By: Jennifer Holder, Executive Vice-President, NoInternetTax.org
Last fall as debate on the Internet tax
moratorium heated up, Governor Locke and 41 of his peers sought an amendment to the Internet Tax moratorium last fall
that contained language for “streamlining” efforts, more commonly known within the National Governor’s Association as
the Streamlined Sales Tax Proposal, or SSTP.
Congress, including “no” votes by Sen. Murray and Sen. Cantwell,
overwhelmingly rejected the amendment and extended the moratorium for two years. Despite defeat on a national scale,
Governor Locke and his peers haven’t given up easily. Some states, like Michigan, have ignored constitutional provisions
that require Congressional authorization to enter into agreements to levy taxes beyond their borders.
including Washington where streamlining has manifested itself under the guise of HB 2608 and SB 6342, have already introduced
legislation to enter into a compact, or tax cartel, to begin the “streamlining” process to recover “lost” tax revenues from
The General Accounting Offices, in a report issued in 2000, noted “little empirical data exist on
the key factors needed to calculate the amount of sales and use tax revenues that state and local governments lose on the
Internet and other remote sales. What information that does exist is often of unknown accuracy.”
On the surface,
“streamlining” seems to make sense by proposing to simplify existing definitions, rules, and tax rates levied by more than
7,600 taxing entities across America. Scratch that surface and we believe that you will find that the measure violates
consumer privacy, constitutes taxation without representation and is otherwise wholly unconstitutional.
“streamlining,” including the National Governor’s Association and National Conference of State Legislatures, would have you
believe that this is not a tax increase, but rather a fairness issue. They argue that e-Commerce firms are killing Main Street
business as their customers do not have to pay sales taxes, nor are they faced with the burden of sales tax collection.
In reality, e-Commerce represents less than .9% of all retail transactions in the United States, according to the U.S. Department
of Commerce. Most of the transactions that occur online are for activities such as business-to-business commerce, travel and
financial transactions, which are typically not subject to taxation, whether on or off line.
The truth is 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 the collection of usage and sales taxes.
Supreme Court has twice 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.
The Governors’ appeal on behalf of “streamlining,”
attempts to nullify this ruling by providing for a single sales tax rate which would presumably reduce the burden of sales
tax collection on businesses. However, the creation of a single tax rate between states results in a de facto national sales
tax, decreasing tax competition and stripping states of their taxing power granted by the U.S. Constitution.
found that Americans are extremely concerned about the “cartel” proposals to either create a national sales tax collection center
or contract out tax collection to “trusted third parties.” Consumers are worried that the formation of such a national database
will monitor their personal information and shopping habits, without regard to their privacy.
In Washington State, both
HB 2608 and SB 6342 call for the establishment of third-party certified service providers as agents of the sellers for the purposes
of collecting and remitting sales and use taxes and assign liability to these providers for the collection and remittance.
According to Zogby International polling data released on August 15, 2001, 66% of those polled oppose Congressional
consideration of a law, which would force Internet merchants to begin collecting sales tax.
Consumers have also expressed
concern that by expanding taxation on e-Commerce transactions for tangible goods, the door may be opened in the future to bring
taxation to non-tangible items such as downloads, software and other digital goods and services.
“streamlining” advocates won’t tell you is that the model legislation increases the tax burden on consumers. A similar measure
passed in Michigan allows the state to collect an additional estimated $3.9 billion dollars in tax dollars from its citizens over
the next ten years, according to a Mackinac Center econometric study.
The same study shows the “streamlining” legislation
or more accurately, tax increase, could cost the state of Michigan up to 4, 700 jobs. Given the state of Washington’s own fragile
economy and reliance on the technology sector, can we afford the risks that accompany HB 2608 and SB 6342?
Our group is also
greatly concerned with the estimated cost of the streamlining effort and the new bureaucracy that it would inevitably create. We have
attempted to contact both the National Governor’s Association and the Streamlined Sales Tax Project offices to obtain cost information
for expenditures to date, total projected project cost and estimated implementation cost per state. Both offices acknowledged that
they do not have this information. In short, they have no idea what their proposal will cost taxpayers, nor if the effort will
actually be cost-beneficial to implement in an effort to “save” their so-called “lost” tax revenues.
Quite simply, attempts
to “simplify” violate consumer privacy and are wholly unconstitutional. “Streamlining” legislation is 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
Recently, the Washington State Senate passed streamlining legislation and final passage now relies upon the action
of the House. Call your State Representative today and tell them to vote no!
Regardless of what they’re calling it—simplifying,
streamlining or leveling the playing field, it all adds up to yet another route for the government to impose a tax.