The Daily Signal - How a Supreme Court Decision Is Hurting a Family Business

Episode Date: December 6, 2019

Brad and Hilary Scott run a family jewelry business. They sell jewelry across state lines – and that’s become a huge liability. A recent Supreme Court says they—and other businesses—have to pay sales taxes to other states, which could potentially ruin small businesses like theirs. Daniel Davis recently spoke to them at the annual meeting of the American Legislative Exchange Council in Phoenix. We also cover the following stories: House Speaker Nancy Pelosi announces the House is moving forward on impeachment. Pelosi also has a heated exchange with a reporter. Senate Majority Leader Mitch McConnell promotes the importance of religious freedom. The Daily Signal podcast is available on Ricochet, iTunes, Pippa, Google Play, or Stitcher. All of our podcasts can be found at DailySignal.com/podcasts. If you like what you hear, please leave a review. You can also leave us a message at 202-608-6205 or write us at [e-mail]. Enjoy the show! Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Daily Signal podcast for Friday, December 6. I'm Rachel Del Judas. And I'm Kate Tranko. Brad and Hillary Scott run a family jewelry business. They sell jewelry across state lines, and that's become a huge liability. A recent Supreme Court case says they, in other businesses, have to pay sales taxes to other states, which could potentially ruin small businesses like theirs. Daniel Davis recently spoke to them at the annual meeting,

of the American Legislative Exchange Council in Phoenix. We'll share that interview. And don't forget, if you're enjoying this podcast, please be sure to leave a review or a five-star rating on iTunes and encourage others to subscribe. Now on to our top news. It's on. House Speaker Nancy Pelosi announced Thursday

that the House is acting to impeach President Trump. Here's what she said via the New York Times. Our democracy is what is at stake. The President leaves us no choice but to act because he is trying to corrupt once again the election for his own benefit. The President has engaged in abuse of power, undermining our national security and jeopardizing the integrity of our elections. His actions are in defiance of the vision of our founders and the oaths of office that he takes to preserve, protect, and defend the Constitution of the United States. sadly, but with confidence and humility, with allegiance to our founders, and a heart full of love for America. Today, I am asking our chairman to proceed with articles of impeachment.

President Donald Trump is calling the Democrat-led House to impeach him now so the Senate can get on to exonerating him. On Thursday, Trump tweeted, If you are going to impeach me, do it now, fast, so we can have a fair trial in the Senate, and so that our country can get back to business. Trump also said, we will have Schiff, the Bidens, Pelosi, and many more testify, and will reveal for the first time how corrupt our system really is. I was elected to clean the swamp, and that is what I'm doing. Pelosi and a reporter got into a somewhat heated exchange

when Pelosi didn't like this reporter's question, via Politico. Do you hate the president, Madam Speaker? Because representative of... Anybody. Representative Collins suggested, the reason I asked. How we don't hate anybody, not anybody in the world. I did not accuse me. I did not accuse you. You did.

I asked the question. Representative Collins yesterday suggested that the Democrats are doing this simply because they don't like the guy. I have nothing to do it. I think it's an important point. I think the president is a coward when it comes to helping our kids who are afraid of gun violence. I think he is cruel when he doesn't deal with helping our dreamers, of which we're very bad. I think he's in denial about the climate crisis. However, that's about the election.

This is about the election. Take it up with the election. This is about the Constitution of the United States and the facts that lead to the President's violation of those are all of them. And as a Catholic, I resent your using word hate in a sentence that addresses me. I don't hate anyone. I was raised in a way that is a heart full of love and always pray for the president. And I still pray for the president. I pray for the president all the time. So don't mess with me when it comes to words for a job. President Trump tweeted later in the day, Nancy Pelosi just had a nervous fit. She hates that we will soon have 182 great new judges and so much more. stock market and employment records.

She says she prays for the president. I don't believe her, not even close. Help the homeless in your district, Nancy. Trump is also asking the Supreme Court to stop a subpoena for his financial records. The Supreme Court justices have currently put a temporary hold on the subpoena as they are deliberating on whether or not they will take up Trump's appeal, announcing that they will meet behind closed doors on December 13th to discuss a a similar petition concerning a New York grand jury subpoena for Trump's tax returns,

according to CNN. In remarks on the Senate floor Thursday, Senate Majority Leader Mitch McConnell discussed new judges and religious liberty. Last month, New York State convinced a district judge to throw out the Trump administration's conscience protection rule for health care providers. This straightforward rule ensured health care workers could not be. forced to perform or assist with medical procedures that profoundly violate their religious beliefs. But the radical Democrats in New York could not abide this basic protection for people of faith.

Instead, they want to force Christians and other people of faith who work in health care to either assist in procedures like abortion or lose their jobs. So much for freedom of conscience. New York's behavior is part of a disturbing trend. powerful interests on the left want to shrink freedom of religion until it means freedom to go to church for an hour on Sundays as long as it doesn't impact the rest of your life. They want to shrink freedom of religion until it means freedom to go to church for an hour on Sundays as long as it doesn't impact the rest of your life. That shrunken interpretation is nothing like what our founders intended. next up we'll feature Daniel's interview with small business owners

are you looking for quick conservative policy solutions to current issues sign up for Heritage's weekly newsletter the agenda in the agenda you will learn what issues heritage scholars on Capitol Hill are working on what position conservatives are taking and links to our in-depth research the agenda also provides information on important events happening here at Heritage that you can watch online as well as media interviews from our experts. Sign up for the agenda on heritage.org today. Well, I'm joined now by Brad and Hillary Scott. They are the owners of Halstead, a wholesale jewelry company in Arizona. Thanks for your time today. Thanks for having us. Yes, thank you. So you've had this small business in your family

for two generations now, I understand, 46 years. And I understand that you're now planning to retract some of your business activity because of a Supreme Court decision that came down last year. It's South Dakota versus Wayfair. Some of our listeners might be familiar with it. But if you can just tell us what this decision was about, what it does. Right. So this was a Supreme Court ruling instead of legislation, which is really important. And in this case, they decided that states could extend multi-state sales tax collection to remote sellers in other states. So as a company that operates across the country and around the world, anytime we have transactions to other states,

we're now subject to the sales tax laws of the jurisdiction where the buyer is present. So that adds a tremendous amount of complexity in terms of complying now with 50 separate states, revenue laws and sales tax laws, in addition to what we've always done historically, which was complying in our own state where we have physical presence, and then, of course, with the federal government. So to take an example, if someone in Florida buys one of your products online, you then have to do the math and calculate how much sales tax to cut out of the revenue and send to Florida? Right. So this is called the sourcing issue, and it's where the sales tax is assessed.

And in the wake of Wayfair, sales tax is sourced to the destination. And that means whatever the shipping destination is for the transaction shipment. And so in the United States, there are currently 12,000 different sales tax jurisdictions that we need to be able to handle as a business. Well, that seems like an impossible task. It does seem like an impossible task, and we are really struggling to handle it. So how much has this cost your business so far? Well, since we were one of the early adopters, meaning that we were live to collect sales tax in October of last year, we started very early on. And to date, we have spent in excess of $162,000.

The company cost in terms of hours is over 3,300 hours at this point in time. And so it's an enormous drain on our resources. As a small business with 30 people, we don't have 3,300 hours to devote to tax collection for far-flung departments of revenue across the country. What's even more shocking, really, is that in that time, we've only collected about $68,000 in sales tax. so we are spending $2.39 for every single dollar of sales tax that we collect. Wow, that's remarkable.

Have there been layoffs so far because of this? No layoffs yet. We've had four people leave in the last four months, and though we desperately need to replace them, we're not. We are downsizing, but it's through attrition as opposed to through layoffs. If it does come to layoffs, as a small business owner, that's not a decision that we take lightly, and there are a lot of steps we can take before that.

You know, our employees are, they're an extension of our family in a lot of ways. And layoffs is probably the single hardest thing you can even consider as a small business owner. Well, I would imagine a lot of other small business owners are in the same shoes. When you talk to them, what are they saying? How are they dealing with the compliance costs? Well, yes, we are speaking with a lot of other small business owners around the country. And there's a wide range, honestly. So, yes, a lot of businesses are struggling, but what's most frightening, I think, is that a lot of businesses aren't even really aware of Wayfair.

And that means that for the last year and a half, they've been accumulating back tax liabilities in many cases, or even if they have zero-sales tax due, they've been out of compliance on registration and filings. One of the things that's very tricky about this ruling is that it's been discussed in the media as an online retail issue. but states through their policy making have legislated that economic thresholds are based on gross receipts and that means any kind of business activity regardless of the business channel type of product or type of industry. So a lot of manufacturers, wholesalers, and distributors are also swept into this compliance mandate, even though they're not online retailers at all. And again, there's a major lack of awareness among business owners that this applies to them. So if we get three, five years down the line and a state government decides to come after them for all those taxes, they could be potentially out of business?

Well, it's even worse than that. Sales tax is a trust fund tax, which means that you're holding those monies in trust for the government department that you're collecting it for. And if they do come after a company and they assess that company for a fairly substantial amount of sales tax, if the company doesn't have the resources, then the owner's personal assets, their cars, their homes, their investment accounts, their retirement accounts, all become collateralized and are then accessible by the states to finish the completion of payment as they see fit. Well, you and your company have clearly incurred a lot of damage because of this. Have you considered suing? Suing isn't really an option because if we disagree with the state's assessment due to the Anti-Tax Injunction Act, our only option for recourse is to sue in the state where that Department of Revenue is located. So for a company like

ours in Arizona, if this is Florida, for example, we would have to sue the Florida Department of Revenue in the Florida State court system. And that's because of federal law. That's the only path to recourse. And realistically, for an organization our size, that's no path to recourse at all. So we don't feel like small business has a real due process option in this situation. I would imagine you're looking to lawmakers to correct this to make sure the Supreme Court decision isn't the last word. We are, and, you know, Wayfair was a long-fought battle between the states and even people at the federal level. And when we first started having these conversations, we were under the impression that Wayfair was going to be something that the federal government would deal with right away. And they have shown a reluctance to do so.

And so we've been in D.C. pushing for uniformity and simplicity in the rules and regulations that the states are allowed to apply or impose, simply because for a business of our size to remain 50 state compliant, that duty falls on the shoulders of one or two individuals at most. And for most small businesses, we don't have a salt department. And so if it's not something that one person can manage, then there's really no solution. and there's been a lot of noise about the software available to handle this and simplify it, but in our experience the software is riddled with problems. We have had 36 different notifications from states over the last 12 months from SST states that our software provider was not doing its job, but the states don't look at it as a problem with the software provider.

They look at it as our problem, and it's incumbent upon us to correct for that. This is a software that's supposed to be calculating the taxes that you owe. Right. And so it's giving you bad calculations. We haven't had bad numbers return to us. The real problem comes in their filing and remittance practices. They don't necessarily file on time or they'll file the incorrect numbers. I don't know about the remittance practices,

but we have received a number of notifications that we are out of compliance. And what's really galling is that in every single one of those cases, we were in compliance. It was failures at the certified service provider level that led to those notifications. Wow, that's remarkable. Well, you've also noted that the American Revolution was actually fought over this exact issue of being taxed by somebody out of your own jurisdiction. It's a little bit of a tricky distinction. And one thing to insert in the conversation here is that now that states have established economic nexus laws for sales tax, a number of states are using those same economic nexus thresholds for income tax and gross receipts tax on companies.

So whereas sales tax is technically charged to the consumer, it is the responsibility of the business to collect that tax on the consumer in the home state. But there's a distinction there with income and gross receipts taxes because those are direct taxes on entities outside the state's borders, on the business itself. And that is indeed what the revolutionary war was about. It was about taxation without representation. It was about England trying to tax the colonists all the way across the ocean, even though, you know, they weren't there, they weren't present. And yes, that is exactly what the Revolutionary War was about. And the fact that economic nexus is now applied to income tax and gross receipts tax for businesses outside

of state's borders is very concerning. And when you talk to lawmakers about this, are you encouraged by what they say? And do you expect that they'll act on this? I think the good, The greatest challenge when speaking with lawmakers is the fact that there are very few businesses that A, have clean hands, and B, are able to speak up. So, as Hillary mentioned earlier, the awareness issue is a real problem, because if you're not aware and you're out of compliance, then by putting your hand up, you're effectively painting a bull's eye on your back. And so a lot of the businesses that we've spoken to over the last year who are out of compliance,

while they're in total agreement with what we're asking for, are terrified of making any noise whatsoever. And so the sounds that they're hearing on Capitol Hill are from the big companies that are already in compliance because they have 50 state physical presence already, and they're saying everything is working fine. When the fact of the matter is, it's the smaller businesses, you know, the businesses that, if you believe the rhetoric, are the backbone of the American economy that are going to be the ones that are hurt the most by this. And to add on to that, I would just say this is a very complex issue, and I think you get a sense of that just in our discussion so far. So we understand this in detail because we're implementing this policy on a

daily basis in a business. But when you talk about it at a high level, it sounds very, you know, feasible. It's when you get down into the trenches of implementation where you see all of the problems really shake out. So communicating the complexity of this issue and the real problems of applying this policy and practice are our greatest challenges. And we are definitely finding lawmakers at both the state and the federal levels who are willing to listen to this and take action. And I do think we're going to see a lot of trailer legislation in states in 2020 as they try and address some of the unintended consequences that were not anticipated by economic nexus laws.

Well, it's a very, very sobering conversation. I was even unaware before this week that companies like yourself were just under such pressure. So thank you both for sharing. Brad and Hillary. I appreciate your time. Do conversations about the Supreme Court? leave you scratching your head? If you want to understand what's happening at the court, subscribe to SCOTUS 101, a Heritage Foundation podcast, breaking down the cases, personalities,

and gossip at the Supreme Court. I'm joined now by Robert McCauley. He's a state senator from Ohio and the lead sponsor of some key bills reforming that state's licensure laws. State Senator, thanks for your time today. Thanks, happy to be here, Daniel. So licensure laws, there's something that a lot of people favor the idea of being we need to make sure that people in key occupations like doctors and lawyers meet certain qualifications and that they're going to serve everyone with high quality. But this has gotten out of hand in a lot of states, including Ohio. Tell me about the situation in your state when it comes to licensure laws,

at least leading up to the reforms that you recently passed. Yeah, I would say like many other states, there are many occupational licenses. In fact, probably every occupational license at some point started with good intentions. And certainly we all feel that we want our doctors to be licensed. We all want our professional engineers to be licensed. Just do the fact of the severity of what they're handling. In many cases, it can be life or death, or it can be a catastrophic event that we're trying to avoid by having qualified people there.

But in many cases, licensure has actually been used as a barrier to entry to competition. It's been used by the licensees or those who have been in the industry for some time. as a way to keep new entrance into the industry out. And in many cases, it's been used under the justification of health and safety regulations, but a deeper look at many of these licenses will tell you. It has nothing to do with health and safety. The consequences of a mishap in the industry or profession are relatively minuscule compared to many of the other licensed professions.

And these are the ones that we really need to take a look at, because in many cases these are the ones where a barrier to entry could mean the difference between somebody who has the skill set to be able to practice in that trade or profession, being able to feed their family or not. And that's one reason we need to look at it and take a serious look at how we can change that or minimize those regulations. So it's not just doctors and engineers. What kind of industries have been really overburdened by licensure requirements? Well, of course, everybody would expect doctors, engineers, lawyers, all have professional licenses, and strong arguments can be made that we should maintain those licenses. One license that has come under an awful lot of scrutiny in the state of Ohio recently

has been the cosmetologist license that requires 1,500 hours of training to be able to do many of the functions that a cosmetologist would typically do. That's been one that we've looked at as potentially changing the training requirements for, to put this in perspective, and I'm not arguing for an emergency medical technician, the people who operate in our ambulances to have more hours on them, I'm just bringing this up to show that the cosmetology license is possibly a little bit out of whack. If you look at the cosmetology license, it requires 1,500 hours of trading in the state of Ohio. If you look at the EMT, I believe it's something under three or four hundred hours of training. So the very people who are responsible for picking us up and keeping us alive on the way to the hospital have less training requirements upon them than the people who are cutting our hair and dying and giving people perms and things of that nature, maybe doing some manicure or pedicure work. Those are the types of things that when you look at it from a holistic scope, you say, what is really the purpose here?

who's really benefiting from this? Is it the general public or is it the people in the industry or the people in the education side of the industry? I remember a story a few years ago of someone getting shut down for giving homeless people haircuts without a license and of course the classic example, kids getting shut down for having a lemonade stand because they don't have a license.

Yeah, exactly, exactly. And I think across the country, we're starting to see much more of a critical lens be put on many of these licensing requirements, and we're happy to kind of be a leader in that edge in the state of Ohio. So tell me about some of the reforms that were made. I mean, you were the lead sponsor of a recent bill that passed. What did it do? So there was a bill that passed in December of last year.

We're going through the process right now for the very first time in Ohio that requires every single one of our occupational licenses, to be reviewed on a relatively regular basis. So how do we do that? How do we put the requirement? And we said that after six years, every single one of these licenses is going to sunset. It's going to go away unless the legislature actually takes the action to authorize it to survive beyond that sunset and extend that sunset date. And so the review process encourages and requires the legislature to review these through a lens of looking for what the least restrictive regulation would be.

for the stated goal of the license. So, for example, if the stated goal of the license for doctors, obviously, it's pretty strong justification. Occupational licensing is probably appropriate. But if the stated goal of the license is just to make sure that you know where these people are, you don't need full-scale licensure. A registration requirement might be more appropriate under those circumstances to simply know who they are and that they're in good standing.

And so it requires us to look through those lenses. looking through kind of a free market lens to ultimately reduce barriers to entry, but also to compare us to what other states are doing. Because if it's working for Indiana, Kentucky, Michigan, or any of the other states that are bordering Ohio, there's no reason that Ohio's need to be far more burdensome than those states, given the fact that they're able to get by with much less burdensome regulations. So we'll conduct that review,

and the legislature will go through an exhaustive review process on approximately one-third of all of our occupational licenses over this two-year general assembly. And after that point, we'll pass a bill making changes, possibly eliminating some licenses, possibly reducing requirements within some licenses, and then potentially just simply extending the sunset date of many other licenses. And I understand you're also working on a reciprocity bill, also having to do with licensing. Tell me about that. This is something that actually has been pioneered by the great state of Arizona,

where they passed a bill that would allow for out-of-state reciprocity of licenses. And what does that mean? That means that if I'm a doctor and I'm working in the state of Ohio and I move to the state of Arizona, that through an application process, not through retesting, not through retraining, not through recertification, but simply by filling out an application and paying the applicable fee, I as that doctor would be able to practice medicine in the state of Arizona. basically removing barriers to entry from people who would look to relocate to your state.

Ohio is going to be offering a, we just introduced legislation last week that would provide a similar system by which out-of-state licenses could move into the state and practice their trade or profession with relatively low barriers to entry because one thing we found through the research is that the transient nature of people without licenses, people without much licenses are much more willing to move out of their state and move to accept a better job opportunity than people who may have licenses. In many cases, because they know they're going to have to go through a mountain of additional requirements to be able to practice that trade of profession in that new state. And so for states particularly like the state of Ohio, where our population growth has remained relatively stagnant,

we look at this as an opportunity to be more attractive to people who would be licenses to be able to come to the state, to set up shop, to grow and raise their family. And it's something that we also look at as reducing barriers to entry into the marketplace as well. Excellent. Well, State Senator, we appreciate you doing this. I think it's something that a lot of people, once they study the details, will actually appreciate, especially if they're looking for a job. Yeah, exactly. Appreciate your time today. Thank you. Thank you. I appreciate it. Do you have an opinion that you'd like to share? Leave us a voicemail at 202. 608-6205 or email us at letters at dailysignal.com.

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