NCPA - National Center for Policy Analysis

TAXING THE INTERNET

December 7, 2006

Competition is the key to healthy state and local economies, but the Streamlined Sales and Use Tax Agreement threatens states' autonomy to shape their own tax policies, costs each state's economy jobs and devastates their technology sectors, says Elizabeth Karasmeighan, a state government affairs manager at Americans for Tax Reform.

Formed in 2002, the Streamlined Sales Tax Project, as the SSUTA was originally called, was created to push Congress toward taxing the Internet. Because two Supreme Court decisions (most recently 1992's Quill v. North Dakota decision) have ruled that requiring remote sellers to collect state sales taxes is an undue burden on interstate commerce, a state cannot require sellers to collect its sales tax unless they are physically located in the state.

  • Supporters of Internet taxation claim SSUTA will "simplify" and "streamline" the sales and use tax system.
  • Critics say implementation of SSUTA would preserve many of the current complexities of calculating and collecting sales taxes and would force merchants to comply with thousands of different tax rates and exceptions.
  • The real motivation of SSUTA is to target businesses that are not physically located in the customer's state and to export a state's tax burden.

Several states have looked at ways to reduce compliance costs to lower local jurisdictions' liability regarding tax collections.  Taxpayer advocacy groups express concern that this will reduce competition among local jurisdictions to attract businesses and homeowners and increase the likelihood of a tax cartel in which counties, cities and towns are subject to the special interests of another nationwide tax collector.

SSUTA would destroy incentives to keep tax rates moderate and foster competitiveness, and inefficient local retailers and governments would be artificially shielded from competitive forces.  The pressures to raise taxes in the nation's 30,000 state and local tax jurisdictions would lose their counter-balance.

Source: Elizabeth Karasmeighan, "Taxing the Internet, One Bagel at a Time," Heartland Institute, December 1, 2006.

 

Browse more articles on Tax and Spending Issues