New Use Tax Proposal Bad for Marketers, DMA Says in Protest

The Direct Marketing Association last week kept up its aggressive scrutiny of states-led use tax collection efforts by opposing the new “Alternative Sourcing Proposal” issued by the Streamlined Sales Tax Governing Board. Finding the proposal a “complex, tiered taxing protocol that would further complicate interstate commerce for businesses and customers,” the DMA protested the proposal in a letter to the board’s Executive Director Scott Peterson.

The principal objective of the Streamlined Sales Tax Project “was to achieve simplicity, consistency, and greater uniformity in the administration of state sales and use tax laws,” said Steven K. Berry, DMA’s executive vice president for government affairs and corporate responsibility, in a press release. However, the new proposal “would be a major step backwards.”

The DMA letter, written by its tax counsel (and Catalog Success contributor) George Isaacson, said that specifically, the DMA opposes the proposed change in the “Sourcing Rule,” which would end the Streamlined Sales Tax Project’s long-standing requirement that the point of destination — rather than point of origin — be used to determine the applicable tax rate for all sales.

As Isaacson’s letter notes, by abandoning the current mandatory “destination-based” standard, the proposal instead would permit member states of the Streamlined Sales Tax Project to adopt a two-tiered-optional-rate sourcing protocol.

The new optional rate only would apply to the local portion of combined state and local use taxes, and would require a member state to apply “origin sourcing” to all intrastate sales. It also would require “adoption of a combination rate for interstate sales,” according to a DMA statement, “which could be as much as the sum of the state rate plus the highest local rate applicable within the state, irrespective of the actual tax rate in effect where the purchaser is located.”

“The proposed amendment,” Isaacson says in his letter, “creates a distinction between the treatment of intrastate commerce and interstate commerce. This is the very evil the Constitution’s Commerce Clause was intended to prevent.”

Isaacson’s letter cites the 1994 decision in the Associated Industries of Missouri v. Lohman case in which a unanimous Supreme Court rejected Missouri’s tax law. That law allowed differential tax rates to be charged on the same item, depending on whether the item was purchased intrastate or out-of-state.

As an option to the Alternative Sourcing Proposal, Isaacson in his letter calls for the adoption of the one-rate-per-state for all commerce (both intrastate and interstate), which the DMA has long advocated.