Like statehouses across the country, the New Mexico state legislature will soon decide whether the state should join an interstate sales tax compact. Called the “Streamlined Sales Tax Agreement,” the compact is a radical departure from conventional tax policy. Because it permits the formation of an interstate tax cartel, there is good reason to believe that it would lead to more harm than good. The state should not join the Agreement.
Ostensibly designed to simplify interstate commerce and level the playing field between on-line and ‘bricks and mortar’ retailers, the Agreement would require signatory states to follow certain rules in taxing sales. More importantly (ominously), it would allow states to tax businesses outside their borders. For the first time in history, states would possess the authority to tax a transaction based on the consumer’s rather than on the producer’s location. By allowing states to tax a transaction based on where the consumer lives rather than on where the producer sells, the Agreement would violate one of the sacred precepts of American democracy: It would amount to taxation without representation. In addition, its enforcement would entail costly compliance and a potentially dangerous invasion of consumer privacy. Finally, by allowing states to establish an interstate tax cartel, the Streamlined Agreement would lead to inefficiently high taxes and less economic growth. Having misdiagnosed the true source of the seeming inequity in retail taxation, the Agreement’s proponents offer a cure that is worse than the ailment.
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