Clinton, Trump Silent on Tax Issues Gripping States

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By Che Odom and Jennifer McLoughlin

Nov. 2 — Hillary Clinton and Donald Trump don't discuss state and local taxes or how their policies would impact taxpayers.

Neither has taken positions on state taxation of out-of-state online retailers, an issue that has been sweeping through statehouses. They haven't addressed the imposition of taxes on commuters who cross state borders for work, which has been stirring debate in New Jersey and Pennsylvania. Not a peep about applying transaction taxes on digital goods.

They also have been silent on federal exemption for municipal bond interest and what should happen if a state like Illinois can’t pay its bills because of unfunded pension liabilities.

Clinton won't be going “into specifics in those areas at this time,” a spokesperson for the Democratic candidate told Bloomberg BNA in early September. And she hasn't delved into specifics since then.

The Trump campaign didn't return calls and e-mails seeking comment.

Other than Trump's state tax returns, which touched off debate about tax avoidance tactics, neither candidate has uttered much about state taxes. The silence may be hard for some to ignore.

The federal government's authority over commerce means the president has a role to play in areas directly affecting state revenue—particularly their veto power over Congress' charge to govern interstate commerce.

However, the lack of attention is good “in that the silence acknowledges state tax as outside the role of the president,” Joseph D. Henchman, vice president of legal and state projects at the Tax Foundation, told Bloomberg BNA. “It’s bad in that some important issues don’t get resolved at a national level because there’s no champion” (see related stories on the state-side impacts of the November election, this issue).

Governors, Presidents

Given that so many recent presidents and candidates served as governors—Jimmy Carter, Ronald Reagan, Bill Clinton, George W. Bush, Mitt Romney, Michael Dukakis—the lack of attention to state revenue and taxes is somewhat surprising, said Steve Wlodychak, a principal in Ernst & Young LLP’s Indirect (State and Local Tax) Practice and chief of the firm’s Center for Tax Policy.

“I can’t ever recall state issues being discussed in a national campaign ever, except maybe to complain that the other person raised taxes or the candidate lowered state taxes, but not what they would do as president to affect state taxes,” Wlodychak told Bloomberg BNA.

Messing With Nexus

One controversial issue receiving attention across the country is whether states may redefine nexus to collect tax on e-retailer sales. Either Clinton or Trump could impact the final resolution.

Many states and traditional brick-and-mortar companies are pressing Congress and the courts to change the divisive rule established in the Supreme Court's 1992 decision in Quill Corp. v. North Dakota, which prohibits states from mandating sales tax collection from businesses without an in-state physical presence.

Several federal legislative proposals are in a holding pattern in both the Senate and the House:

  •  The Marketplace Fairness Act (MFA) (S. 698), sponsored by Sen. Michael B. Enzi (R-Wyo.), proposes a destination-based system. States would have authority to require sales tax collection from remote retailers—with a small seller exception—so long as they join the Streamlined Sales and Use Tax Agreement (SSUTA) or take legislative measures to simplify their sales tax systems.
  •  The Remote Transactions Parity Act (RTPA) (H.R. 2775), sponsored by Rep. Jason Chaffetz (R-Utah), likewise proposes a destination-based system and would impose the same SSUTA and simplification requirements. The RTPA does vary from the MFA, such as with the small seller exception, audit limitations and provisions relating to certified software providers.
  •  The No Regulation Without Representation Act (H.R. 5893), sponsored by Rep. Jim Sensenbrenner (R-Wis.), would maintain the status quo by codifying the physical presence rule in Quill.

Another proposal, though not introduced, is the Online Sales Simplification Act (OSSA). Rep. Robert W. Goodlatte (R-Va.) recently released an updated discussion draft of his plan. It calls for a hybrid origin-based system that bases the taxation of remote purchases on the seller's location, but at the tax rate of the consumer's location. A seller would remit the tax to its origin state, which would in turn remit the tax to a clearinghouse for distribution to the appropriate destination state. Provisions vary for those states not participating in the clearinghouse.

E-Commerce Taxes

The issue could come before the U.S. Supreme Court soon, as both Alabama and South Dakota are hosting litigation over 2016 regimes that directly challenge the Quill holding. Petitions from Colorado and Florida also confront Quill.

However, movement through the courts has been slower than expected.

The next president, presumably, would fill an empty seat on the high court, which may impact the chances of certiorari and reconsideration of Quill.

“A justice on the Supreme Court could have a big impact on states,” Brian Kirkell, leader of McGladrey LLP’s state and local tax practice, told Bloomberg BNA.

The high court has issued a few opinions in recent years that affect state taxes, directly and indirectly, and many speculate that the court will accept a petition to revisit Quill as Justice Anthony Kennedy urged it to do last year in a concurrence.

Likewise, the potential powers to reverse congressional action on the issue can have lingering effects on states.

“The president would have the ultimate authority as to whether to sign or veto a bill that would come out of Congress to legislatively overrule Quill,” Julian A. Fortuna, a tax partner with Taylor English Duma LLP, told Bloomberg BNA.

Difference Between Candidates?

However, he said, “I'm not sure that there is a significant difference among Trump and Clinton as to sales and use tax issues.”

Fortuna noted that both candidates have come out in favor of so-called Amazon taxes, but said he hasn't heard any commentary on the Quill controversy. While Clinton appears more willing to raise income and sales taxes, Trump appears willing to raise sales taxes—but not income taxes.

“But I wouldn't be surprised if on that issue we were going to get to the same place,” he said, referring to the remote sales tax dispute.

Unpopular Themes for Candidates

A potential explanation for the candidates silence on this growing issue? Proposals allowing states to capture revenue from remote retailers may not pull in voters.

Steve DelBianco, executive director of NetChoice, explained that polling of Utah residents conducted by the e-commerce association yielded two policy problems with some of the remote sales legislation—particularly the MFA—that are supported by other national polls.

“Taxpayers and voters overwhelmingly perceive something like MFA as a state-wide tax increase,” DelBianco told Bloomberg BNA. Furthermore, “taxpayers believe that state tax auditors should not be able to reach beyond their borders into every corner of the country.”

He said that candidates won't find universal support among individual taxpayers that observe an increased tax burden arising out of new costs passed down by sellers. Likewise, businesses won't lend their support to new tax liability—particularly smaller businesses that are competing to survive against the economies of scale and supply chain advantages of larger companies.

NetChoice is involved in litigation challenging South Dakota's new economic nexus statute—which mandates sales tax collection if a remote retailer's sales satisfy a monetary or volume threshold—and is a proponent of Goodlatte's OSSA plan.

Obama Also Quiet

During his administration, President Barack Obama manifested little interest in state and local tax issues before Congress, such as the OSSA and Mobile Workforce State Income Tax Simplification Act, said Joseph R. Crosby, a principal with MultiState Associates Inc.

“By way of contrast, one of his predecessors, President Clinton, did speak clearly on the issue of remote sales tax collection, with Treasury and Commerce staff playing a significant role during the proceedings of Advisory Commission on Electronic Commerce,” Crosby told Bloomberg BNA.

That example aside, state and local taxes will never get the play of immigration, foreign policy and health care, said Jonathan Liss, senior director of state and local tax at BDO USA LLP. “Under our system of government, states are sovereign,” Liss told Bloomberg BNA Sept. 6.

Indirect Impact

Nonetheless, to the extent that Clinton and Trump tax plans affect the federal income-tax base, they will certainly impact state income taxes, Liss said.

“Federal taxable income is the starting point for calculating state income taxes,” he said.

In the past, if a federal tax proposal, such as bonus depreciation, reduced state income tax revenue, the states would “decouple” from the federal law, Liss said.

Federal “tax reform” from either Trump or Clinton would have a “significant” impact on state income taxes, Crosby said.

Predicting just how a transitional provision might affect short-term state tax revenue is challenging, but, in general, a broader tax base would, over the longer term, generate significant additional state tax revenue, “absent concomitant state level income tax rate reductions,” Crosby said.

To contact the reporters on this story: Che Odom in Washington at and Jennifer McLoughlin in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

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