Sales Tax Slice: Click-through Nexus - The Most Efficient Way to Increase Revenue without Raising Taxes?

Almost seven years ago New York became the first state to require Internet retailers to collect sales and use tax based on “click-through” advertising by in-state affiliates. Since then, 15 states have sought additional revenues by enacting similar requirements, and Louisiana may be next.

The Louisiana Senate is poised to vote on click-through nexus legislation passed by the House of Representatives last week. The legislation, contained in two substantively identical bills, H.B. 355 and H.B. 555, could help to ease Louisiana’s current $1.6 billion budget shortfall. If enacted, it would require Internet retailers that advertise through in-state affiliates to collect use tax from Louisiana customers.

If passed by the Senate, the legislation seems susceptible to veto by Gov. Bobby Jindal (R). Earlier this month, the suspected presidential hopeful reaffirmed his opposition to any net tax increases, stating that he would not support legislation that increases taxes in one area without providing offsetting decreases in other areas.

It is unclear whether Jindal would consider the click-through nexus legislation to constitute a tax increase under this policy. Such provisions, which require out-of-state retailers to collect the use tax already imposed on in-state customers, arguably only increase compliance with existing taxes and do not represent tax increases. However, the Americans for Tax Reform—the organization that drafted and monitors the anti-tax pledge signed by Jindal clearly disagrees.

If Jindal does view the legislation as a tax increase, without reliable historic data on remote sales, his office may have a difficult time estimating the additional revenue for which offsetting tax decreases would be required.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do click-through nexus laws increase taxes or only increase tax compliance? Should this distinction matter from a policy perspective?  

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