Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
By Ryan Prete
A divide among witnesses and members of Congress surfaced during a House Judiciary subcommittee hearing on federal legislation restricting states from taxing out-of-state sellers.
Rep. Bob Goodlatte (R-Va.) referred to the bill as “a fundamental premise woven into our founding documents” in his July 25 opening statement during the Subcommittee on Regulatory Reform, Commercial and Antitrust Law hearing on Rep. Jim Sensenbrenner’s (R-Wis.) bill, the No Regulation Without Representation Act of 2017 (H.R. 2887).
“In 2016, North Dakota won a five-year legal battle against a Minnesota law that limited the ability of out-of-state utilities selling power into the state to use coal,” said Goodlatte, who chairs the Judiciary Committee. “A response from Congress has become increasingly important, because neither the due process nor the commerce clause of the Constitution has proven a durable, adequate check on extraterritorial state regulation.”
Introduced June 12, Sensenbrenner’s bill would prohibit states from telling out-of-state businesses how to make or dispose of their products, and from imposing income tax or sales tax collection burdens on remote businesses.
The bill, in part, responds to the escalating campaign to overturn the the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota, which prohibits states from imposing sales and use tax collection obligations on vendors that don’t have a physical presence in-state. States have increasingly employed multiple methods to manage or overturn the 25-year-old restraint in an ever-expanding digital economy.
Four witnesses appeared before the Judiciary subcommittee—only one voiced opposition to Sensenbrenner’s bill. However, state groups released statements condemning the measure, and a subcommittee member raised concerns over the hearing’s disregard for other digital sales tax bills pending in Congress.
“H.R. 2887 would provide a clear congressional response that would, at the same time, protect states’ rights,” Goodlatte said, adding that “the legislation merely demands that states experiment on their own citizens, not everyone else’s.”
Many have singled out Goodlatte as the primary roadblock to competing e-commerce proposals that widen the reach of states’ taxing authority, including the Remote Transactions Parity Act of 2017 (H.R. 2193) and the Marketplace Fairness Act of 2017 (S. 976).
A date hasn’t been set for a House vote on the Sensenbrenner bill.
Hours before the hearing, the National Governors Association and the National Conference of State Legislatures released a joint statement denouncing the bill.
“We oppose H.R. 2887 because this bill’s audacious scope not only expands the ‘physical presence’ rule to all state and local taxes, it swells it to capture all regulations. The speed at which this bill is moving through the House Judiciary Committee belies the robust opposition to it among elected officials from the state executive and legislative branches that our respective organizations represent,” the two groups said in a news release.
“It has been more than 25 years since the U.S. Supreme Court invited Congress to grant states the authority to collect sales and use taxes from remote sales already due.”
However, NetChoice, an internet commerce trade association, lauded the legislation for hitting “the pause button on the state chaos campaign.”
“H.R. 2887 is needed to protect online business from a national onslaught of state tax regulations and obligations that defy the U.S. Constitution,” Steve DelBianco, executive director of NetChoice, said in a news release. " Our nation’s entrepreneurs are enduring unnecessary and harmful business operating costs that are killing jobs and hurting consumers.”
South Dakota state Sen. Deb Peters (R), president-elect of the NCSL, was the only witness during the hearing who opposed Sensenbrenner’s proposal as an unconstitutional infringement of state rights.
“The No Regulation Without Representation Act of 2017 embodies the usurpation of state sovereignty and expansion of federal overreach the Framers feared,” Peters said. “This legislation violates the Tenth Amendment’s guarantee that the sovereign rights of states cannot be abridged by Congress and aims to eliminate states’ powers within their borders, destroying the fundamental principles of federalism that have guided our nation since its founding.”
Peters sponsored South Dakota’s “economic nexus” statute, S.B. 106 (codified as S.D. Codified Laws Chapter 10-64), which requires remote retailers with annual in-state sales exceeding $100,000 or 200 separate transactions to collect and remit sales tax. The state’s Sixth Judicial Circuit Court found the law unconstitutional under Quill, and the matter is now before South Dakota’s Supreme Court.
However, the three other witnesses all favored Sensenbrenner’s legislation as a needed restraint on cross-border regulation.
“This legislation draws upon Congress’ constitutional duty to safeguard the free flow of goods and information in the course of interstate commerce. In doing so, it would put a stop to aggressive state efforts to make mincemeat of limits on their power,” said Andrew Moylan, executive vice president of the National Taxpayers Union. “I hasten to point out that states do not have ‘rights,’ per se. Individuals do. States exercise power, power derived from and granted by the people in order to achieve certain societal goals.”
H.R. 2887 will help rein in “states’ restraint—even if unintended—of interstate commerce and prevent a patchwork of state laws and regulations affecting the scientifically accepted production practices of pork producers,” said Neil Dierks, CEO of the National Pork Producers Council.
Chad E. DeVeaux, associate at Atkinson, Andelson, Loya, Ruud & Romo, focused on the impact of states’ overreach in the farming community. In particular, there is a Massachusetts referendum that requires all pork, veal, and eggs sold in-state to come from animals housed in pens significantly larger than the current industry standard.
“In the absence of any meaningful restraints against extraterritorial regulation, states have enacted laws imposing far-reaching national implications,” DeVeaux said. “By closing the doors to its markets to out-of-state farmers who do not comply with these mandates, such laws effectively compel producers to devote significantly greater resources to Massachusetts-bound products.”
Rep. John Conyers (D-Mich.), ranking member on the subcommittee, voiced concern about the rapid pace at which the bill is moving and a lack of consideration of opposing legislation.
“In an effort to respond to this holding, various legislative responses have been introduced over the years, including two of which I strongly supported, namely, the Remote Transactions Parity Act and the Marketplace Fairness Act. Although one of these bipartisan measures overwhelmingly passed the Senate in 2013, our committee has unfortunately failed to consider either of these bills,” Conyers said. “Instead, we are focusing today on H.R. 2887, a highly flawed measure.”
A hearing hasn’t been held on a competing House measures, the Remote Transactions Parity Act of 2017 (H.R. 2193), which would allow states to mandate out-of-state sellers and online vendors collect tax on in-state sales, and the Marketplace Fairness Act of 2017 (S. 976) which would also expand states’ taxing authority over remote retailers.
Introduced alongside the RTPA in late April, the MFA has stalled in the Senate, The measure passed the Senate in 2013 on a bipartisan 69-27 vote, but didn’t advance to a vote in the House after failing to make it out of the Judiciary Committee.
To contact the reporter on this story: Ryan Prete in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jennifer McLoughlin at email@example.com
Text of the No Regulation Without Representation Act of 2017 is at http://src.bna.com/q5p.
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)