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No Regulation Without Representation Act gets congressional hearing

  • Jul 28, 2017 | Gail Cole

 Congress discussed the No Regulation Without Representation Act on Tuesday.

A subcommittee of the House Committee on the Judiciary held a hearing Tuesday on the No Regulation Without Representation Act of 2017 (H.R. 2887). From the introductions to the closing arguments, it was apparent that Congress remains deeply divided not just on the issue of taxing remote sales, but on the balance of power between the federal government and states.

Under H.R. 2887, “a State may tax or regulate a person’s activity in interstate commerce only when such person is physically present in the State during the period in which the tax or regulation is imposed.” Much of the text of the bill addresses sales and use tax, particularly with respect to sales by out-of-state sellers. However, the scope of H.R. 2887 includes “a net income tax or any other business activity tax.” It also encompasses regulating “a person’s activity in interstate commerce,” which could have far-reaching implications.

When the bill was first introduced in June, Max Behlke of the National Conference of State Legislatures (NCSL) called it “the biggest violation of state sovereignty that's ever been introduced in Congress.” He continued, “I'm not exaggerating. This bill is that bad, and NCSL is strong in its opposition to it.” NCSL sent a letter opposing the bill to the United States House of Representatives on June 13. In another statement issued earlier this week, the NCSL along with the National Governors Association underscore the “bill’s audacious scope” that swells the physical presence rule “to capture all regulations.”

On the other side of the issue, the National Taxpayers Union (NTU) applauded the introduction of H.R. 2887, calling it “a much-needed bill that would finally codify the physical presence standard that is already considered to be a fundamental tenet of our Constitution.” The NTU, too, issued a letter to Congress, expressing gratitude to the bill’s author Jim Sensenbrenner for addressing “a number of worrisome legislative trends at the state level” that “threaten to erode that foundation of federalism by empowering states to exercise power outside their borders. For example, bills that would dramatically expand authority to collect sales taxes, label restaurant menus, and even determine the appropriate size of chicken cages could impose undue economic burdens on citizens by government officials who are in no way accountable to them.” According to the NTU, “such efforts could substantially harm interstate commerce” if left unchecked.

This type of seesawing continued throughout Tuesday’s hearing as representatives and witnesses spoke impassionedly for and against the No Regulation Without Representation Act of 2017.

Arguments for No Regulation Without Representation

Committee chairman Tom Marino of Pennsylvania opened the hearing with a reference to “the growing problem of states regulating beyond their borders.” He said that a tax “should only apply to those who have the ability to vote for the government that imposed the tax,” and noted that “the Constitution gives Congress the authority to regulate commerce among the several states.” In concluding, he said, “I look forward to hearing from the panel of witnesses on the dangers of extraterritorial regulations, and the need for Congress to address this issue.”

Three witnesses then spoke in support of H.R. 2887: Chad DeVeaux, a constitutional attorney; Neil Dierks of the National Pork Producers Council (NPPC), and Andrew Moylan of the National Taxpayers Union Foundation and National Taxpayers Union.

The testimony of DeVeaux focused on “the growing problem of states regulating beyond their borders.” He did not specifically reference remote sales or state efforts to tax them.

Dierks’ testimony concentrated on state efforts to outlaw the use of gestation stalls and the effects of such bans on the industry. In conclusion, he said the NPPC supports H.R. 2887 because it “will help reign in states’ restraint — even if unintended — of interstate commerce and prevent a patchwork of state laws and regulations affecting the scientifically accepted production practices of pork producers.”

Moylan accused states of “pushing the boundaries of their power, often in reckless and damaging ways,” and provided several illustrative examples — including, but not limited to, state efforts to tax remote sales. He said, “The internet is vast, powerful, and borderless. We must not let it become the vehicle for state governments to become similarly so.” In his opinion, H.R. 2887 offers a straightforward solution to the problem of remote sales tax and other overreaches of state authority: “simply embed in statute a physical nexus standard in order to protect interstate commerce.”

Several representatives on the subcommittee also praised H.R. 2887, including Rep. Bob Goodlatte of Virginia, a cosponsor of the bill. Goodlatte accused states of becoming “increasingly aggressive in exporting regulatory burdens” and said that “a response from Congress has become increasingly important, because neither the Due Process nor the Commerce Clause of the Constitution has proven a durable adequate check on extraterritorial state regulation.”

Arguments against No Regulation Without Representation

Rep. John Conyers of Michigan introduced the opposing position. He spoke of the Supreme Court’s ruling in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) — that a state may only impose a sales tax collection obligation on a company that has a physical presence in the state — and wondered why the subcommittee has to date failed to consider two bills introduced in response to Quill: the Marketplace Fairness Act (MFA) and the Remote Transactions Parity Act (RTPA).

Regarding remote sales tax, Conyers said that H.R. 2887 would “effectively prevent state and local governments from accessing a substantial part of their tax base.” It could also lead to lost jobs when brick-and-mortar retailers close in response to the unlevel playing field.

Of the witnesses, only Sen. Deb Peters of South Dakota, representing the National Conference of State Legislatures, spoke against the bill. She said, “The No Regulation Without Representation Act is one of the most coercive, intrusive, and preemptive legislative measures ever introduced in Congress.”

Like Conyers, she questioned why the subcommittee was holding a hearing on H.R. 2887 instead of one of two other pieces of legislation long awaiting the subcommittee’s attention. She noted, with emphasis:

  • It has been 1,541 days since the MFA was approved by the Senate and 1,502 days since it was referred to this subcommittee
  • It has been 755 days since the RTPA was first referred to this subcommittee
  • RTPA was reintroduced 89 days ago and referred to this subcommittee 81 days ago

Addressing the fact that H.R. 2887 seeks to codify the physical presence standard upheld in Quill, Peters quoted Supreme Court Justice Anthony Kennedy’s concurring opinion in Direct Marketing v. Brohl (2015), “It is unwise to delay any longer a reconsideration of the Court’s holding in Quill. A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier.”

Similarly, Rep. Doug Collins of Georgia said he could not support this bill because it would “ignore the invitation from the Supreme Court to reconsider Quill and make it impossible to address the issue in a way that weighs the needs of states, their citizens, online retailers, local businesses and the economy as a whole.”

The full hearing is available for viewing here.

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.