Texas Gov. Rick Perry has vetoed legislation attempting to force out-of-state businesses like online retailers to collect the state’s sales tax. Perry’s move is a huge victory for taxpayers, who watched the legislature pass the measure with surprisingly large margins. However, the language is now included in the fiscal matters bill before a special legislative session, giving it another chance to become law.
House Bill 2403 is a net $61 million tax hike and a reversal of Texas’s consistent and pro-jobs tax environment that has made it the best state for business in recent years. Perhaps worse, the bill would significantly liberalize the physical nexus standard for tax collection. From ATR’s letter urging Gov. Perry to veto the bill
HB 2403 partially dissolves the physical nexus standard for tax collection, despite the U.S. Supreme Court’s ruling in Quill v. North Dakota that expressly forbids states from forcing out-of-state businesses and individuals to collect and remit sales taxes. HB 2403 pushes the long arm of the tax collector past this appropriate boundary.
Loosening the physical nexus standard to reach across state borders and force non-residents to collect or pay taxes is a philosophy rooted in states wholly unlike Texas. Other states attempting to weaken the nexus standard, such as California and New York, are doing so to explicitly tax Internet sales and non-resident populations. These desperate attempts to raise revenue are occurring as their taxpaying populations flee oppressive tax and regulatory regimes. Texas neither has this problem, nor should be following their lead.
In March, ATR testified against HB 2403 and related measures in the House Ways and Means Committee. Check out ATR’s full letter to Gov. Perry and letter to the legislature.