This week, U.S. Representative Kristi Noem (R-S.D.) made headlines when she threatened to use a discharge petition to force a House floor vote on her Internet sales tax legislation. While some may find it strange that a Republican would use a rare procedural tool to raise taxes, Rep. Noem’s home state of South Dakota (where she is running for governor) stands to receive a big windfall if passed.
Rep. Noem’s bill, the Remote Transactions Parity Act (RTPA), would give states the power to tax Internet sales that take place beyond their borders. Collecting taxes on businesses that aren’t physically present in your state makes no sense. What’s next: will high-tax states like California and New York levy an income tax on nonresidents?
This legislation is particularly problematic because it will reduce the incentive for states to keep their sales tax low. If a state — such as New Hampshire — chooses to levy zero sales tax, it should be able to benefit from any businesses that wish to relocate to that state’s more favorable tax environment. Under the Remote Transactions Parity Act, states like New Hampshire would be punished instead of rewarded. This significantly undermines tax competition, and states are supposed to be the laboratories of experimentation.
Also problematic is the fact that this bill could prove costly or difficult for some small retailers to comply with. As Andrew Moylan wrote for RealClearPolitics:
Big box stores and even Amazon, the big kid on the “e-retail” block, have gleefully joined in these efforts, sensing a chance to saddle smaller competitors with the staggering complexity and huge costs of having to collect taxes nationwide despite lacking physical presence nationwide, as they have.
Furthermore, a new poll from The National Taxpayers Union has found that the Internet sales tax has bipartisan opposition:
65 percent of likely 2018 voters are against the kinds of online sales tax regimes that are currently under consideration in Congress and by the Supreme Court. These represent strong majorities across party lines – Democrats, Republicans, and independents are all against new sales taxes for online purchases by more than sixty percent for every group.
The poll also noted that 74 percent of those sampled agreed with the statement “adding new taxes to Internet commerce is a step back from benefits people get from tax reform.”
As the poll data shows, the Remote Transactions Parity Act is both bad politics and bad policy. The last thing that Congress should be pushing for right now is yet another new tax.