DMA Opposes New Alternative Sourcing Proposal Before Streamlined Sales Tax Governing Board

September 14, 2007 — In a letter this week to Scott Peterson, the Executive Director of the Streamlined Sales Tax Governing Board, the Direct Marketing Association (DMA) expressed its strong opposition to the “Alternative Sourcing Proposal,” a complex, tiered taxing protocol that would further complicate interstate commerce for businesses and customers. The Alternative Sourcing Proposal will be considered by the Streamlined Sales Tax Governing Board at its September 19–20 meeting in Kansas City.

“DMA and its members are adamantly opposed to this confusing and discriminatory proposal before the Streamlined Sales Tax Governing Board,” said Steven K. Berry, DMA’s executive vice president for government affairs and corporate responsibility. “A 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. However, this proposal would be a major step backwards.”

In its letter from George Isaacson, DMA’s tax counsel, to Mr. Peterson, the association stated its opposition to the proposed change in the “Sourcing Rule,” which in effect will end the Streamlined Sales Tax Project’s longstanding requirement that the point of destination — rather than point of origin — be used for determining the applicable tax rate for all sales.

Unfortunately for businesses and consumers alike, the Alternative Sourcing Proposal will abandon the current mandatory “destination-based” standard, and instead permit Member States of the Streamlined Sales Tax Project to adopt a two-tiered-optional-rate sourcing protocol.

Thus, the new optional rate would apply only 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, while requiring adoption of a combination rate for interstate sales, 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.

Further, DMA’s letter notes, “the proposed amendment 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.”

In fact, the US Supreme Court has been adamant in barring such discriminatory tax treatment. DMA’s letter specifically cited the 1994 decision in the Associated Industries of Missouri vs. Lohman case where a unanimous Supreme Court struck down Missouri’s tax law, which allowed differential tax rates to be charged on the same item, depending on whether the item was purchased intrastate or from an out-of-state retailer.

DMA’s letter concluded, stating its support for genuinely simplified, consistent tax policy, and urged “the Governing Board to reject the Alternative Sourcing Proposal,” and instead adopt the one-rate-per-state for all commerce (both intrastate and interstate) that DMA has long advocated.

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