For the first time, Pennsylvania residents face paying sales taxes on everything they buy online under a recent decision by the state Department of Revenue. This amounts to a tax increase that skirts the legislative process, threatens to cost thousands of state residents their jobs, and stretches the state's constitutional authority. And while it was effected by bureaucrats, the responsibility for this tax hike should fall squarely in the lap of the state's chief executive, Gov. Corbett.
Administration officials argue that they are simply "clarifying" current law to require online and other out-of-state retailers who sell to Pennsylvanians to collect sales taxes. To do so, they relied on a vague state tax law that may be unconstitutional.
The law says, for example, that Pennsylvania can force a company to comply with its tax laws if it has "any contact within this Commonwealth which would allow the Commonwealth to require a person to collect and remit tax under the Constitution of the United States." Any contact? That gives the state extraordinarily broad powers.
The governor and the Revenue Department should be trying to restrain such dangerously nebulous tax laws. Instead, they are using them to justify new and constitutionally questionable taxes.
Supreme Court rulings in two cases, National Bellas Hess v. Illinois and Quill Corp. v. North Dakota, established a physical presence rule for tax collection: If a retailer does not have a physical footprint in a state, it is a violation of the Constitution's interstate commerce clause to force the seller to collect that state's taxes.
Yet under Pennsylvania's newly announced policy, an out-of-state business that merely advertises online in the state - physical footprint or not - must now collect sales taxes from Pennsylvanians. This stretches Supreme Court precedents to say the least.
The surprise move also completely circumvented the legislative process. Seven Democratic-leaning states - including New York, Illinois, and California - have passed similar measures, but they at least invited public discussion of the idea and subjected it to the scrutiny of elected representatives. Corbett and the Department of Revenue, by contrast, opted to unilaterally impose higher taxes through administrative fiat and without transparency.
Perhaps worst of all, the law is poised to completely backfire. It will likely fail to level the playing field for the state's brick-and-mortar stores or to collect much new revenue for appropriators in Harrisburg. Online retailers will simply sever their contracts with advertisers and other in-state businesses, which will also sever the mandate to collect state taxes. This will simply put more Pennsylvania residents out of work.
In other states that have tried similar maneuvers, advertisers and others have simply left, taking their business to other states. Taxes affect behavior, and that behavior affects tax revenue. With businesses closed and leaving, the state won't get much new revenue from Internet sales, but it will lose business-tax revenue to less oppressive states.
Lawmakers in Harrisburg should take note: They may have been bypassed by the governor so far, but they have an opportunity to fix state law and undo the damage this tax hike will cause. They should take steps to rein in the Department of Revenue policy change and clarify the law that served as its basis.
Corbett came into office promising that there would be no tax increases during his tenure. He even put that in writing, signing Americans for Tax Reform's Taxpayer Protection Pledge and promising the people of the state that he would "oppose and veto any and all efforts to increase taxes."
His administration's diktat that all Internet sales be taxed doesn't just break that promise; it promises to hurt thousands of Pennsylvania taxpayers and businesses.