November 12, 2002

Internet Sales Tax Vote

A group of states that wants to tax all online sales - not just sales by merchants that have a presence in their state - is set to vote today on a proposal to streamline sales tax collection and automate it, to make online sales taxation easier, reports today's Washington Post. The WaPo calls the states "revenue hungry." As if government is ever not hungry for more cash to spend.

The Supreme Court's 1992 Quill decision currently disallows states from enforcing their sales taxes on merchants that sell into the state but do not have a physical presence or "nexus" there. However, the court left the door open to Congress requiring such a tax. The states voting for the "Streamlined Sales Tax Project" proposal hope that, if enough states sign on to the agreement, Congress will rewrite the law and mandate such taxation across state lines.

The WaPo reports that, "Currently, 45 states and the District of Columbia levy sales taxes, with rates varying from state to state - and often from town to town. Under the Streamlined Sales Tax Project proposal, states would be required to establish uniform definitions for taxable goods and services, and maintain a single statewide tax rate for each type of product."

In other words, get ready for a hidden sales tax increase if this thing becomes law. Why? Simple. As states move to make their sales taxes uniform across all jurisdictions within the state, all items will be taxed at the rate in the highest-taxed jurisdiction. In Tennessee, the local option sales tax varies from city to city and county to county. Do you think "revenue hungry" tax collectors will implement a scheme that lowers taxes in some cities to create uniformity? Or is it more likely they'll raise tax rates where necessary to create uniformity?

Incidentally, Gov. Don Sundquist long ago made Tennessee a member of the Streamlined Sales Tax Project.

The WaPo notes that critics say the proposal would require a vast database of people's purchases, exposing them to potential privacy invasions. The story also examines whether the next Congress, with its Republican majority, will welcome the tax-raising proposal with open arms. My hope is that Republicans and Libertarians will join forces to kill this proposal for reasons of both keeping taxes low and protecting consumers' privacy.

For a full exploration of Internet sales taxation policy, click here or scroll down to read A Legion of Errors. Also, click here or scroll down to read a previous update on the Internet sales tax issue.

UPDATE: The member states of the Streamlined Sales Tax Project have adopted their plan.

Find out if your state has signed on to the Streamlined Sales Tax Project by clicking here. In Tennessee, Gov. Sundquist signed a version of the model act written by the National Conference of State Legislatures into law on May 30, 2001. The bill was sponsored by state Sen. Jerry Cooper and state Rep. Matt Kisber, two Democrats. Kisber, who voted for the proposed state income tax and then did not seek re-election, is rumored to be in line for a post - perhaps Finance Commissioner - in the incoming administration of Gov.-elect Phil Bredesen.

That model act was passed in Tennessee while most people were paying attention to the ongoing income tax debate - hence, it got little or no press coverage. But by passing that act, Gov. Sundquist set the state for higher taxes across Tennessee in any city or county where the local option sales tax is below the capped maximum of 2.75 percent. That's another part of the sorry Sundquist legacy.