I recently read an article by Shirley Sicilian from KPMG where she interviewed Greg Matson, the Executive Director of the Multistate Tax Commission. Good article. Recommended reading.
In the article, Ms. Sicilian asks Mr. Matson what he thinks will 'rock the tax world' in the next few years? Mr. Matson's response included the overturning of Quill, the ripple effect of BEPS on states, and states challenging congressional authority to pre-empt their taxing power.
With all of the court case challenges to Quill and the states trying to impose sales tax collection or reporting requirements on remote sellers, and the proposed federal legislation to reinforce Quill, I have been thinking about the battle between state sovereignty and federalism.
State sovereignty is the concept that states are in complete and exclusive control of all the people and property within their territory. State sovereignty also includes the idea that all states are equal as states.
Sovereignty is the power of a state to do everything necessary to govern itself, such as making, executing, and applying laws; imposing and collecting taxes; making war and peace; and forming treaties or engaging in commerce with foreign nations.
The individual states of the United States do not possess the powers of external sovereignty, such as the right to deport undesirable persons, but each does have certain attributes of internal sovereignty, such as the power to regulate the acquisition and transfer of property within its borders. The sovereignty of a state is determined with reference to the U.S. Constitution, which is the supreme law of the land.
I believe in state sovereignty and as much as I like uniformity and less complexity, I support a state's rights to make their own laws. However, when states overreach and attempt to enact unconstitutional taxes, that is when the federal government or the U.S. Supreme Court has to step in.
When do you think the Federal government should step in?
Note: For more on federalism and state sovereignty, check out Federalism, State Sovereignty, and the Constitution: Basis and Limits of Congressional Power by Kenneth R. Thomas, Legislative Attorney.