This week the National Conference of State Legislatures arrived in Washington to lobby Senators to pass legislation that would allow states to tax across state lines, hitting businesses in other states that sell products online. At present, the Constitution does not allow politicians in one state to levy taxes on businesses and individuals in other states. There is a good reason for that. It would be taxation without representation.
The “let’s tax those who cannot vote against us” lobby had hoped to hold hostage the Internet access tax moratorium bill—that is regularly extended year after year. But that won’t work, and they have shifted to trying to slip the Internet sales tax legislation into the Omnibus.
For many years now, tax and spend state legislators have been pushing Congress to implement sales taxes on the interstate transactions that the Supreme Court has ruled off-limits without Congressional direction.
The legislators claim to be after “parity”, but what they really want is to avoid tax competition among the states. States that have driven out businesses and residents through high income, property and sales taxes want some way to get to businesses and people in other states. They want to tax people who cannot vote against them.
The two bills being pushed this year are the Remote Transactions Parity Act (RPTA) and the Marketplace Fairness Act (MFA). In addition to the tax increases on consumers, they both layer more regulatory burdens on small businesses and set a dangerous precedent for taxation without representation by extending collection duties and audit targets outside a state’s own borders.
Elected officials have always had two hostages they thought would muscle the taxes through – local businesses and popular Congressional legislation.
State mayors and legislators threaten local businesses, small and large alike, with increased property or business income taxes if they don’t go along with the plan.
Meanwhile, federal legislators won’t allow the Internet Tax Freedom Forever Act, a vastly popular bill, to go to the floor for a vote. Powerful interests have blocked the bill unless and until some kind of online sales tax is attached to it. ITFFA would make the current Internet Tax Moratorium permanent, ending any possibility of states taxing Internet access, and also ensure that there are no discriminatory taxes on e-commerce.
The latest tactic being pushed by states is the online sales tax stowed-away in the Omnibus.
Understandable they would want to keep online sales tax under the radar. The bills are widely unpopular with voters across the spectrum. According to polling conducted by the National Taxpayers Union and the R Street Institute, 57 percent of respondents were opposed to an online sales tax. Broken down by party affiliation 65 percent of Republicans, 56 percent of Independents, and 48 percent (to 43 percent) of Democrats were opposed.
So many state governors and their allies in the legislatures have coerced the retail lobby for help pushing (unsuccessfully) Congress to pass a law too unpopular for them to pass themselves.
The legislation is murderous for small mom-and-pop retailers that are not equipped to navigate the considerable red tape and audit threats from thousands of taxing jurisdictions around the country, and no cakewalk for their bigger competitors.
Should either online sales tax bill become law, online retailers will be faced with over 10,000 complicated tax codes, including 45 state sales taxes and local tax jurisdictions.
As the state legislators visit various Senate offices, don’t be surprised to see big box retailers and small mom and pops right there with them. They are in a tight spot: help the politicians collect taxes across borders or see their own taxes go up.
What states really want is to use the Internet to stretch not only their taxes, but also their regulations over all state boarders. Then when the businesses in other states run afoul of one or more of the thousands of taxing jurisdictions they can look forward to countless audits and lawsuits, with no recourse to any elected official that needs their votes.
An online sales tax isn’t about “leveling the playing field” or giving states taxes they need and deserve; it’s about borderless expansion of state power.
Working on their own state’s budget would be a much better use of a state legislator’s time.