In a desperate scramble to balance their state budgets, state legislators in many states have seized upon the idea of “increasing revenue” (read: raising taxes) rather than taking actions to live within their means. Whether it’s:
- Expanding communications taxes in California;
- Arguing in New York that a store does not have to be in the state at all to levy taxes; or,
- Florida urging the passage of federal legislation to “enable states to collect Internet sales taxes” before the state does its assigned work.
The goal of all is to get more money to spend—and they want it now.
Let’s take Florida. Years ago the U.S. Supreme Court said that states are able to force merchants to collect and remit sales taxes for goods sold to state residents (as they do today for purchases made in the state). But the Supremes also said that before states could force that requirement on merchants in other states, legislators had to address the confusing, mind-boggling mess of state tax jurisdictions, ways to remit, a plethora of rates and confusing definitions.
That was 1965, and yet nearly 45 years later the states haven’t solved the problem. Indeed, they’ve made an even bigger mess of things.
This fact alone makes the arguments by Florida legislators absurd.
Yes, in theory taxes are owed. But given the states’ unwillingness to simplify their tax-code mess, then the law prevents them from sticking their hands in other states’ pockets.
Florida politicians are right that the situation is unfair. But the real unfairness lies in the fact that states won’t get to work on honestly simplifying their tax systems so that merchants are treated equally. Currently, remote merchants would be placed at a disadvantage by being required to unravel complicated tax laws in more than 7,500 tax jurisdictions across the country, while local merchants have only one set of rules to handle.
Florida, and many other states, may want the revenue. But obtaining that revenue should serve as the incentive to finally, truly simplify their tax codes.
And given the fact that most legislators appear to like murky and obscure tax codes that let them hide how much they’re raking in, our guess is that out-of-state residents’ pocketbooks are safe—at least unless the largely pro-tax US Congress tries to end run the process with legislation that does not require true simplification.