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Rather than continuing the battle to persuade Congress or the Supreme Court to remove restraints on the states' existing tax collection mechanism, states might consider an alternative mechanism that makes use of 21st century technology.
Forhalf a cebtury, the states and their allies have been stuck in a struggle to enforce use taxes on sales made by "remote" retailers (those without physical presence in the state). The states' allies, traditional brick-and-mortar sellers who, unlike remote retailers, must collect tax, have supported this effort in the hopes of leveling the playing field.
Cross-border commerce complicates the enforcement of every kind of tax. So it should be no surprise that cross-border sales by remote sellers create a consumption tax enforcement problem for virtually every taxing sovereign on earth.
Still, if there were borders that commerce might cross without causing tax collection problems, you might expect those borders to be between U.S. states. It was, after all, a goal of our federal system to preserve state authority while mitigating the kinds of border-related complications commonly faced by completely separate sovereigns.
Ironically, our federal system has not only failed to supply the solution, it has instead supplied a particularly persistent version of the problem. And, it was the federal Supreme Court that handed states their biggest defeats-once by mistake, and then 25 years later, on purpose.
This article posits that, rather than continuing the battle to persuade Congress or the Supreme Court to remove restraints on the states' existing tax collection mechanism, states might consider an alternative mechanism that makes use of 21st century technology, an alternative made possible by the recent case of DMA v. Brohl.
The Supreme Court's Mistake
In Nat'l Bellas Hess v. Dep't of Revenue,1 the U.S. Supreme Court discovered in the Constitution a bright-line physical-presence limitation on the states' ability to require remote sellers to collect tax, no matter how substantial their sales into the state might be. Assume for example that there are two sellers-X and Y, operating in 10 states. X sells $1,000 of widgets in each state through a traveling sales representative. Y sells $1 million worth of widgets in each state, remotely by mail order. While X must collect and pay taxes in 10 states, Y need not...