily, but this arrangement could change. It is in the State s best interest to pass a law requiring online retailers to pay the tax and for Nevada to execute its due diligence to collect what it is owed. In view of the amount of potential sales tax owed Nevada, the State has not always done a good job collecting this tax revenue. Some of this is because our tax law is unclear, not giving the Department of Taxation the ability to enforce the law. The bill I am proposing will have simple and understandable language and will be shaped by the State Senate. With respect to Senator Kieckhefer s question regarding what would be the amount of online sales tax collections if all states participated, data does exist showing what the amount of online sales would be if all states participated; however, this figure does not factor in the amounts paid by the big box stores and amounts paid voluntarily. Nevada does not have a database to capture these figures, and it is difficult to know the amount of the online use tax. Within a few years, Nevada could have a reasonable expectation of what the State should be collecting and who should be paying the tax. While many people have asked for legislation for a long time, it was important that the State waited until court rulings and interpretations have been finalized to avoid the legal challenges experienced by other states. Bryan Wachter (Retail Association of Nevada): My testimony will cover changing the collection mechanism on Internet purchases. I have provided the Committee with materials (Exhibit E, Exhibit F and Exhibit G). Before discussing the contents of these exhibits, it is important to understand the retail industry s impact in Nevada. Retail supports nearly 400,000 State jobs, has a $23.3 billion impact on Nevada s gross domestic product and provides $8 billion in direct labor income, Exhibit E.

6 Page 6 The Shop.Org SORO Study, Exhibit F, is a survey of major online retailers. This report provides a clear picture of the total amount of online commerce. If we do not change the collection mechanism of online purchases, the e-commerce purchases will continue to cannibalize brick-and-mortar purchases. Allowing this to continue will result in a decrease in total sales tax collection over time as more consumers continue to make Internet purchases. While it is true that retailers with a physical nexus in the State collect sales tax, we do not require all businesses to collect the sales tax. Instead, the State relies on individual consumers to fill out a use tax form and mail the sales tax check to the Department of Taxation. The Retail Association of Nevada (RAN) supports Assemblywoman Kirkpatrick s proposed bill, which would seek to change the mechanism with respect to how use tax is collected. The tax is already owed and due, but instead of the State collecting the tax individually, the online retailer would be responsible for collecting use tax, which mirrors how a brick-and-mortar store collects sales tax. With respect to e-commerce, the biggest priority for online retailers is mobile phones. Smartphone sales grew 87 percent from 2013 to 2014, page 10 of Exhibit F, and tablet sales grew 52 percent over this same period. While some retailers invested seven figures in their smartphone efforts, half of retailers investments were not quite as significant. The 52 percent and 87 percent increases in tablet and smartphone sales, respectively, is huge and RAN continues to anticipate growth in these methods of commerce. The majority of U.S. e-commerce retailers are growing at double-digit rates, and the growth of e-commerce retailers continues to outpace store retailers. Of the retailers surveyed, 74 percent reported that Web sales growth in 2014 was at least 10 percent higher than in 2013, and 27 percent of retailers reported over 25 percent growth from 2013 to Only 8 percent of respondents reported flat or declining sales over this period. Retailers are becoming more showcases wherein consumers take advantage of sales associates knowledge and training. Using a big box electronic store as an example, a consumer can visit the store and get specific product information from the sales associate. The consumer purchases the item online to avoid the sales tax. Some retailers are trying to combat this trend, such as clothing stores, which are beginning to charge customers dressing room fees. In this

7 Page 7 scenario, a retailer will charge the customer the fee, but if the customer makes a purchase, the dressing room fee will be refunded. More retailers are employing various strategies to deal with the increasing trend of online sales to the detriment of brick-and-mortar stores. The ultimate solution to this situation is action by the federal government, that has chosen to abdicate this role since It is time for Nevada to reassert its sovereignty and move forward with the kind of language that Assemblywoman Kirkpatrick is proposing. A report was prepared for RAN by Applied Analysis in 2011 titled Internet Retailers: Collecting Sales Tax for Nevada, Exhibit G. Subsequent to the report s release, through the leadership of Governor Brian Sandoval, Amazon has been collecting sales taxes for online sales. The RAN concurs that the State should have been collecting the tax from Amazon given that it has a warehouse located in the State. Another major change since the Applied Analysis report is that the New York Appellate Court upheld New York s Amazon click-through nexus language, which is the same language being proposed by Assemblywoman Kirkpatrick. This language has never been repudiated by a court, and the U.S. Supreme Court declined to hear the case seeking to overturn previous court decisions. The click-through nexus language has the most potential to be strong and is not likely to be challenged through litigation since the matter has already been adjudicated. New York has retailers collecting the tax already due. The report further cites an example that could be employed, but the language in Assemblywoman Kirkpatrick s proposed bill, which mirrors New York s language, should be adequate for Nevada s purposes. Carole Vilardo (President, Nevada Taxpayers Association): I previously submitted a history of the Nevada Taxpayers Association s (NTA) views on the online sales tax issue dating back to 2000, when the NCSL first surfaced this issue for the National Governors Association and individual states. The NTA views this issue as a major problem. Phone and catalog sales must also be considered along with Internet sales. Many of the companies that market phone sales are not located in the state where the sales occur because the retailers operate out of distribution centers that may be located anywhere.

8 Page 8 William F. Fox, Professor at the University of Tennessee, has been attempting to track these numbers, but I do not have a clue. The approval of a state methodology to address the issue of lost revenue shows that tax laws must fit the way a state does business and the way consumers react. The average consumer is not aware that he or she is responsible for the use tax. It would be very difficult for the Department of Taxation to follow up for the tax by attempting to collect it from consumers, given that consumers will unlikely retain receipts for these purchases. It would not be well received. In the past, the NTA has not supported individual states adopting their own solutions. However, given the inaction in Congress, Nevada must act on its own because the State is losing significant revenue. The exact value of this revenue is unimportant at this point, since it is increasing at an exponential rate. A strong argument for the SSUTA is the existence of 9,900 different sales tax jurisdictions in the U.S. The idea of SSUTA is to reduce the number of jurisdictions to approximately 100 by allowing a state rate and a local rate. It would make it easier for the sellers. The intent behind the SSUTA is to simplify tax collection and acknowledge the way business is done. In 1989, the first piece of legislation presented to the Nevada Legislature in connection with this issue known as the Main Street bill covered catalog and phone sales. I think the bill was sponsored by Assemblyman Tom Grady and NTA supported it. There was similar legislation in the late 1970s, but due to the physical nexus issue, we were unable to enact this piece of legislation. Chair Roberson: I require a motion to request the drafting of four Committee bill draft requests for matters appropriately in our purview. SENATOR HARDY MOVED TO INITIATE FOUR COMMITTEE BILL DRAFT REQUESTS. SENATOR BROWER SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. *****

9 Page 9 Chair Roberson: The meeting is adjourned at 4:13 p.m. RESPECTFULLY SUBMITTED: Tony Rivano, Committee Secretary APPROVED BY: Senator Michael Roberson, Chair DATE:

10 Page 10 EXHIBIT SUMMARY Bill Exhibit Witness or Agency Description A 1 Agenda B 4 Attendance Roster C 3 Department of Taxation Discussion Draft of Origin- Based Online Sales Simplification Act released D 2 Department of Taxation Letter from the Streamlined Sales Tax Governing Board, Inc. E 1 Retail Association of Nevada Retail s Impact in Nevada F 19 G 19 Retail Association of Nevada Shop.Org SORO Study Retail Association of Nevada Internet Retailers: Collecting Sales Tax for Nevada