7/24. The House Judiciary Committee (HJC) held a hearing on HR 3179 [LOC | WW], a bill to authorize states to collect taxes on out of state remote sellers, including internet sellers.

This event mainly featured witnesses and HJC members who advocated giving states power to tax distant internet sellers. Most of the HJC members who participated advocated giving states this taxing authority. While several members raised questions about the bill, there was no group of HJC members who argued against the bill.

Rep. John Conyers (D-MI), the ranking Democrat on the HJC, and a cosponsor of a similar bill, HR 2701 [LOC | WW], the "Main Street Fairness Act", stated that "tax free sales on the internet may be coming to an end".

The Supreme Court ruled in its 1992 opinion in Quill v. North Dakota, 504 U.S. 298, that state and local taxing authorities are barred under the Commerce Clause from requiring remote sellers without a substantial nexus to the taxing jurisdiction to collect sales taxes for sales to persons within the jurisdiction. While that case involved catalogue sales, the same principle applies to online sales.

However, the Supreme Court added that Congress may extend such authority. It wrote that "Congress is now free to decide whether, when, and to what extent the States may burden interstate mail order concerns with a duty to collect use taxes." (At 504 U.S. 318.)

HR 3179, HR 2710, and S 1452 [LOC | WW] would extend to the states such authority.

HR 3179 provides that "a State electing, individually or through an agreement with one or more of the several States, ... is authorized to require all sellers ... to collect and remit sales and use taxes with respect to remote sales into the State without regard to the location of the seller".

The event began with opening statements by Rep. Lamar Smith (R-TX), the Chairman of the HJC, and Rep. Conyers. The event continued with statements by Rep. Steve Womack (R-AR) and Rep. Jackie Speier (D-CA), the lead sponsors of the bill. See, statement and statement.

Next, two elected state officials spoke in favor of the bill. See, prepared statement of Gov. Bill Haslam (R-TN), who spoke on behalf of the National Governors Association, and prepared statement of Wayne Harper, of the Utah House of Representatives, on spoke on behalf of the Streamlined Sales Tax Governing Board.

The panel also included Hanns Kuttner of the Hudson Institute, and Joseph Henchman  of the Tax Foundation. See, prepared statement and prepared statement.

The witness panel was packed with proponents. Steve DelBianco of NetChoice was the only clear critic of the bill on the panel. See, prepared statement.

The panel included no law professors, economists, or other experts who have conducted or published treatises or research on the subject.

Rep. Smith argued that online sellers "enjoy a competitive advantage over traditional retailers". He argued also that the states need more revenue, and that the Quill rule is "unfair". See, prepared statement.

The proponents of this bill may have the votes in committee to pass a bill in the HJC. However, few members expressed views on likely amendments at the July 24 event.

Other HJC members who are also sponsors of this bill include Rep. Ted Poe (R-TX), Rep. Dennis Ross (R-FL), Rep. Tim Griffin (R-AR), Rep. Mark Amodei (R-NV), Rep. Bobby Scott (D-VA), Rep. Hank Johnson (R-GA), Rep. Judy Chu (D-CA), Rep. Maxine Waters (D-CA), Rep. Linda Sanchez (D-CA), Rep. Steve Cohen (D-TN), Rep. Mike Quigley (D-IL), and Rep. Ted Deutsh (D-FL).

One often debated point was whether HR 3179 would create a "new tax". Proponents mostly argued that it does not, and that it merely enables collection of an existing taxes. Rep. Elton Gallegly (R-CA) argued that "when you have to pass a law to tax somebody", it is a new tax.

All members face elections in just over four months. Rep. Johnson stated that while he supports the bill, "I feel the specter of Grover Norquist in the room". Norquist is the head of Americans for Tax Reform (ATR).

Representatives of states with no sales tax have little incentive to support HR 3179. These states would gain no revenue, but their online businesses would pay money to other states.

Montana, Oregon, Delaware, New Hampshire have no state sales tax, and no local sales taxes. Alaska has no state sales tax, but allows local sales taxes. The only city, Anchorage, has no general sales tax. No Representative from any of these states sits on the HJC. These five states have a total of only 10 members in the House.

However, these five states have 10 Senators, one of whom is a member of the Senate Judiciary Committee (SJC). While this is a tax issue, it falls within the jurisdiction of the judiciary committees, and not the House Ways and Means Committee (HWMC) and Senate Finance Committee (SFC).

States with no income tax, and that rely upon high sales taxes, including Tennessee and Texas, have the most to gain from passage of HR 3179.

Most states have both state and local sales taxes. Most state sales tax rates range from 4% to 7%. Although, what goods are covered, as well as how they are defined, are also key. Some states impose taxes on services as well as goods, with wide variation as to what is covered. Texas has a 6.25% rate. Tennessee has a 7% rate. Colorado has a state sales tax, but of the states that have such a tax, it is the lowest rate, 2.9%. See, Sales Tax Institute web page titled "State Sales Tax Rates -- Sales Tax Rates by State".

One matter that has featured in other debates, but not at this July 24 event, is that out of state internet sellers with no Quill nexus to the taxing state place few burdens on that state. Police and fire departments in the taxing jurisdiction do not protect any of the facilities of these distant sellers. School districts do not educate the children of these distant sellers.

One argument that was frequently advanced was that this bill is necessary because in the current economic situation, states need more revenue. Although, some Republicans disclosed that increased revenue from sales taxes on distant internet sellers should be used to reduce other taxes.

Numerous anecdotes, but no comprehensive studies, were cited regarding the nature and consequences of internet sales. Proponents of the bill stated that consumers buy things online because it is cheaper, due to the absence of a sales tax. Critics cited the reviews and additional product information available online, and the larger inventory maintained cy many online sellers as reasons for shopping online. They also argued that shipping and handling charges can more than offset sales taxes.

Much of the debate focused on the complexity of complying with the sales tax regimes of a multitude of different taxing jurisdictions. Some proponents argued that it would be cheap and easy, because of free software.

Critics argued that the software will be expensive, and much of the complexity and cost will lie elsewhere. For example, witnesses stated that the way software would identify the location and taxing jurisdiction of an online purchaser would be the zip code provided by that purchaser. But, they pointed out, zip code boundaries do not coincide with the boundaries of taxing jurisdictions. Critics argued too that different jurisdictions tax different items, and then provide different definitions.

There is no requirement in the bill that requires that states that tax distant online sellers adopt a uniform set of definitions.

One proposal discussed at the July 24 event was having states compensate online sellers for the cost collecting sales taxes. This is not in the bill.

Another proposal discussed on July 24, to provide simplicity to sellers, was to allow internet sellers to collect sales taxes for the tax imposing states under their local rules and rates. Under such a system, sellers would only have to know one set of rules and rates. One response was that this might cause many internet sellers to move to places with no state or local sales taxes.

Also, the small seller exemption was the focus of much discussion. Critics pointed out that many mom and pop businesses have over $1 Million in sales, the exemption in HR 3179, but make little profit. Hence, they argued that the exemption is too small. Some proponents of the bill suggested that any exemption would be unfair to those small brick and mortar sellers who have no exemption.

Finally, "jobs" was often cited by both proponents and critics of HR 3179. Although, there was no discussion of studies based upon statistics or economic theory, and no one offered any reasoned analysis to bolster the claims that either enactment or rejection of HR 3179 would have a predictable impact upon employment.

7/24. The House Judiciary Committee (HJC) held a hearing on HR 3179 [LOC | WW], a bill to authorize states to collect taxes on out of state remote sellers, including internet sellers.

Much of the testimony and debate of witnesses and members focused on "fairness", "leveling the playing field", "jobs", "the economy", and the need for more state revenue.

The gist of this piece is that support for this bill has much more to do with the motivations of voters, the self-interest of impacted industry sectors, and electoral politics.

State and local governments provide services to persons within their jurisdictions. These cost money. The officials who make decisions regarding services, and raising money to pay for them, are elected, and tend to want to be re-elected. People tend to want more government services, but not higher taxes. Elected officials therefore have incentives to provide more services, but tax their citizens and voters less.

Moreover, industry sectors and organized political factions, in addition to their concerns about services and aggregate taxation, tend to seek government taxation and regulation of others, especially their competitors.

1. Raise revenues from people who are not voters. A common trait of elected state and local officials is that they tend to seek to raise revenues by taxing non-voters.

Many states pursue this strategy via business activity taxes (BATs). This is also the essence of HR 3179. It would enable states to collect taxes from businesses located out of state, to increase tax revenues, while at the same time putting no increased burden on state services. These out of state businesses can contribute to state revenues, but cannot vote in the next election in the tax imposing state.

As a corollary to this, even when state or local governments do not impose a general sales tax, they tend to impose special taxes on those goods and services most consumed by non-residents. So, for example, Oregon and Alaska have no state sales tax, and their largest cities, Portland and Anchorage, have no sales tax either. But both heavily tax hotel rooms, a high proportion of which are paid for by out of state individuals and companies.

If HR 3179 were enacted, most states would collect more in sales tax revenues. Legislators in those states, and in the Congress, would likely claim credit for raising revenues, while maintaining or expanding services, but not raising taxes.

For example, Texas would collect more in sales taxes from internet sellers located in California that sell to Texas consumers. Texas legislators would likely also expect that Texas voters would hold the California retailers accountable, rather than Texas Congressional legislators who voted for HR 3179, or the state legislators who voted to collect sales taxes on remote sellers.

2. Raise revenues from people who are not politically organized. A second common trait of elected officials is that they tend to favor collecting revenues from the less well organized blocks of voters over the well organized voters. The well organized groups can do more to assist elected officials in getting elected, or to unseat them when they have displeased these groups.

For example, some states tax both goods and services. But, of those states that tax services, only a few tax legal services. There are lots of lawyers. They live in all election districts. They are political active, and skilled at organizing to advance their interests.

In contrast, communications services are taxed exorbitantly at all levels of government -- local, state, federal, and for the Federal Communications Commission's (FCC) universal service tax and subsidy programs. Communications companies tend to be well capitalized and capable of employing the finest lobbyists and lawyers. But, they do not have the same number of politically active voters, spread across every electoral district, joining community groups, and playing golf, as does the bar.

Hence, it should not be unforeseeable that legislators at all levels of government tax communications services but not legal services. The consequence is highly regressive taxation that cannot be justified by any fairness argument, but which is nevertheless a predictable consequence of electoral politics.

Currently, at the Congressional level, it is hard to identify a strong lobby, well organized in Congressional districts across the country, that is fighting bills such as HR 3179. And if HR 3179 were enacted, and states could decide to collect sales taxes from distant sellers, the one class of persons in state who would be impacted by that decision would be consumers who buy things online. But, there is no association of online consumers that has the organization and political sway to mount a campaign to stop such a decision.

3. Tax to protect politically organized groups. A third common trait of elected officials is that they often seek to impose tax burdens for the purpose of providing a competitive advantage to politically organized groups.

First, compare brick and mortar (BAM) stores located in the taxing jurisdiction, with their out of state online competitors. These BAM sellers are clearly the better organized and more influential in their home states. They have employees in state. The BAM and online stores each have their competitive advantages and disadvantages. BAMs can display products, but onlines can publish product descriptions, photos and customer reviews. BAMs may charge a sales tax, but onlines may charge shipping and handling. BAM customers carry products out the door, while online customers wait days for delivery, but online stores may have larger inventories. And so forth.

If HR 3179 were to become law, the online stores would be saddled with new competitive disadvantages. First, there is the cost of collecting taxes. The BAM must collect taxes, but it only needs to know the local tax rules. The online store would need to know the tax rules of every state and local taxing jurisdiction around the country. Moreover, the BAM does not need to know anything about the purchaser. Who the customer is, or where he or she lives is of no concern. In contrast, the online would need to know the location of every customer: not only the shipping address, but also which taxing jurisdictions. The cost of complying, and dealing with audits, and demands for underpaid taxes, will raise the cost of doing business for the online stores. The in-state BAMs would benefit from this.

Second, compare big box chain stores which also have internet arms, with very small businesses. Even before the advent of online sales, big box stores were driving small main street stores out of business. Today, these big boxes already have a nexus to every jurisdiction in which they have a store, warehouse or other facility. Enactment of HR 3179 would thus have a limited impact on their sales tax collection obligations for online sales.

Many small stores turned to the internet to remain viable. But, they may only have a Quill nexus in a single location. HR 3179 would greatly increase their tax collection obligations. Moreover, the big boxes will be more able to bear the cost of compliance than the small businesses.

Competitors compete in the marketplace by trying to offer better products and lower prices. Some also compete in the government arena by seeking to impose taxes and regulatory burdens on their marketplace competitors. Some of the advocacy of HR 3179 might be viewed in this light.

The House will meet at 10:00 AM for morning hour, and at 12:00 NOON for legislative business. The schedule for the week includes no technology related items. See, Rep. Cantor's schedule.

Day two of a two day event hosted by the American Intellectual Property Law Association (AIPLA) titled "AIPLA 16th Annual Patent Cooperation Treaty Seminar". For more information, contact aipla at aipla dot org or call 703-415-0780. Location: Alexandria, VA.

10:00 AM. The House Judiciary Committee (HJC) will hold a hearing on HR 3179 [LOC | WW], a bill to authorize states to collect taxes on out of state remote sellers, including internet sales. The witnesses will be Rep. Steve Womack (R-AR), Rep. Jackie Speier (D-CA), Gov. Bill Haslam (R-TN) (on behalf of the National Governors Association), Wayne Harper (Utah House of Representatives, on behalf of the Streamlined Sales Tax Governing Board), Hanns Kuttner (Hudson Institute), Steve DelBianco (NetChoice), and Joseph Henchman (Tax Foundation). The HJC will webcast this hearing. This bill has a title that does not describe its content, "Marketplace Equity Act of 2011". See, notice. Location: Room 2141, Rayburn Building.

POSTPONED. 10:00 AM. The House Foreign Affairs Committee (HFAC) will hold a hearing titled "World Intellectual Property Organization Technology Transfers to Rogue Regimes". See, notice. Location: Room 2172, Rayburn Building.

12:00 NOON. Sen. Joe Lieberman (D-CT), Sen. Susan Collins (R-ME), Sen. Jay Rockefeller (D-WV), Sen. Dianne Feinstein (D-CA), and Sen. Tom Carper (D-DE) will host a news conference to discuss S 3414 [LOC | WW], a revised version of S 2105 [LOC | WW], the "Cybersecurity Act of 2012". See, notice. Location: Senate Radio & TV Gallery, Capitol Building.

1:00 - 2:30 PM. The Information Technology and Innovation Foundation (ITIF) will host a panel discussion on the use of information technology for voting and voting registration. It is titled "Making Voting Accessible for Disabled Veterans". The speakers will include Sen. Johnny Isakson (R-GA), Daniel Castro (ITIF), Brad Fain (Expeditionary Medical Facility Human Systems Integration), and Carol Paquette (Operation BRAVO Foundation). See, notice. Location: Room 188, Russell Building.

2:30 PM. The Senate Commerce Committee (SCC) will hold a hearing titled "Cable Act at 20". The witnesses will be Melinda Witmer (Time Warner Cable), Colleen Abdoulah (WOW Internet, Cable, and Phone), Martin Franks (CBS Corporation), Gordon Smith (National Association of Broadcasters), Mark Cooper (Consumer Federation of America), Preston Padden (University of Colorado School of Law). See, notice. Location: Room 253, Russell Building.

2:30 PM. The Senate Intelligence Committee (SIC) will hold a closed meeting to mark up undisclosed legislation. See, notice. Location: Room 219, Hart Building.

Deadline for carriers to file with the Federal Communications Commission's (FCC) Wireline Competition Bureau (WCB), with respect to the Connect America Fund Phase I (CAF Phase I), notices stating the amount of support each wishes to accept, and the areas by wire center and census block in which the carrier intends to deploy broadband, or stating that the carrier declines incremental support for 2012. See, notice in the Federal Register, Vol. 77, No. 105, Thursday, May 31, 2012, at Pages 32113-32114.

The House will meet at 10:00 AM for morning hour, and at 12:00 NOON for legislative business. The schedule for the week includes no technology related items. See, Rep. Cantor's schedule.

9:30 - 11:00 AM. The New America Foundation (NAF) will host a panel discussion titled "Transatlantic Perspectives on Digital Rights and Online Privacy". The speakers will be Daniel Weitzner (Executive Office of the President), Konstantin von Notz (Bundestag), Markus Beckedahl, Jeannette Hoffman (Alexander von Humboldt Institute for Internet and Society), Gigi Sohn (Public Knowledge), and Sacha Meinrath (NAF). See, notice. Location: NAF, Suite 400, 1899 L St., NW.

10:00 AM. The House Foreign Affairs Committee (HFAC) will hold a hearing titled "Investigating the Chinese Threat, Part Two: Human Rights Abuses, Torture and Disappearances". The HFAC will webcast this hearing. See, notice. Location: Room 2172, Rayburn Building.

12:30 PM. The House Judiciary Committee's (HJC) Subcommittee on Intellectual Property, Competition and the Internet will hold a hearing titled "Cloud Computing: An Overview of the Technology and the Issues facing American Innovators". The witnesses will be Robert Holleyman (Business Software Alliance), Justin Freeman (Rackspace), Dan Chenok (IBM), and Daniel Castro (Information Technology and Innovation Foundation). See, notice. Location: Room 2141, Rayburn Building.

RESCHEDULED FROM JULY 20. 2:00 PM. The House Ways and Means Committee's (HWMC) Subcommittee on Human Resources will hold a hearing titled "Use of Technology to Improve the Administration of SSI’s Financial Eligibility Requirements". See, notice. Location: Room 1100, Longworth Building.

6:00 - 9:15 PM. The DC Bar Association will host a panel discussion titled "Fundamentals of Patents and Licenses for Pharmaceutical and Biotech Products". The speakers will be Thomas Clouse (National Cancer Institute) and Eldora Ellison (Sterne Kessler). The price to attend ranges from $99 to $129. CLE credits. See, notice. For more information, call 202-626-3488. The DC Bar has a history of barring reporters from its events. Location: DC Bar Conference Center, 1101 K St., NW.

The House will meet at 9:00 AM for legislative business. The schedule for the week includes no technology related items. See, Rep. Cantor's schedule.

9:00 AM. The House Intelligence Committee (HIC) will hold a hearing titled "Ongoing Intelligence Activities". See, notice. Location?

9:30 AM. The House Judiciary Committee's (HJC) Subcommittee on the Constitution will hold a hearing titled "Oversight Hearing on the U.S. Department of Justice Civil Rights Division". See, notice. Location: Room 2141, Rayburn Building.

9:30 AM. The House Financial Services Committee (HFSC) Subcommittee on Capital Markets will hold a hearing titled "The 10th Anniversary of the Sarbanes-Oxley Act". See, notice. Location: Room 2128, Rayburn Building.

10:00 AM. The Senate Judiciary Committee (SJC) will hold an executive business meeting. The agenda includes consideration of S 225 [LOC | WW], the "Access to Information About Missing Children Act of 2011". The agenda also includes consideration of the U.S. District Court nominations: Jon Tigar (USDC/NDCal), William Orrick (USDC/NDCal), and Thomas Durkin (USDC/NDIll). See, SJC notice. Location: Room 226, Dirksen Building.

1:00 PM. The Senate Judiciary Committee (SJC) will hold a hearing on the nomination of William Baer (Arnold & Porter) to be Assistant Attorney General (AAG) in charge of the Department of Justice's (DOJ) Antitrust Division. See, SJC notice. Location: Room 226, Dirksen Building.

1:00 - 2:30 PM. The American Bar Association (ABA) will host a webcast and telecast panel discussion titled "Accelerated Case Resolution Before the Trademark Trial and Appeal Board". The speakers will be Peter Cataldo (Administrative Trademark Judge at the USPTO's TTAB), Cheryl Goodman (Interlocutory Attorney USPTO/TTAB). George Pologeorgis (Interlocutory Attorney, USPTO/TTAB), Mary Margaret O'Donnell (Blue Filament Intellectual Property). Prices vary. CLE credits. See, notice.

2:30 PM. The Senate Intelligence Committee (SIC) will hold a closed hearing on undisclosed matters. See, notice. Location: Room 219, Hart Building.

The House will not meet. See, Rep. Cantor's schedule.

1:00 - 2:30 PM. The American Bar Association (ABA) will host a webcast and telecast panel discussion titled "Trademark Prosecution: Lessons from the Trenches". The speakers will be Cheryl Black (Goodman Allen & Filetti), Tricia Thompkins (Perry Ellis International), Hellen Johnson (USPTO), Sharra Brockman (Verv). Prices vary. CLE credits. See, notice.

The House will not meet.

Deadline to submit comments to the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) regarding its its draft SP 800-130 [112 pages in PDF] titled "A Framework for Designing Cryptographic Key Management Systems".

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its Public Notice [MS Word], DA 12-818, regarding the privacy and data security practices of mobile wireless services providers with respect to customer information stored on their users' mobile communications devices. See also, notice in the Federal Register, Vol. 77, No. 114, Wednesday, June 13, 2012, at Pages 35336-35338.

DATE AND TIME CHANGE. 12:00 NOON - 1:30 PM. The Information Technology and Innovation Foundation (ITIF) will host a panel discussion titled "Powering the Mobile Revolution: Principles of Spectrum Allocation". The speakers will be Richard Bennett (ITIF), Christopher McCabe (CTIA), Morgan Reed (Association for Competitive Technology), John Liebovitz (FCC), and Thomas Tower (OSTP). See, notice. Location: Room B-318, Rayburn Building.

7/19. The Senate Judiciary Committee (SJC) announced that the agenda for its executive business meeting on July 26 includes consideration of S 225 [LOC | WW], the "Access to Information About Missing Children Act of 2011", a bill that would have greater impact than its title suggests.

Sen. Amy Klobuchar (D-MN) introduced this bill on January 31, 2011. The cosponsors are Sen. John Cornyn (R-TX) and Sen. Patrick Leahy (D-VT). The SJC has not held a legislative hearing on this bill. None of the cosponsors wrote a statement for the Congressional Record. The same three introduced a substantially identical bill in the 111th Congress, S 4042 [LOC | WW]. The SJC took no action on that bill.

However, Sen. Klobuchar states in a page in her web site titled "Families and Children" that "I authored the bipartisan Access to Information about Missing Children Act with Republican Senator John Cornyn of Texas to help federal, state, and local law enforcement locate missing children whose whereabouts could be discovered though basic information on federal tax returns." (Emphasis added.)

Nevertheless, the bill makes no reference to tax returns, the Internal Revenue Service (IRS), or the Internal Revenue Code (IRC). It applies to information held by all federal agencies. This may be a consequence of the Byzantine politics of the Congressional committee jurisdiction system. As a result, if this bill were enacted into law, it would affect the confidentiality of records at every federal agency.

(This is the first four paragraphs of a long and technical story, which is published in full in the TLJ web site. The full story makes the statements that "the bill would not only substantially undermine the entire IRS confidentiality regime, it would undermine confidentiality at every agency in the federal government", and "S 225, if enacted, would be ripe for abuse". See, full story.)

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