States
Clamoring to Tax E-Commerce (Again!)
As state budgets
dwindle, due in part to the nations lingering economic slump,
governors around the country are once again chomping at the bit
to fill state coffers with tax money collected from e-commerce.
However, they argue its a difficult task; one they hope Congress
might make a little easier -- and more popular -- for them.
Last year, the
states waged a full-scale battle in Congress to allow them to shift
their sales and use tax collection duties onto out-of-state businesses
-- something currently prohibited without Congressional approval
by the U.S. Supreme Courts Quill decision. (Read: "Simplification"
Is Not the Easy Answer) The states failed to tie the
controversial issue to an extension of the Internet tax moratorium
that temporarily lapsed last October. In November, Congress passed
a clean two-year extension of the moratorium, which is set to expire
November 1, 2003.
Having failed
last year, and seeking to take advantage of the moratoriums
expiration next year, states are re-energizing efforts to seek Congressional
approval to shift their tax collection burden. In order to encourage
Congress to grant such authority, state legislatures across the
country are passing model legislation that enters them into a multi-state
compact known as the Streamlined Sales Tax Project (SSTP). The model
legislation enables them to negotiate "simplified and streamlined"
sales and use tax laws that are consistent with other participating
states in the compact.
West Virginia,
Ohio, Washington, Virginia and South Dakota are the latest states
to pass legislation permitting them to participate in the compact.
This brings to 27 (and the District of Columbia) the total number
of states participating in the SSTP. Nine other states, including
South Carolina, are considering the legislation.
Together, these
states are claiming hundreds of millions of dollars in lost tax
revenue to online sales from merchants outside their taxing jurisdictions.
Authorities in these states, led by the National Governors Association
(NGA) and their friends on Capitol Hill, continue to incorrectly
portray the Internet and e-commerce as tax-free havens that are
eroding state tax bases.
Nothing can
be further from the truth.
Forty-six states
have use tax laws on their books, most of which date back to the
early 1900s. Currently, the burden falls on the individual states
to collect such taxes from their citizens. However, due to the politically
unpopular nature of use taxes, most states choose not to enforce
collection. Instead, as Internet commerce evolves, states want private
enterprise outside their taxing jurisdictions to do their dirty
work for them.
The Center for
Individual Freedom played a critical role in securing a clean two-year
extension of the Internet tax moratorium last year. We strongly
opposed the states SSTP plan, as we believe it violates the
founding principle of federalism and the Constitutions Commerce
Clause. As envisioned by our Founders, states currently compete
for businesses and citizens to reside within their borders. They
do so by offering competitive tax rates and incentives. The SSTP
would eliminate such tax-rate competition. The burden of collecting
use taxes should be the responsibility of individual state governments,
not free enterprise.
Internet commerce
makes up less than one percent of all retail sales in this country.
However the benefits that it brings (i.e. jobs, increased tax bases,
convenience) would be stifled if Congress approves the SSTP. We
stand ready to do battle once again to ensure that doesnt
happen.
[Posted
April 19, 2002]
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