The U.S. Supreme Court made clear in its decision in Quill v. North Dakota (1992) that Congress, not individual states, has the authority to regulate interstate commerce. The authority of states to tax the sale of goods and services, for example, extends only as far as their own borders. Since years of lobbying efforts haven’t produced federal legislation to expand that authority over online purchases, many states have acted (likely unconstitutionally) on their own.
In an effort to keep the Wyoming legislature from making the same mistake, the Competitive Enterprise Institute this week joined with ten other public policy organizations to issue an open letter on the propsed tax legislation known as H.B. 19:
On behalf of the millions of members of the undersigned organizations, including thousands of Wyoming residents and taxpayers, we write in strong opposition to H.B. 19, a bill that, if approved, would lead to disastrous results for Wyomingites. This legislation is both unconstitutional and foolhardy, and you would be wise to reject it.
This bill and similar approaches to interstate sales taxes hold an ignominious distinction: they are the only such efforts in recent memory intentionally drafted so as to be unconstitutional and draw a lawsuit. By empowering Wyoming to collect taxes from businesses with no physical presence within your borders, the rule immediately draws Wyoming into a potentially expensive and contentious cycle of litigation one witnesses in other states. This is a cycle unlikely to yield positive results, since decades-old Supreme Court precedent makes clear that state tax powers end at the border’s edge.
For more background on the issue see my recent WebMemo, “Why Internet Sales Taxes Bolster Bigger Government A Primer on Leading Proposals and their Political Prospects.”