Progress in D.C.

Earlier this month Congress made significant progress on two issues of importance to the Governors’ Council – advancing the issue of e-retailers collecting state sales taxes and discussion of the nation’s workforce system.

The Governors’ Council has long advocated for a federal solution to the problem created when the Supreme Court ruled in its 1992 Quill Corp. v. North Dakota decision that states could not require remote sellers to collect state sales taxes unless the seller had a ‘physical presence’ in the state. Quill Corp. was a Delaware-based office supply company that sold products through a catalog and advertising to customers in North Dakota, among other states. The Supreme Court sided with Quill in arguing it did not have a ‘significant nexus’ in the State and was therefore, not required to collect and remit the taxes. E-retailers are now protected by the Quill decision and largely do not collect state sales taxes in states in which they do not have a physical presence.

While states are losing billions of dollars in tax revenue and their ability to make their own taxing decisions is being impinged by the Court decision, brick and mortar businesses are at a competitive disadvantage to their online competitors. It is blatantly unfair to require one type of business to collect a tax while not requiring the same of another type of business. Importantly, consumers who purchase products online still owe the taxes and are supposed to remit them to their states on their own but people either don’t know about the law or simply don’t do it knowing that states do not have the resources to track them down.

Last year the Senate passed the Marketplace Fairness Act (S. 743) to allow states to require e-retailers to collect and remit the taxes as long as the state was either part of the Streamlined Sales and Use Tax Agreement or had put in place a simplified means for the business to collect the hundreds of state and local taxes. The Streamlined Sales and Use Tax Agreement (SSUTA) has been developed over the last decade through a partnership of state and business interests with the goal of making the tax collection process more efficient. Twenty-four states have already signed on to the agreement, and we expect more to join in the near future. The SSUTA is an innovative, common-sense compact that makes the collection of these taxes simple for retailers.

Because the bill provides an alternative means to collect the tax and out of erroneous concerns that these are ‘new taxes,’ the legislation has stalled in the House. However, the House Judiciary Committee recently held a hearing in which it invited witnesses to provide alternatives to S. 743. The underlying premise of the hearing was that the taxes are already owed and that Congress should find a way to ensure their collection to protect both Main Street businesses and states’ rights.

While the witnesses offered several alternative solutions, governors continue to believe the solution is simple – allow states that participate in SSUTA to require e-retailers to collect the taxes. It’s a simple, state-designed solution to a problem forced on them by the federal judiciary and we encourage the committee to move quickly to enact it. Another issue of critical importance to the economic well-being of states is the federal system of 47 workforce laws. Council members were pleased to see a bipartisan group of senators find agreement on long term unemployment insurance. We as individuals may not necessarily agree with all facets of the Senators’ proposal but the fact that ten Senators devoted so much time to workforce-related issues gives us hope that perhaps now is the time to address comprehensive workforce reform.

Earlier this month, the council released a report detailing the need for a new system that better aligns the needs of the employer community with the training and education being provided to those seeking work. Currently these two needs are not coordinated such that we as a nation are spending literally 10s of billions of dollars to train people for jobs that do not exist while millions of jobs remain vacant because companies can’t find workers with the skills they need.

As the president noted in his State of the Union address, there must be an across-the-board reform of all of these programs. Where to start when each one of these programs has a congressional committee and federal agency protective of its jurisdiction and entrenched stakeholders who do not want to give up guaranteed federal funding?

The answer – demonstrate success. Allow governors to show that they can design more-effective programs. Just as Congress has previously done with pre-TANF welfare programs and Medicaid, it should grant governors waivers to many of the federal workforce requirements, allowing them to consolidate programs and funding streams and create state-based holistic programs.

No one knows better the needs of their employers and their unemployed than governors. Governors are judged on their state’s unemployment numbers and where they rank in comparison to other states. Their number one job is economic growth and job creation. They are far more likely to be concerned with the needs of all of those looking for work in their states, including veterans, youth, homemakers and dislocated workers, than any federal bureaucrat.

For more information about the council’s recommendations, see our report.

We look forward to working with Congress to provide governors the opportunity to show that they can design a more efficient and effective system than the current hodgepodge of federal programs.