By: Jennifer Holder, Executive Vice-President, NoInternetTax.org

In late August, Governor Engler and 41 of his peers from the National Governor’s Association (NGA), signed a letter urging Congress to extend the current moratorium against discretionary Internet taxation only if it contains language to support the Streamlined Sales Tax Project (SSTP).

The governors, with Engler as their spokesperson, are seeking congressional approval to work on methods to overturn court decisions that currently forbid them to collect sales and usage taxes on interstate e-Commerce.

On the surface, SSTP seems to make sense by proposing to simplify the existing definitions, rules and tax rates levied by more than 7,600 taxing entities across America. Scratch that surface and you’ll find that the measure violates consumer privacy, constitutes taxation without representation and is otherwise wholly unconstitutional.

Under SSTP, the governors are proposing a “streamlined” system that flattens tax rates, resulting in a de facto national sales tax. SSTP has also called for the creation of a “national sales tax collection center.” The collection center would be responsible for monitoring and collecting consumer online shopping information, such as purchases, credit cards, names and addresses and ensuring that the appropriate sales tax finds it way back to a requesting state.

Some states, including Michigan, have ignored the constitutional requirement for Congressional approval and have already started the ball rolling on SSTP. Michigan has yet to send the bill to the Governor’s office for his signature, much to Engler’s chagrin and the rest of the country is taking note. Failure to pass SSTP legislation in his own state detracts from Engler’s perceived leadership on the issue. After all, if he can’t sell it to his own residents, how can he expect the rest of the country to buy it?

Luckily for the Michigan residents, State Representatives such as Leon Drolet and Robert Gosselin are working to kill this legislation, formally known as SB 433, Streamlined Sales Tax. Unfortunately, the Michigan Senate passed the legislation on May 17, 2001. Michigan’s House is justified in their leeriness of SB 433.

Proponents of the bill, including Governor Engler and Senate Finance Chairman Joanne Emmons, would have you believe that this is not a tax increase, but rather a fairness issue. The argument is that e-Commerce firms are killing main street business by not paying Michigan sales tax. The governors have alleged that they are losing their tax revenue base to their inability to tax e-Commerce, leaving social programs, education, transportation and other core services in the lurch.

These allegations are in conflict with data released by the CATO Institute who reported that sales tax revenues to the states increased by 7.3% last year. Data for Michigan provided by Citizens Against Government Waste show that Michigan’s 6% state sales tax generated $21,263, for a surplus of $7,723 (figures are in millions) last year.

Engler, like many of our nation’s governors, claims that the e-Commerce has hurt Main Street businesses. Again, statistics point elsewhere. Main Street sales are actually enhanced by the Internet.
A Cyber Dialogue study found that consumers spent $3.3 billion shopping for goods and services on the Internet. Consumers spent even more, $4.2 billion, off the Internet, after getting product information online. Fact of the matter is that despite high, even excessive, shipping and handling costs, consumers see the Internet as a convenience, not a tax loophole.

What the SB 433 proponents neglect to mention is that the state of Michigan, over a ten-year period will extract an additional estimated $3.9 billion dollars in tax dollars from the wallets of hard-working Michigan citizens. According to a Mackinac Center econometric study, this “fairness” legislation or more accurately, tax increase, could cost the state of Michigan up to 4, 700 jobs. They also fail to tell Michigan’s taxpayer’s that under the “streamlined” system, they won’t just be collecting so-called lost revenues, they are also opening the door to allow Michigan residents to pay taxes in other states, in addition to the tax burden they already carry.

Calls to both the SSTP offices and the National Governor’s Association seeking cost and budget information about the project have reached dead ends, with some staff members claiming that no such information is available. The governors desperately want this program, but aren’t able to quantify how much it will cost taxpayers. However, the Michigan Department of Treasury has estimated the cost of readiness for electronic acceptance of tax registration information and the electronic collection of sales and use taxes at $2 million for FY 2000-02.

This debate has never been about whether or not to tax the Internet. Currently, taxes apply to e-Commerce in the exact same manner as they do for catalog, television and telephone sales. This debate is about tax collection and it is time that Governor Engler and proponents of SB 433 reacquaint themselves with the constitution.

The U.S. Supreme Court has twice previously ruled, most recently in 1992 in Quill v. North Dakota, that it is unconstitutional for a state to force an out of state vendor to collect and remit taxes to a state where they have no physical presence, or nexus. To do so creates an undue burden on business that violates the commerce clause.

SSTP attempts to nullify this ruling by providing for a single sales tax rate between participating states. By creating a single tax rate between states, creating a de facto national sales tax, decreasing tax competition and striping a state, like Michigan, of its taxing power granted to it by the tenth amendment of the United States Constitution.

The Michigan Constitution, Article 9, Section 2, reads, “The power of taxation shall never be surrendered, suspended or contracted away.” Unlike most legislation that is almost always written ambiguously and open to multiple interpretations, this section seems to be pretty straightforward. The state of Michigan can never give up its taxation authority. Therefore it seems that SB 433 and the SSTP legislation violate both the tenth amendment of the United States Constitution and Article 9, Section 2 of the Michigan State Constitution.

Engler has repeatedly likened the debate over Internet taxation to oil drilling in the Great Lakes, claiming that both are myths. Call Governor Engler and demystify this issue for him. Remind him that by continuing to push SB 433 and SSTP legislation that he and his supporters are opening an unconstitutional Pandora’s box that could shatter the foundations of the digital economy in the United States and violate each individuals citizen’s right to privacy.

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