DALLAS, TX: In an attempt to grab more tax revenue, states are on a course to levy and collect sales tax—the same tax on the same transaction multiple times, and today’s hearing of the U.S. Senate Committee on Commerce, Science, and Transportation will examine the rule established by Supreme Court precedent prohibiting states from collecting sales taxes from digital retailers without a physical presence in their state.
“Just as economic production should be taxed only once, a retail sales transaction should be taxed only once, and by only a single tax jurisdiction,” said Institute for Policy Innovation Policy Counsel Bartlett Cleland.
“For decades the Supreme Court has made clear that to require a tax from any entity, that the entity must have a ‘presence’ in the state, usually a store or shipping center,” said Cleland. “So ordering from a catalogue, when the merchant had no physical presence in the state, has never triggered an obligation to collect taxes, though the taxes have always been due and payable by the purchaser. And today e-commerce logically comes under that same rule.”
“The issue of physical presence is perhaps the most important issue of the Internet age – is there any limit to government power or does the power of government now spread beyond the physical borders of a government entity, such as a tax authority, or is the power of government now limitless as the Internet means that any business anywhere can connect with customers in basically any governmental jurisdiction anywhere?” said Cleland.
“False federalism has been on parade recently during the several debates related to taxes and the Internet, including during the debate on the Marketplace Fairness Act,” said Cleland. “The spectacle reached a crescendo when self-proclaimed conservative after conservative waded into the fray of the recent House hearing arguing that states' rights is the power to tax out-of-state residents, as opposed to the power of the individual states to protect their citizens from other governments.”
“The Marketplace Fairness Act claims to allow states to simplify their own tangled mess of tax rates, jurisdictions and collection points, and then empowers them to force merchants from out of state to collect the taxes for them,” said Cleland. “But states are already free to simplify their tax systems without any action by the federal government, and they were directed by the Supreme Court nearly 50 years ago to do so if they wanted such authority.”
The Institute for Policy Innovation (IPI) is an independent, nonprofit public policy organization based in Dallas, Texas. IPI Policy Counsel Bartlett Cleland is available for interview by contacting Erin Humiston at (972) 874-5139, or erin@ipi.org.