There is an old story about a nationwide search to find the world’s strongest man.
After traveling to a dozen states with hundreds of massively built people trying to win the title, a meek, unassuming, and skinny individual with thick glasses stepped onto the stage. He clenched a stone so forcefully that blood seeped from its fissures. The audience was astounded. When the announcer asked the man his occupation, he calmly responded, "I'm employed for the state tax collection agency."
I thought of this story when I heard that the State of Washington has formally adopted a new “blood from a stone” tax program that seems destined to be overturned by the United States Supreme Court.
In the wake of budget crunches in many states — and exacerbated by extravagant spending and diminishing populations — blue states find themselves on the hunt for new sources of revenue. As their financial woes deepen, their desperation is leading to a potentially alarming money grab, setting the stage for a looming legal showdown.
The Washington State legislature enacted an excise tax on high-dollar transactions, but the law is intended to reach transactions far beyond the Evergreen state’s borders. The law applies a state excise tax equally to sales in other states if the seller or transaction’s beneficiary is a Washington resident.
For example, many stock transactions involving Washington State residents occur in other jurisdictions, like New York and California. Under this law, Washington State would lay claim to taxing stock transactions at the point of sale in distant locations such as Manhattan.
The national ramifications are clear: if Washington can tax out-of-state transactions, any state can assert the authority to tax transactions occurring anywhere, regardless of the taxpayer's limited ties to the state or the transaction's location. This sets the stage for a feeding frenzy as blue states seek to impose excise taxes on their former residents fleeing to low-tax states.
This development could swiftly intersect with contentious social debates and threaten the laboratories of the Democracy model that has long characterized the United States. For instance, states like Utah could impose a roaming excise tax that applies whenever one of its residents purchases or sells alcohol, regardless of the transaction's location. Similarly, California could do the same for firearms, potentially creating a web of complex tax regulations.
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Fortunately, organizations like the Freedom Foundation are taking action to address this alarming trend. It recently filed a petition for a writ of certiorari to the United States Supreme Court contending the tax violates the Constitution's Commerce Clause and violates the U.S. Constitution's protection of each state’s sovereign powers. A pair of amicus briefs supported by at least 16 organizations, including the Americans for Tax Reform, the Tax foundation, and the Association for Washington Business, was also filed with the court backing the Freedom Foundation’s case.
While It has been 80 years since the Supreme Court struck down an Arkansas law taxing sales by vendors in Tennessee, The Court held then that it is beyond the state’s power to impose a tax when the taxable event is outside its boundaries. Washington State’s tax is no different.
Rather than reform their taxing and spending policies, politicians in these blue states would prefer to violate the Constitution to keep squeezing taxpayers for every possible dollar. The Supreme Court must recognize this obvious folly.
Without intervention, the financial desperation of blue states could undermine the essence of federalism, posing a threat to both the nation's economic stability and the rights of its citizens.
As the specter of this money grab looms large, it is essential to safeguard the integrity of our federal system and ensure that states respect the constitutional boundaries that preserve the balance of power.
As Freedomworks economist Steve Moore put it, “This is why the Supreme Court needs to take this case and rule against the predatory tax. If the Court doesn’t, then it will be Johny bar the door as states rush to collect “free money” by taxing out of state transactions.”
The Wall Street Journal echoed this sentiment, stating that “a Court rebuke would remind states to stay in their lanes with taxes and regulations.”
It may not be possible to squeeze blood from a stone, but that doesn’t mean that states like Washington won’t keep trying. We can’t let them do it.
Langer is the president of Institute for Liberty.
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