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Oppose Tax Hikes on Online Shopping!
An Open Letter to the South Dakota Senate

February 2, 2011

Dear Senator:

     On behalf of the National Taxpayers Union’s 1,300 members in South Dakota, I urge you to oppose Senate Bills 146 and 147, which would increase the government burden on online shopping.

     SB 146 would impose onerous reporting requirements upon online retailers to confront customers about their use tax obligations to the state – which contravenes the intent of the U.S. Supreme Court’s 1992 Quill decision on the tax collection obligations of remote sellers. SB 147 would expand the definition of retailers to include out-of-state retailers with a “substantial ownership interest” in an in-state retailer. Additionally, SB 147’s provisions would apply to out-of-state retailers who sell “substantially similar products under a substantially similar name.” Further, an out-of-state retailer that uses an in-state facility or employee to advertise, promote, or “facilitate” a retail transaction would also be considered an in-state retailer under SB 147.

     States that have attempted to prey upon online retailers beyond their borders through “affiliate nexus” schemes or use tax obligation reporting dictates have not raised the desired revenues. In fact, Rhode Island’s tax administrators say that their treasury has actually lost revenues following enactment of the tax. What these policies have done is impose high costs on the states through litigation and lost business activity. Both North Carolina and New York have been sued over this issue and the litigation continues to this day. In fact, just this week a U.S. District Judge temporarily enjoined Colorado from enforcing its recent sales and use tax-reporting requirements for online transactions. Several major online retailers had already terminated their affiliates programs in Colorado due to that state’s law. If South Dakota enacts a nexus or new reporting scheme, an estimated 750 South Dakota affiliates could suffer the same fate. A loss of business activity that shrinks the tax base is the last thing any state, especially South Dakota, needs during this time of economic uncertainty.

     Instead of looking for creative ways to levy new taxes or make it harder to do business in the state,  South Dakota could pursue more carefully focused efforts to better educate consumers about current tax rules. For example, California’s Board of Equalization has estimated that a letter campaign reminding taxpayers they may owe use taxes for Internet purchases will help revenue from these activities grow to $183 million in 2011, $367 million in 2012, and $600 million annually by 2013. Alabama has tested a similar letter campaign with stunning success, including instances of taxpayers voluntarily sending the state checks for several thousand dollars.

     According to the Tax Foundation, South Dakota has the best business tax climate in the nation, which has drawn many companies and jobs to the state. South Dakota should not jeopardize this advantage by imposing a new tax on online shopping. Therefore, our members hope you will reject any proposal to do so.


John Stephenson
State Government Affairs Manager

CC: Governor Dennis Daugaard, Speaker Val Rausch