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Tomorrow the House Commercial and Administrative Law Subcommittee will hold a hearing on three Internet tax bills, H.R. 4267, “The Internet Tax Reform and Reduction Act of 2000,” H.R. 4460, “The Internet Tax Simplification Act of 2000,” and H.R. 4462, “The Fair and Equitable Interstate Tax Compact Simplification Act of 2000.” Each piece of legislation would extend the federal moratorium on new or discriminatory taxation of the Internet or electronic commerce. However, that is where the good news ends.
The word “simplification” modifies “tax” in the title of two of the bills. “Reduction” describes “tax” in the third piece of legislation. Unfortunately, the intent and effect of any of this legislation would be contrary to the best interest of consumers or to the meaning of the words in the title.
The legislation instructs states to work cooperatively with the National Conference of Commissioners on Uniform State Laws to achieve a national sales tax standard. In essence, the extended moratorium would buy time for the National Conference’s cartel to devise a scheme for the unconstitutional taxation of sales across state lines.
The important question about electronic commerce has never been whether Internet transactions should be given special privileges: certainly they should not. The question is whether a state can legally compel a consumer from outside of its jurisdiction to pay taxes.
To put it more simply: Why should a business that already has to face the regulatory and tax burdens of each and every state in which it has a physical presence suddenly have to pay the taxes of the states in which they do not? The answer, it seems, is that state governments, who currently enjoy aggregate surpluses of $35 billion, are threatened by a potential loss of revenue from out-of-state e-commerce. As a result, states would like Congress to extend their tax authority.
A plan to “standardize” state sales and use taxes is a simplification only for those who wish to collect taxes. The usurpation of state authority over matters of taxing and regulation could pose a constitutional problem. As Alexander Hamilton noted in Federalist No. 32, “An entire consolidation of the States into one complete national sovereignty would imply an entire subordination of the parts; and whatever powers might remain in them, would be altogether dependent on the general will.”
If the Congress and a federally protected cartel is necessary to secure state revenues, then a situation similar to the one described by Hamilton would exist. A tax cartel would leave states subjugated to the whims of Congress, making state tax revenue less secure than ever before.