Dear Chairman Goodlatte,
As your committee begins to examine the issue of online sales tax collection, I urge you to reject the Marketplace Fairness Act or similar sales tax collection legislation that would contradict your principles on the issue.
One of these principles provides for strong states' rights protections. As your principles state, "States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens." The Marketplace Fairness Act clearly fails this test. Though the official title of the bill references states' "sovereign rights", it does nothing but erode them. As you know, the Marketplace Fairness Act would allow states to force retailers that have zero physical presence in a state outside of their own to collect and remit sales tax to it. This would be especially devastating for Internet retailers in my home state of New Hampshire - a state that has neither a sales nor an income tax. The bill could lead to Internet retailers in all states being forced to become tax collectors for thousands of tax jurisdictions across the country.
Under current Supreme Court precedent, in the absence of a sufficient nexus, a state cannot reach beyond its borders to compel out-of-state Internet vendors to collect taxes on a particular transaction. This standard is the result of the 1992 decision Quill v. North Dakota, in which the Court held that requiring remote vendors to collect such taxes would place an unconstitutional burden on interstate commerce. By usurping this standard, the Marketplace Fairness Act would undermine an important limitation of the Commerce Clause: the nexus requirement.
Your principles also state that "[g]overnments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary." Here, again, the Marketplace Fairness Act fails. If enacted, the bill will result in crippling compliance costs on small Internet businesses. These costs include not only those associated with the new collection and remittance requirements, but these small businesses will also be on the hook for expensive audits and legal bills if there are any errors in the thousands of tax calculations and distributions they must make every day. This concern is particularly problematic for retailers in states with no sales tax, like New Hampshire, that would have to comply with these burdens for the first time. At a time of tepid economic growth, Congress should enact measures that are designed to promote innovation and entrepreneurial risk-taking - not seeking creative ways to plug state budget holes.
Finally, your principles state that "[t]hose who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement." I am concerned that the recent party-line vote to invoke the "nuclear option' and fundamentally change the rules of the Senate may have a significant impact on future judicial decisions related to new Internet sales tax requirements. Make no mistake, this raw power grab to ram through the president's executive and judicial nominees is intended to usurp the will of Congress - and its constituents - and blunt the objections of the minority. Those in Congress who have fought hard to keep the Internet free of burdensome taxes and regulations should be very concerned that this Senate rule change could lead to harmful taxes and burdensome regulations.
Again, I urge you to reject the Marketplace Fairness Act - or any similar sales tax collection legislation - that would burden businesses and stifle our economy.