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Federalism, State Tax Sovereignty, and its Guardians

2 min readBy: Chris Atkins

A few weeks ago, we blogged about the Supreme Court decision in Quill v. North Dakota. In that case, the Supreme Court ruled that the Commerce Clause forbids states from forcing remote sellers to collect use taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on sales if they do not have a physical presence in the state. This means that states cannot make remote sellers their tax collectors if they don’t have offices, employees, or some other tangible, physical connection to the state in which they sell products.

Today’s edition of State Tax Notes reports that a task force of the National Conference of State Legislatures (NCSL) recently approved a resolution asking Congress to approve legislation authorizing the states in the Streamlined Sales and Use Tax Agreement (SSUTA) to force remote sellers to collect use tax, effectively overturning the Quill protection for remote sellers. But what about those states that have chosen not to participate in SSUTA? Will sellers located in non-participating states still be protected by Quill?

According to a resolution recently passed by the Tax and Fiscal Task Force of the American Legislative Exchange Council (ALEC), Congress should not force sellers in non-SSUTA states to collect use tax in other states that do participate. State Representative Norman Major (R-NH) tried—unsuccessfully—to amend the NCSL resolution to similarly apply SSUTA solely to states with a sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. . State Senator Steve Rauschenberger (R-IL), co-chair of NCSL’s task force that passed their resolution, says that “it’s really dangerous to have another legislative group out there with another perspective.”

But federalism is all about respecting the different legislative choices made by different states. Federalism is all about “different perspectives.” If states choose not to participate in the SSUTA, then their retailers shouldn’t be forced to collect in SSUTA states. Congress should allow the states in SSUTA to compete with the states that are not participating. Let the market decide which system is best. That is the essence of federalism, and it’s a principle that ALEC is right to ask Congress to respect.