ATR recently sent a letter to the Louisiana House of Representatives in opposition to House Bill 1114, legislation which seeks to impose an Internet and remote sales tax obligation on out-of-state businesses. ATR was joined by the National Taxpayers Union, the Taxpayers Protection Alliance, and Louisiana's Pelican Institute for Public Policy on the letter opposing the bill. If passed, it would discourage in-state investment and cause many in-state advertisers to go out of business, as has happened in other states with similar measures. It would also allow the state tax administrator to reach well across Louisiana's borders to force non-residents to comply with the state's tax laws. As a comparable piece of legislation was recently ruled unconstitutional in Illinois, HB 1114 does not pass constitutional muster for its violation of the Dormant Commerce Clause and the Supreme Court's ruling in Quill v. North Dakota.
Read the full text of the letter below.
April 30, 2012
Louisiana House of Representatives
RE: Oppose HB 1114, Internet Tax
We write urging you to reject House Bill 1114 that would impose an Internet and remote sales tax collection obligation on out-of-state businesses. The bill runs afoul of the U.S. Constitution and would dissolve the critically important physical presence standard for tax collection, allowing the long arm of the tax collector to reach well beyond the state’s borders.
Louisiana would likely face litigation and a constitutional challenge if HB 1114 becomes law. The U.S. Supreme Court’s ruling in Quill v. North Dakota expressly forbids states from forcing out-of-state businesses with no physical presence to collect and remit sales taxes, as doing so is a violation of the Dormant Commerce Clause. HB 1114 attempts to circumvent the Quill decision and U.S. Constitution by presuming a company has nexus in Louisiana based on tenuous connections to third-party affiliates or Internet advertisers in the state. This flies in the face of the Supreme Court’s Quill holding and similar legislation was ruled unconstitutional in Illinois just last week.
If history is a guide, the measure will put thousands of Louisianans out of work as online retailers sever their connections to in-state affiliates. In each state that an affiliate nexus style tax has been enacted, remote retailers have terminated contracts with in-state advertisers and contractors to avoid the unconstitutional tax, causing tens of thousands of affiliates to go out-of-business or leave the state entirely. This natural outcome would lead to the collection of little, if any, additional revenue, rendering the law useless.
Even worse, the bill goes beyond implicitly targeting Louisianans to collect more tax revenue. HB 1114 would also require out-of-state companies who invest in a Louisiana business with more than a mere 5 percent ownership stake to collect Louisiana’s taxes. This will undoubtedly deter the flow of investment into the state.
Questions of interstate tax collection fall under the purview of the U.S. Congress, as noted in the Quill case. Louisiana should refrain from enacting a new tax collection obligation on Internet sales in an unconstitutional manner.
Poor enforcement of “use tax” law is no justification for a constitutionally dubious tax increase. We urge you to oppose House Bill 1114 and any attempt to loosen the state’s physical nexus standard for tax collection.
Americans for Tax Reform
National Taxpayers Union
Taxpayers Protection Alliance
Pelican Institute for Public Policy