Next Valentine’s Day may be significantly more expensive for millions of Americans who purchase Valentine’s Day gifts for their significant others over the Internet, thanks to big-spending politicians in Washington and state capitals across the country. The first shot of the massacre was fired on Thursday, when Senator Mike Enzi (R-WY) introduced the National Internet Tax Mandate Act, S. 336, legislation allowing state governments to force online retailers to moonlight as state tax collectors.
Under current law, as established by the Supreme Court case of Quill Corporation v. North Dakota, businesses that do not have a “physical presence” in a state cannot be forced to collect that state’s sales tax. This protects online businesses from having to incur the costs of acting as a tax collector for all 50 states, and it prevents companies from having to pay taxes to a state government where they have no representation.
The ability to shop online without paying exorbitant state sales taxes has been a major factor behind the growth of online commerce. However, big-spending governors of both parties don’t think it is “fair” that they can’t get their hands on all that new tax revenue. So these governors are lobbying Congress to pass legislation giving state tax collectors the power to force Internet businesses to collect sales taxes and send a check to state governments.
The National Internet Tax Mandate would require every business in the country to know the details of each state and locality’s sales tax laws, thus creating a different pricing structure for each customer depending on where they live. Companies would then have to figure out how much tax they owe each state and locality and send the corresponding payments. While this may be a boon for tax accountants, the reality is compliance with this new National Internet Tax Mandate will be quite costly, with those costs being passed on to the consumer in the form of higher prices.
For some governors, this legislation’s introduction is like receiving a big box of chocolates from their congressional sweethearts. But, just like gorging on Valentine’s Day chocolate makes it more difficult to stick to a New Year’s resolution to exercise, gorging on new taxes would be a major step backward.
New taxes would only postpone the urgency for states like California to undertake the spending cuts and reforms needed to get their fiscal houses in order. Rather than proposing to use the increased revenue to reform government, however, many governors are already salivating over the new spending they can finance with this money.
Imposing new taxes and increasing compliance costs will also discourage the growth of Internet-based businesses. At a time when the U.S. economy is suffering from big-spending policies imposed at all levels of government, it makes no sense to hamper the most dynamic sector of the American economy with new taxes. The costs of complying with the National Internet Tax Mandate could force some small Internet retailers out of business. Large businesses, like Amazon.com, may be able to absorb these increased costs, but what about the small startup that could be the next American success story?
The National Internet Tax Mandate also flies in the face of the original purpose of the Commerce Clause and sets a dangerous precedent. Contrary to modern political thought, the Commerce Clause was not intended to grant Congress unfettered regulatory power. Instead, it was meant to enable Congress to guarantee free trade among the states by ensuring states could not impose onerous regulations or taxes on out-of-state businesses. By giving states the power to impose their sales taxes on out-of-state businesses, the National Internet Tax Mandate flips the Commerce Clause on its head.
Allowing states to force out-of-state businesses to act as their tax collectors could provide an incentive for states to raise their sales taxes. After all, it will be argued that thanks to the National Internet Tax Mandate, consumers and businesses have no way to avoid paying outrageous taxes, so it will only be a matter of time until spend-happy politicians decide to “soak” them.
The National Internet Tax Mandate may be like Valentine’s Day candy for big-spending governors, but it is a chocolate-covered sucker punch for the American people. I hope all Americans who still value low taxes and fiscal responsibility at every level of government will join me in doing all we can to kill the National Internet Tax Mandate this year. Those politicians who support this mandate can expect to receive thorns, not roses, from the American people.
John Tate is the president of the Campaign for Liberty.