Deep in the Heart of Texas, 'Conservative' Legislators Ram through Tax Hikes

Texas is generally regarded as a conservative state, but you would not guess that based on some of its legislators’ pursuit of a California-style effort to hike taxes by targeting out-of-state, online-only retailers with no physical presence in the state.

Last month, the Texas House passed HB 2403, which attempts to enable the Texas Department of Revenue to force such companies to collect and remit to Texas sales/use tax on goods sold to Texas customers in broad circumstances. Friday, that bill was also passed by the Texas Senate.

This is despite the fact that the Supreme Court’s decision in Quill Corp v North Dakota clearly establishes that a state cannot require this, given the content of the US Constitution’s Commerce clause, unless a corporation is physically present in the state.

That leads experts to say that what HB 2403 seeks to do is very likely unconstitutional, and if it becomes law, it will likely provoke a constitutional challenge that will cost the state of Texas a great deal of time and money to litigate.

In the meantime, should it become law, those same individuals say, companies targeted by the legislation will almost certainly seek to cut ties with Texas businesses in an effort to avoid a tax hike that is very specifically focused on them. Critics say that could have a major, negative impact on jobs and investment, something of a feather in Texas’ proverbial cap.

Currently, Texas’ unemployment rate stands at a relatively low 8.1 percent. Texas-based, free market policy types are baffled as to why the legislature would want to risk that, plus a generally business-friendly climate, by pushing a $60-plus million tax hike that tax experts say will get “bigger and bigger” in future. According to one tax policy specialist, the bill could, hypothetically, even hit non-online retailers.

Sources with whom we spoke indicate that Texas Gov. Rick Perry, who has a strong anti-tax record, is not keen on the bill. Free-market advocates in Texas are hoping for a veto.