Supreme Court Should Address Concerns about Federalism in New York’s Affiliate Nexus Law, says American Legislative Exchange Council
Arlington, VA (September 19, 2013) — The American Legislative Exchange Council (ALEC) today urged the U.S. Supreme Court to hear a case that will help determine whether there are, in fact, constitutional protections from the ability of states to impose tax burdens on other states.
ALEC has filed an amicus curiae brief as part of a petition for a writ of certiorari to the Supreme Court to hear a challenge to a New York state law enacted in 2008 that considers an out-of-state company to be an in-state resident for tax collection purposes if the company receives a referral for a commission from any in-state resident marketing “affiliates.” A copy of the ALEC brief can be found here.
Rep. Blair Thoreson of North Dakota, the Co-Chairman of the ALEC Communications and Technology Task Force, said: “There is a disturbing trend of states giving themselves the power to reach beyond state lines and into the pockets of non-citizens. Hopefully this filing by ALEC will encourage the Supreme Court to provide some clarity as to the due process rights of the states and the people in these matters.”
Task Force Co-Chairman Bartlett Cleland of the Institute for Policy Innovation added, “The threat to the commercial Internet and to our constitutional rights from extraterritorial assertions of power by the government cannot be overstated. The Supreme Court needs to hear this case immediately to reaffirm the physical presence rule to protect our rights and to ensure the Internet continues to grow and improve human welfare.“
New Hampshire Rep. Ken Weyler, Chairman of ALEC’s Tax and Fiscal Policy Task Force stated, “ALEC’s research in Rich States, Poor States highlights how states are in direct competition for jobs, capital and economic vitality. In my home state, we are proud of our “New Hampshire Advantage,” which features no state income or sales taxes. However, our small businesses are increasingly being threatened by revenue-hungry tax departments in other states. This sort of taxation threatens to cripple the very job creators that will lead the way out of America’s economic malaise.”
Article I, Section 8 of the U.S. Constitution provides that “Congress shall have the power…to regulate commerce…among the several states.” Under a long line of Supreme Court rulings, states are prohibited from placing “undue burdens on interstate commerce.” In the context of state taxation of interstate commerce, the Supreme Court held in Quill Corp v. North Dakota (1992) that businesses lacking a “substantial nexus” or link to a state through a physical presence or an employee or agent cannot be subject to that state’s sales and use tax requirements. Accordingly, states are barred from imposing tax collection duties on out-of-state businesses where such businesses’ only connections to the state involve the use of common carriers such as the mail service or the licensing of software to an in-state resident.
ALEC supports constitutional nexus requirements for state taxation obligations and opposes extraterritorial state taxation obligations where such nexus is lacking. In particular, the ALEC model policy 21st Century Commercial Nexus Act expressly reaffirms the Quill decision and provides standards consistent with Quill’s nexus requirements. State sovereignty concerns about extraterritorial taxation are also embodied in the ALEC model policy Sales and Use Tax Collection Protection Act (2009). Additionally, tax collection obligations without a physical presence run contrary to existing ALEC model policies.
Contact: Molly Fuhs
The American Legislative Exchange Council is the largest nonpartisan, voluntary membership organization of state legislators in the United States. The Council is governed by state legislators who comprise the Board of Directors and is advised by the Private Enterprise Advisory Council, a group of private, foundation and think tank members. For more information about the American Legislative Exchange Council, please visit: www.alec.org.