Senate Revives Bill to Allow States to Impose Online Sales Taxes

Published June 7, 2017

The latest incarnation of the Marketplace Fairness Act, a bill to allow states to collect sales taxes on businesses outside their jurisdiction that sell goods and services to consumers inside their borders, is under consideration before a U.S. Senate committee.

A decision in a 1991 U.S. Supreme Court case, Quill v. North Dakota, prohibits states from requiring businesses to collect and remit sales taxes on purchases made by consumers not located in the state in which the business maintains a physical presence.

U.S. Sen. Michael Enzi (R-WY) introduced Senate Bill 976 in April, and the Senate Committee on Banking, Housing, and Urban Affairs debated the bill on May 18.

Daniel Mitchell, a senior fellow in fiscal policy for the Cato Institute, says the Marketplace Fairness Act amounts to an unjustified tax increase.

“It is a bad idea,” Mitchell said, “It will lead to higher taxes because it is based on a theory, destination-based taxation, that enables higher taxes.”

State Taxes, Nationwide

Nan Swift, federal affairs manager for the National Taxpayers Union, says the proposed law would give state governments sweeping taxing powers.

“The Marketplace Fairness Act would give new taxing powers to states, extending outside their own borders,” Swift said.

State governments are constitutionally prohibited from taxing nonresidents for a reason, Swift says.

“In the past, the Supreme Court has affirmed that states should only have the power to tax within their own jurisdictions,” Swift said. “This is an important restriction that ensures that those who are taxed have some accountability over those doing the taxing and recourse should there be a conflict. Without this principle in place, high-tax and high-spending states would have every incentive to go after nonresidents as a source of new revenues.”