As Internet commerce grows, so too does the frustration of state sales tax collectors. Yet, interstate retail commerce has only grown since 1992, and the growth of Amazon.com in particular has attracted scrutiny from state politicians.
The Supreme Court decided – in 1967, and again in 1992 – that for a state to collect sales tax on sales to residents of its own state, a firm must have a physical presence there. 21 of 45 states with sales tax are in compliance with the Streamlined Sales Tax Agreement, but under the Constitution such an interstate compact needs Congressional approval.
We’re seeing both progressive Democrats and conservative Republicans, however, begin to agitate for a change to sales tax collection in America. Mississippi Governor Haley Barbour, a conservative Republican and former Presidential candidate, attracted attention in his farewell address by calling for passage of H.R. 2701, the Main Street Fairness Act.
Both attempts in the House – in this Congress by John Conyers and 8 fellow Democrats, and by William Delahunt and 6 fellow Democrats in the last Congress – have not gotten far. The bill never got past subcommittee referral under Speaker Nancy Pelosi, and it hasn’t moved since its referral to the House Judiciary Committee July 1, 2011 under Speaker John Boehner.
Increasing pressures indicate, however, that a breakthrough seems to have been reached. There is now support among Republicans and Democrats to move forward with this plan. Republican Mike Enzi in the Senate sponsored a version of the bill that enjoys bipartisan support, in addition to the support of Republican governors Haley Barbour and Nikki Haley.
The agreement and accompanying Congressional act carry risks, though. By enacting a new interstate compact which would permit previously-disallowed taxation, we raise the tax burden on Americans shoppers and the legal compliance burden on American sellers. Even if supporters are correct that this would not be a de jure change, it would be so in practice.
Congress should seek to limit the downsides by imposing additional restrictions: limiting tax rates, applying narrow constraints on what legal burdens can be required of businesses, and requiring – rather than requesting – states protect citizens from any form of double taxation. Yes, the bill only states that it is “the sense of the Congress” that double taxation be avoided. This must be a requirement.
Our economy is weak as it is, with high unemployment and low job growth, and we cannot afford the luxury of giving states a new revenue source at the expense of growth. New revenue may make state budgeting easier – by reducing the need to make responsible tradeoffs in spending – but we must not sacrifice our greater national goals just to make anyone’s job easier. We need more civilian jobs more than we need easier government jobs.
Calling something fair does not make it so. The invocation of “Fairness” in the titles of both the House and Senate bills does not make it fair to give an unelected interstate body a blank check to tax and regulate Americans within a broad mandate provided by Congress. Fairness to the people should come before fairness to businesses.