SBE Council Small Business Fact of the Week

Anything But Sales Tax Fairness

Congressman William Delahunt (D-MA) has sponsored the "Sales Tax Fairness and Simplification Act." It sounds good, doesn't it?  But it is anything but good.  It is, instead, an attempt to get Congress to approve a massive revenue grab by various state and local politicians.

The summary of the legislation explains: "Grants the consent of Congress to the Streamlined Sales and Use Tax Agreement (Agreement), the multistate agreement for the administration and collection of sales and use taxes adopted on November 12, 2002. Expresses the sense of Congress that the Agreement provides sufficient simplification and uniformity to warrant federal authorizations to states that are parties to it (member states) to require remote sellers (sellers without a physical presence in the taxing state) to collect and remit the sales and use taxes of such states and their local taxing jurisdictions."

It is an effort by various states and localities to extend the reach of their sales taxes to businesses that lie beyond their borders. The U.S. Supreme Court said in its 1992 Quill decision that a state could not force a business to collect sales taxes if it did not have a physical presence in the state.  But the Court also said that Congress, under the Constitution's Commerce Clause, had the final say, and various states and localities have been pushing for such taxing power ever since.

The Wall Street Journal ran an excellent editorial ("Taxing E-Shoppers") on the topic on December 26.  A few points from that piece are worth highlighting here:

• The bill would force "all but the tiniest businesses to answer to every one of America's 7,500 taxing jurisdictions."

• "Each merchant would also have to submit to audits from governments coast to coast. And while ‘only' 7,500 state and local governments currently collect sales taxes in the U.S., more than 22,000 other governments can choose to collect them in the future, and there's no limit on the creation of new taxing entities."

• "Anticipating growth in government and complexity, the plan limits the tax collectors to two rates per zip code. Multiply that by America's 43,000 zip codes and small merchants could potentially have to keep track of 86,000 different tax rates, depending on what they sell and to whom."

• "A Tax Foundation analysis shows that, even after adjusting for inflation, state and local tax revenues have increased almost 48% since 1992, when Quill was decided. Throw in the generous federal-to-state transfers, and the states and locals are now collecting almost $2 trillion annually."

As the Journal's editorial makes clear, this would be a frighteningly costly tax measure for both consumers and businesses.  Indeed, the only people who could embrace this tax proposal are politicians who are not interested in tax fairness, but instead simply long to expand the size of government.

Raymond J. Keating, Chief Economist

This article may be reprinted with appropriate citation and credit.