Freedom and liberty groups are digging in when it comes to fighting South Dakota over its Internet sales tax case against Wayfair. FreedomWorks joined with groups like The Institute for Policy Innovation and Americans for Prosperity to file an amicus brief defending Wayfair’s resistance towards the online sales tax, especially on out of state vendor transactions. Vice President of Legislative Affairs Jason Pye says the case is another example of taxation without representation.
“Our Founding Fathers revolted over taxes passed by the British Parliament to which colonists had no representation. Now, more than 200 years later, we are having this fight in the digital space. Taxation without representation is still tyranny, whether it’s done on brick and mortar, or over the internet.”
“The Supreme Court got it right in the Quill decision, and the internet has flourished as a result. A reversal would undermine our constitutional rights, create tax compliance headaches for small internet-based businesses, and feed state and local governments’ addictions to spending.”
IPI was just as explicit in their summation of South Dakota’s move on the Internet sales tax with President Tom Giovanetti saying, “The Supreme Court has already found that states exceed their constitutional authority if they force retailers in other states to collect taxes for them.”
I wrote last month on my issues with South Dakota in this online sale tax grab, and I’m quite pleased Representative Kristi Noem failed to get her bill into the omnibus spending package (one of the few things I’m happy about with that stupid omnibus). What’s great about the argument put forth by these free market groups in their amicus is it boils down to freedom, while also reminding U.S. Supreme Court justices of why the American colonies revolted from England in the first place. It also points out why state governments tend to be hesitant when it comes to raising sale taxes (emphasis mine).
(South Dakota)’s myopic focus on the purportedly decreased burdens remote retailers face in collecting taxes for distant states thus misses the mark. The principal objection to the Stamp Act and the Tea Act was not that collecting the taxes was burdensome. The problem was far more fundamental—namely, that the burdens were imposed by a distant Parliament in which the colonists were denied representation. Here, too, the problem with imposing tax-collection responsibilities on out-of-state entities with no voice in the halls of state government is not principally about whether the latest software lessens the burdens of compliance with such responsibilities. Whether tax-collection responsibilities are easy or hard, they are politically unpopular. After all, nothing in the Constitution stops states from doubling down on efforts to collect sales taxes on in-state residents. What curtails states’ own enforcement efforts directed to in-state residents is not a constitutional limit, but the ballot box. How convenient and tempting, then, to impose those collection obligations on out-of-state (or even out-of-nation) retailers who cannot vote. And since the ballot box imposes no constraint on offloading enforcement obligations on nonresidents, only the Constitution prevents states from yielding to that temptation.
This is a salient point, especially for those who argue not only for higher taxes but also increased tariffs. It might be easy to sit there and say, “Well, what about lobbyists,” but most companies who believe in free markets would probably prefer to just do their business, and not worry about governmental intervention. It was a big deal when Uber hired lobbyists to fight against government regulators, and no doubt those lobbyists don’t come cheap. Life would certainly be easier for all companies (and consumers) if they didn’t have to worry about government trying to get its fat fingers into the pie.
The big danger in this fight between South Dakota and Wayfair is the precedent it could set for other states. New York is already considering its own online sale tax, and a Supreme Court decision in favor of South Dakota would give Governor Andrew Cuomo carte blanche to push the tax through, something FreedomWorks, IPI, and others noted in their warning to justices.
And while South Dakota’s made- for-this-litigation statute imposes only prospective tax-collection obligations, there is nothing in the logic of its position to prevent retroactive burdens, and other states have already made clear that they will not exercise such restraint.
Here’s the other key factor in South Dakota (and New York’s) attempt to force businesses without a physical presence in their state to collect sales tax: it’s completely unconstitutional. One thing the U.S. Constitution says in Article 1, Section 8 is the fact Congress is the only governmental body which can set up this kind of regulation. Senators Ted Cruz, Steve Daines, and Mike Lee lobbied the Supreme Court to remember this in their own amicus on South Dakota v. Wayfair.
Under the Commerce Clause, Congress not only has the constitutional authority over taxation of inter- state sales using the internet, it has also undertaken substantial effort to find a workable solution to that issue. This is evident in the bills currently under con- sideration in Congress, additional attempts by the House Judiciary Committee to come up with a com- promise, former bills that attempted to find a solution, and a variety of Congressional hearings regarding the issue.
The question becomes whether Congress should deal with this or let people buy things online tax-free. I fall into the latter category, but that’s not what is in front of the Supreme Court at the moment. It’s great to see free market groups sticking up for Wayfair in this situation because South Dakota is doing a power grab. One which could end up hurting more people than they realize because of the unintended consequences.