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Letter of Opposition: Internet Sales Tax Proposals

October 05, 2012 J

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, the Marketplace Equity Act (H.R. 3179), and similar proposals. These bills would give congressional approval to an interstate compact allowing member states to require out-of-state retailers to collect taxes on remote sales.

In Quill Corp. v. North Dakota (1992), the Supreme Court reaffirmed that states 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 may not burden interstate commerce in this way, Congress may do so. Given e-commerce’s rapid growth and shrinking state and local sales tax revenues, there are efforts underway to grant states this power by authorizing an interstate compact.

There are numerous flaws with the current approaches to this admittedly difficult problem. First, under the proposed Streamlined Sales and Use Tax Agreement (SSUTA), 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. There are more than 9,600 different tax jurisdictions throughout the country with varying rates, bases and collection methodologies. A federal law that exposed an online retailer with a national reach to taxation from hundreds of different jurisdictions would be crippling. While some have suggested that computer software would alleviate this burden, this is simply not the case. 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 the SSUTA because these proposals have serious logistical, economic and constitutional flaws. We urge you to oppose passage.

Sincerely,

James Valvo
Director of Policy, Americans for Prosperity

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