New Internet Tax Should Be DOA in Congress
With unified control of both chambers of Congress and the presidency, the last thing voters might expect of Republican leadership is taking action to increase government’s power to tax and regulate. But if the so-called Remote Transactions Parity Act (RTPA), HR 2193, were to pass, that’s exactly what would happen. Hot on the heels of federal reform to restrain taxes, passing RTPA would effectively “unreform” the limited power states have to tax businesses that dare sell on the Internet.
At issue is the power of state governments to force businesses to collect sales taxes when transacting remotely, either by Internet or mail-order. Currently, states can only force businesses that are physically present within their borders to collect their tax. This common-sense standard is a result of the 1992 Supreme Court case, Quill v. North Dakota, and prevents states from harming interstate commerce. Naturally, states dislike this limitation, so they have for years agitated for passage of a federal law that would allow them to reach outside their borders and force out-of-state businesses to collect as well. Big box stores and even Amazon, the big kid on the “e-retail” block, have gleefully joined in these efforts, sensing a chance to saddle smaller competitors with the staggering complexity and huge costs of having to collect taxes nationwide despite lacking physical presence nationwide, as they have.
The resulting lobbying frenzy has simmered for a long time, but recent action by the Supreme Court may cause it to boil over once and for all. In an attempt to challenge the Quill precedent that states can only tax their own businesses, South Dakota passed a law it knew to be unconstitutional granting itself the right to tax any business, anywhere in the country if certain transaction or dollar thresholds are reached. The state then rushed the case to the Supreme Court as quickly as possible, agreeing to an injunction against its own law in the process.
The case, South Dakota v. Wayfair, will be heard by the high court in April, throwing into turmoil ongoing federal and state legislative efforts to address the complex underlying issues. If the court validates South Dakota’s wanton disregard for precedent that establishes limits on its power, other states will surely advance their insatiable quest to give themselves state tax power that’s as big as the Internet itself -- federalism and interstate commerce be damned.
In the scramble to respond to the court’s potential intervention, the lead sponsor of RTPA, Rep. Kristi Noem (R-S.D.), has been pushing her bill as a solution to head off a disruptive ruling. Unfortunately, she may have a sympathetic ear in the president, who “strongly” supports such a bill even though it would help out his nemesis Jeff Bezos, along with adversarial lawmakers in Congress.
But the court’s actions do not strengthen the case for RTPA, they weaken it. The risk from the upcoming case is that the court could overturn Quill, thus throwing open the floodgates to states taxing and regulating businesses all across the country. RTPA not only does nothing to reestablish needed limits on state power, it actually grants states new authority that would allow them to impose burdens on businesses all across the country that dare to sell online.
It is no surprise that Americans have shown strong opposition to such schemes. A September 2017 poll by Rasmussen found that Americans oppose Internet sales tax legislation by a 45-point margin, and earlier polling of Republican voters found that they preferred candidates that oppose such laws by a 54-point margin. Nineteen conservative organizations, including the National Taxpayers Union, Heritage Action for America, Americans for Prosperity, and Americans for Tax Reform, among others, have banded together to signal their strong opposition to RTPA because it would unwisely empower states to tax and regulate all across the country, in much the same way that states did during the disastrous era of the Articles of Confederation.
South Dakota’s law is just one of many aggressive actions by states to seize new power over interstate commerce. If Republicans were to pass RTPA, whether on its own or attached to some larger must-pass legislation like an omnibus spending bill, they would be ignoring the will of the American public as a whole and the base that elected them in order to grant expansive new tax and regulatory powers. After conservative victories in 2017, it would make for a very inauspicious first quarter of 2018.