Jim Henry Favors New Tax?
Speaking on the Phil Valentine show Monday on WLAC 1510-AM, Republican gubernatorial candidate Jim Henry said he wanted Tennessee to be able to tax Internet purchases, which he said would bring the state another $360 million a year. Let's be clear on what candidate Henry is saying: 1. He wants $360 million more of your money. 2. He favors imposing a new tax.

Online purchases are not currently taxed because of the U.S. Supreme Court's 1992 Quill decision, in which the high court ruled an online or catalog/mail-order seller that does not have a physical presence in your state cannot be forced to collect sales taxes for your state on your purchases. The decision is rooted in the Commerce Clause of the federal constitution, which forbids states from regulating commerce across state lines, including levying taxes and tariffs. As a result, you do not owe Tennessee sales taxes on anything you buy online if the seller doesn’t have a physical presence here.

So, if ABC Widgets was based in, say, California, but has a store in Tennessee and you buy a widget via their catalog, telephone or web site, they would collect the tax. But if XYZ Gadgets, based in Texas, doesn't have a store or other physical presence in the state, they are not required to collect the sales tax.

Henry wants the U.S. Congress to overturn the Supreme Court, ignore the Commerce Clause, and authorize Tennessee to levy its sales tax on sellers in 49 states where Tennessee provides no services - and let those 49 states tax the people of Tennessee to pay for services in California, Alaska, Hawaii, Florida, Arkansas, Maine and 43 other states.

There is a solution that doesn't require givign 49 other states the ability to tax you. If online purchases were legally defined as occurring in the home state of the seller, a Tennessean shopping at a Texas-based Web store would pay Texas sales tax and states would compete to have low sales tax rates in order to encourage growth of home-based e-commerce businesses. The "solution" Henry favors will instead do great harm: It will encourage states to raise and standardize their tax rates and end the very free market competition envisioned by the authors of the Commerce Clause.

Incidentally, Henry isn't the only candidate favoring such a big tax increase on the people of Tennessee. Van Hilleary has endorsed the same new tax - and spoken eagerly of the revenue it could bring in. So did Don Sundquist.