The District of Columbia has become the latest government moving to force an Internet tax on its citizens. In the Fiscal Year 2012 budget (D.C. Bill 19-203), the D.C. City Council inserted a measure which would force out-of-state retailers to collect the District’s sales tax from consumers. This legislation would greatly undermine the physical nexus standard set forth in Quill v. North Dakota.
The District of Columbia’s Main Street Tax Fairness Act is anything but fair. By forcing out-of-state companies to collect and remit taxes in a locale in which they have no physical presence, this is a purely unconstitutional act.
There are some rather vague provisions in this bill as well. One part calls for a small-seller exemption. Who exactly this exempts is unclear and unspecified. Another portion calls for a “reasonable compensation” for out-of-state retailers for the collection and remittance of the new taxes on their business. Once again, note the use of the vague word “reasonable.” These provisions leave many loopholes that can be easily manipulated.
While Congress technically has power over the District’s budget, they have rarely used this power to reject or amend tax provisions. It is important that Congress use this plenary authority to show their disapproval of this act. D.C. needs true tax simplification – not tax increases – and the new Internet tax does not achieve this.