ATR: Oppose House Bill 641, Internet Tax and Physical Nexus


Posted by Patrick M. Gleason on Friday, June 24th, 2011, 10:08 AM PERMALINK

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June 14, 2011

Louisiana State Senate

RE: Oppose House Bill 641, Internet Tax and Physical Nexus

Dear Senator,

I write in strong opposition to House Bill 641, which would establish an Internet tax
and loosen Louisiana’s physical nexus standard for tax collection. HB 641 intends to
require out-of-state retailers to collect and remit sales tax on products purchased by
residents. Yet, the legislation will do more to harm in-state businesses and make out-of-state
retailers think twice about investing in Louisiana.

HB 641 attempts to partially dissolve the physical nexus standard for tax collection and
pushes the long arm of the tax collector past its appropriate state boundary. The U.S.
Supreme Court’s ruling in Quill v. North Dakota forbids states from forcing out-of-state
businesses with no physical presence to collect and remit sales taxes. HB 641 attempts to
circumvent this law by presuming a company has a nexus if business is solicited through a
third-party advertiser in the state or if an out-of-state retailer takes even a very small
ownership stake of a company in Louisiana. The measure flies in the face of the Supreme
Court’s ruling and is currently undergoing legal challenge in New York.

HB 641 will inadvertently punish Louisiana businesses and deter outside investment.
If having in-state advertising affiliates creates a nexus for out-of-state retailers, they will
simply terminate agreements with Louisiana businesses to avoid unconstitutional tax
collection, as has occurred in at least four other states. Furthermore, it will make out-ofstate
retailers hesitant to invest in Louisiana by forcing the investing company to also
become a tax collector, even if they themselves lack a physical presence.

Despite its objective, HB 641 will not level the tax collection playing field with brick-andmortar
stores. Since retailers will sever advertising and other ties to avoid the
unconstitutional tax, they will have no nexus for tax collection in Louisiana, as confirmed by
the measure’s fiscal note. The likely outcomes of this bill make for bad tax policy and
the intent – leveling the playing field – irrelevant.

Poor enforcement of “use tax” law is no justification for unconstitutional legislation,
especially if it negatively impacts Louisiana businesses. We urge you to reject House Bill
641, and any effort to tax Internet sales or reach outside of Louisiana for tax collection. If
you have any questions, please contact Kelly William Cobb or Patrick Gleason at (202) 785-
0266.

Onward,

Grover Norquist
President, Americans for Tax Reform

CC: The Honorable Bobby Jindal, Governor

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