What's wrong with the Internet taxation proposal of the National Governors' Association (NGA) favored by Governor Engler?

As analyst Adam Thierer explains,¹⁵ the NGA plan is seriously flawed because it

• creates a new de facto national sales tax cartel;

• violates constitutional first principles regarding tax fairness and commercial union;

• upsets existing U.S. Supreme Court commercial jurisprudence;

• threatens America's federalist structure of government by discouraging jurisdictional tax competition;

• creates a "trusted third party" tax collection system that could compromise individual and corporate privacy;

• is unnecessarily complex and could be extremely costly to implement;

• is not "voluntary" as the NGA claims; and

• is at odds with the Clinton administration's proposed "global free trade zone" for international commerce and could threaten American sovereignty.

The NGA proposal recommends the eventual expansion of its new "third-party" collection system to all retail transactions, including not only Internet commerce and interstate catalog or mail order sales, but also all traditional forms of "Main Street" retail sales. Thierer rightly warns that this "would be an unprecedented expansion of the existing sales tax system and possibly one of the biggest tax increases in American history." It would function as "a state-based tax cartel, with governors essentially agreeing to collude and tax electronic commerce, and eventually all interstate transactions, according to similar rates and standards." The plan of the NGA "with one Machiavellian blow would undermine the authority of Congress to legislate over these matters while instituting a stealth national sales tax on the American people."¹⁶

By enabling state governments to extract taxes beyond their geographic boundaries through third-party agents, the NGA plan would completely undermine the original constitutional design regarding free interstate commerce. It even does violence to the time-honored American concept of "no taxation without representation" because it would allow states to tax businesses in other states—businesses with no physical presence within the taxing state and no voice in its democratic process. Citizens in Michigan and across America, moreover, should also be concerned that overzealous tax collectors carrying out the NGA scheme would have unprecedented access to private, personal information.