The Supreme Court dealt a massive blow to online retailers of all sizes when it ruled in favor of allowing states to tax outside their borders. But instead of fighting back, some state lawmakers are only compounding the problem.
In anticipation that the Supreme Court would kill Quill – a 1992 ruling that prevented states from taxing online retailers outside their borders – numerous states previously, and are planning to, enact “click through” or economic nexus laws in order to pad their coffers. These laws compel out-of-state businesses to collect and pay them tax revenue, a clear example of taxation without representation.
Such taxation should be rejected on principle, but on policy these laws are no better. Saddling online retailers with a heap of state and local tax obligations will create massive new compliance costs, breeding numerous negative consequences. Yet somehow, certain states have found ways to make the misguided policy even worse.
Take Massachusetts, for example. Massachusetts, like several money-hungry states, established economic nexus provisions prior to the SCOTUS decision. But going a step further, the Bay State chose to interpret the ruling as a green light to send letters to out of state retailers demanding they pay up for sales done in the past.
Efforts like those in Massachusetts to seek retroactive back taxes were explicitly opposed by Justice Kennedy, who defended South Dakota’s law. In his decision notes, Justice Kennedy lucidly expressed, “no obligation to remit the sales tax may be applied retroactively.”
Massachusetts lawmakers are putting their greed on display. They have convinced themselves that they are somehow entitled to money they couldn’t legitimately extort from businesses in the past, all because they established an economic nexus before it was legal. Interpreting the law this way establishes a very harmful precedent.
Retroactive taxes are a violation of due process, a Randian government overreach that leaves businesses at the mercy of whimsical administrators. As such, those grasping governments that do engage in the bad policy of imposing internet sales taxes should NOT be like Massachusetts, who has made a terrible policy even worse. Imposing retroactive taxes is a dangerous and devastating measure that should be rejected without hesitation.