Dear Senators and Representatives:
On behalf of more than two million Americans for Prosperity activists in all 50 states, I am writing in strong opposition to the Marketplace Fairness Act and similar proposals that give congressional approval to an interstate compact allowing member states to require out-of-state retailers to collect taxes on remote sales.
The Supreme Court confirmed in Quill Corp. v. North Dakota (1992) that state governments cannot force businesses to collect and remit sales taxes unless they have a physical presence, or “nexus,” in the state. However, the Court also noted that while the states do not have the authority to burden interstate commerce, Congress does.
Your proposal to delegate taxing authority to an interstate compact, the Streamlined Sales and Use Tax Agreement (SSUTA), has many constitutional and logistical problems. First, under the compact, member states will be able to require businesses in non-member states to collect and remit sales taxes for them. This result presents many of the same “taxation without representation” and Commerce Clause issues that arose in Quill. Second, this delegation of the taxing power from Congress to a sub-federal conglomeration of states may be an inappropriate delegation of a power inherent to the federal Congress. Taxation is one of the Federal Government’s core functions and allowing a subset of states to set national tax policy is a dangerous departure from current practice. Finally, and perhaps most importantly, the SSUTA does not resolve the Court’s primary concern from Quill: that states were essentially shifting the administrative burden of their tax collection onto out-of-state retailers.
Complying with the internet sales tax would be a significant administrative burden for companies, particularly small businesses. Keeping track of the 9,600+ different tax jurisdictions throughout the country, with varying rates, bases, and collection methodologies, would be very challenging for online retailers that have a national reach. Computer software, a commonly proposed solution, would fail to mitigate this burden. In November 2011, Overstock CEO Dr. Patrick Byrne testified before the House Committee on the Judiciary and commented on his company’s recent efforts to expand into Kentucky. Byrne stated: “the off-the-shelf software required approximately $300,000 of investment and months of man-hours … to build. Implementation of this solution for the nation’s nearly 10,000 different taxing jurisdictions would be extraordinarily costly.”
We remain strongly opposed to these proposals to shift taxing authority to interstate compacts. We urge you to oppose passage.
Director of Policy, Americans for Prosperity