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The Simplified Sales Tax Program is Anything But Simple and Definitely Not Fair!by
Paul Gessing Jul 3, 2003 State officials, working through the National Governors Association (NGA)
and National Council of State Legislators (NCSL) are desperately looking
for ways to pay for spending programs they introduced in the 1990s that have
proven unaffordable. In addition to attempting to raise every tax imaginable
(states increased taxes by a total of $9.1 billion in 2002 alone) most states
are aggressively lobbying on behalf of the “Streamlined Sales Tax Proposal”
(SSTP) to tax each and every sale made over the Internet.
The slick campaign from NGA and NCSL might lead a casual observer to believe
that allowing states to collect taxes on e-commerce is the key to solving
state budget deficits. Unfortunately for these misguided leaders, Internet
sales make up only 1.5 percent of all retail sales, or less than $12 billion. Nationwide,
the amount that went uncollected from online sales in 2001 was only $2 billion
(A fraction of the nearly $900 billion in state and local taxes collected
that year).
Even now, states tax many online sales. In fact, they tax online sales
made within their borders, and the online divisions of several major brick-and-mortar
retailers (including Wal-Mart and Target) have voluntarily decided to collect
taxes on sales via their web sites. Not to mention that online retailers
pay a myriad of other taxes to the states each day on property, payroll,
income, etc.
The major impediment to the SSTP is a 1992 U.S. Supreme Court decision that
a state can only require sellers with a physical presence (or “nexus”) in
the same state as the consumer to collect so-called “use taxes.” Although
consumers who purchase items over the Internet (or from catalogs or 800 numbers)
are supposed to remit “use taxes” to their home states, the Court decided
that states could not force companies to collect and remit taxes on behalf
of the 7,500 different jurisdictions authorized by the states to collect
sales taxes.
The idea behind SSTP is for the states to create a sales tax collection
cartel to coordinate taxing policies and definitions among themselves in
an effort to “simplify” tax collection for businesses. In exchange for simplification,
companies, regardless of their location, would be forced to collect sales
taxes. State and local officials, in essence, are using the very compliance
and complexity costs they created, to justify increasing their own taxing
power. These same officials fail to mention that they already possess the
authority to dramatically simplify taxes right now by simply limiting tax
rates and remittances within their own states. Such efficiency gains would
actually help states capture additional tax revenue by reducing compliance
costs, increasing efficiency, and raising corporate profit margins.
Instead of taking responsibility for reducing complexity in their own sales
tax structures, most state officials consistently ignore the fact that their
plan undermines the very principles of federalism and interstate competition
upon which America was founded. Simply put, the SSTP battle is not being
fought over the 1.5 percent of online retail sales; the ultimate objective
is to dramatically increase sales tax rates and their reach through interstate
collusion, and put a padlock on the “laboratory of the states.”
Instead of trying to pull a fast one on the Constitution and the American
public, the states should work within the system to improve their economic
and fiscal situations. Congress, like a good parent, must know when to say
“no.”
Paul Gessing is Director of Congressional Relations with National Taxpayers Union, an a non-partisan citizen organization founded in 1969 to work for lower taxes, less wasteful spending, more economic freedom, and taxpayer rights at all levels of government.
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