HELENA, Mont. — The attorneys general from three states without sales taxes sent letters to all 435 U.S. House representatives Wednesday urging them to oppose an Internet tax bill, saying the measure is unconstitutional and could prompt a legal challenge if it passes.
The bill, which was approved by the Senate last month, would allow states to require retailers to collect taxes on sales of products purchased by online shoppers in those states. Currently, states can only require retailers to collect sales taxes if they have a physical presence in the state.
The bill would also apply to sales made through catalogs and radio and television advertisements.
Supporters say the measure is about fairness for the brick-and-mortar companies that must compete with online companies that don’t collect sales taxes.
Attorneys General Tim Fox of Montana, Michael Geraghty of Alaska and Ellen Rosenblum of Oregon said in their letter the proposal has legal and economic pitfalls. They claim the bill is an unconstitutional violation of due process because it allows states to collect taxes from retailers that have little or no contact with that state.
They also say it is overly burdensome to require small businesses to collect and remit taxes to what they estimated would be 9,600 cities, counties and states.
The bill’s passage would prompt years of “costly, protracted and unnecessary litigation, the letter said.
Fox, flanked by a dozen small-business owners and executives, told reporters Wednesday that he is not threatening a lawsuit, but is appealing to the reason of federal legislators to halt the bill’s progress before it becomes a legal issue.
“We need to speak up now before these things become law,” he said.
Afterward, Deputy Attorney General Jon Bennion said nothing is off the table, including litigation.
Montana, Oregon and Alaska have continually voted down state sales taxes, and the bill would add new regulations to those states without any benefits, Fox said.
Delaware and New Hampshire are the other states without a sales tax.
Lance Trebesch, the owner of the online ticket provider Ticket River and TicketPrinting.com, said the measure would require his company to report to states that do collect sales taxes and does not include any enforcement protections for his business.
“This would be a compliance nightmare,” he said.
The Oregon House on Monday unanimously approved a measure urging Congress to exempt states without a sales tax, citing costs to local businesses. The measure has no force of law but formally expresses the Legislature’s opinion.
In Alaska, Democratic U.S. Sen. Mark Begich told a small group of local business leaders in Juneau last week that he supported a tax for online sales. He said Alaska would see no impact unless the state Legislature decided to opt in.
Any businesses selling goods in another state would not be affected unless they sold more than $1 million online out of state, and no business in Alaska exceeds $300,000 in online sales to out-of-state customers, he said.
“Right now, the Internet guys got advantage over you,” he said. “After you spend all the money paying property taxes, building your building, borrowing money to build your building, keeping employees in the tough season, staying open in the tough season. You’re doing it all, but they’re not.”