In another blow to the Constitution, the Supreme Court on Monday declined to hear a case by Amazon and Overstock.com challenging a law that requires online retailers to collect sales tax in states where they have no physical presence. The Supreme Court refusal to hear the case will allow state governments to tax online retailers and turn online retailers into de facto tax collection agencies.
The Court had previously held that under the Commerce Clause (Article I, Section 8, Clause 3) and the Due Process Clause of the Fourteenth Amendment states may not impose tax responsibility on out of state sellers that do not have a physical presence in the state.
“Some say that it is a legitimate exercise of Congress’s Commerce Clause power to give state governments the authority to force out-of-state businesses to collect sales taxes,” Ron Paul wrote in September. “But if that were the case, why shouldn’t state governments be able to force you to pay sales taxes where you physically cross state lines to make a purchase? The Commerce Clause was intended to facilitate the free flow of goods and services across state lines, not to help states impose new burdens on out of state businesses.”
Now that the Supremes have declined the Amazon case, Congress will be free to impose burdensome taxation and other regulations on the internet. Earlier this year, the Senate passed the Marketplace Fairness Act, legislation widely dubbed a national internet sales tax. The law requires 10,000 jurisdictions — including 46 states, six territories, and over 500 Native American tribal nations — to collect sales tax for government.
“By giving state governments the power to tax Internet retailers, the Marketplace Fairness Act further undermines our already moribund system of federalism,” explains Glenn Jacobs. “One of the key components of federalism is competition between the states. The idea is that the better the state, the more attractive it will be to individuals and businesses.”
Internet sales taxes are especially appealing to state governments looking to impose new taxation on citizens to address budget shortfalls. According to projections by Forrester Research, internet retailers may eventually fork out more than $3 billion annually for cash-hungry states.
“Advocating higher taxes, even on your competition, ends up hurting everyone,” writes Jacobs. “But the people that are hurt the most are consumers, everyday working families. The Marketplace Fairness Act will end up forcing consumers to pay higher prices for the goods they desire. It will limit consumer choice. As with all tax programs, it will transfer resources from the productive sector of the economy to the parasitic sector, thereby inhibiting capital formation and investment. It will put shackles on one of the economy’s fastest growing sectors, Internet commerce.”