Bill Would Tax Out-of-State Internet Purchases

The federal Main Street Fairness legislation to authorize a compact for Streamlined Sales Tax (SSUTA) compliant states would allow states to raise taxes by an estimated $23 billion. Under the U.S. Supreme Court decisions in Bellas Hess v. Illinois and Quill v. North Dakota, a state cannot require an out-of-state retailer without a physical presence to collect and remit taxes, as this places an impermissible burden on interstate commerce. Main Street Fairness legislation would give Congress’s stamp of approval to circumvent this physical nexus requirement. The legislation would allow SSUTA compliant states to extend tax collection obligations to remote, out-of-state retailers. This would expressly permit — for the first time — state tax collection on Internet, catalogue, and other sales where the seller is not based in the state.

First, the project itself allows a small cartel of tax administrators to write multiple states’ tax codes. Federal legislation would incent revenue-hungry states to join this cartel. Second, it exports the burden of tax collection to non-voting out-of-state individuals and businesses that have little ability to petition state and local governments. It puts a significant burden on out-of-state actors to comply with 8,500 tax jurisdictions (brick-and-mortar stores comply with only one), without the ability to object to the multitude of tax rate increases proposed across the country every year.