Congress “expanded unemployment insurance by 250 billion dollars” to support laid-off workers, Senator Joni Ernst said during a news conference organized by Governor Kim Reynolds on March 29.

She didn’t mention that she and fellow Republican Senator Chuck Grassley had voted to reduce the amount millions of jobless people will receive over the next four months.

Jon Muller is a semi-retired public policy analyst and sporadic blogger at jonathonmuller.com.-promoted by Laura Belin

Governor Kim Reynolds’ March 20 proclamation related to the COVID-19 pandemic suspended provisions of Iowa law imposing penalties and interest on late property tax payments.

Iowa’s 99 county governments collect property taxes and distribute the funds to themselves and other taxing authorities, such as school districts, cities, community colleges, or townships. The taxes paid by property owners are technically due on March 1 and September 1 of each year. Normally, penalties and interest begin to accrue on April 1 and October 1, respectively.

Polk County Soil and Water Commissioner John Norwood adapted comments he sent to members of the Iowa Senate assigned to the subcommittee on Senate Study Bill 3116. That legislation incorporates Governor Kim Reynolds’ proposed tax changes, including raising the sales tax to fund some natural resources projects and programs that benefit farmers. -promoted by Laura Belin

Dear Senators,

As a Soil and Water Commissioner representing the 500,000 +/- residents of Polk County, I have been working hard over the past year to study, strategize and communicate how we can begin to make an impact in cleaning up Iowa’s Waters, conserving our precious soils and reinvigorating our rural economies.

Edward Cohn lives in Grinnell and is a member of the Poweshiek County Democratic Central Committee. -promoted by Laura Belin

I’m like a lot of Democrats: when the 2020 campaign began, I loved the idea of an Elizabeth Warren presidency, but I wasn’t sure whether Warren would be a strong candidate in November. Luckily, I live in Iowa, which means that I’ve had a lot of chances to see the Democratic field in action. After seeing 47 speeches by nineteen candidates, I can confidently say Warren is exactly the leader America needs.

The U.S. House and Senate managed to wrap up their work for the year without shutting down the government, an improvement on the state of affairs when the fully Republican-controlled Congress left for the winter holiday break in 2018.

The two huge bills contained about $1.4 trillion in spending, which will keep the federal government open through the end of the current fiscal year on September 30, 2020. President Donald Trump signed the legislation.

It’s hard to stand out in a historically crowded presidential field, especially when the candidates largely agree on on many issues that matter to Democratic voters.

Tom Steyer is the only candidate seeking to establish a “national referendum” to enact some federal policies through 50-state ballot initiatives.

He has made term limits for members of Congress–twelve years total in the U.S. House and Senate–a central part of his political reform agenda. (Andrew Yang also supports term limits but has focused his campaign message elsewhere.)

While several candidates seeking the Democratic nomination have expressed support for impeaching President Donald Trump, no one has highlighted impeachment in more stump speeches and campaign advertisements than Steyer.

Bleeding Heartland interviewed Steyer about those proposals in Des Moines on December 6.

An under-reported Iowa politics story this year has been strong Democratic recruiting for the 2020 state Senate races. Even though recapturing the Iowa Senate is likely to take at least two election cycles, given the current 32-18 Republican majority, Democrats have declared candidates in five out of six Senate seats the party lost in 2016.*

Other Democrats are actively campaigning in three Senate districts that were only nominally contested in 2016.**

As of this week, Democrats also have a challenger in an Iowa Senate district that is so heavily Republican the party did not field a candidate for the last election.

Iowa House Republicans meet in Des Moines this morning to elect new leaders for the 2020 legislative session. Linda Upmeyer announced on September 30 that she will step down as House speaker when the legislature reconvenes in January and will not seek re-election next November. She said in a written statement that she wants to spend more time with her husband, children, and grandchildren.

Speaking to WHO Radio’s Jeff Angelo on October 1, Upmeyer said she was also influenced by her predecessor Kraig Paulsen’s decision to leave the post long before an election. A new speaker is “well-served” by having a session under their belt, which helps them with fundraising and recruiting candidates, she explained. “I wanted to make sure that whoever was going to be leading the caucus in the future had those tools at their disposal going into this next election.”

Sources close to the legislature indicate that current House Appropriations Committee chair Pat Grassley is likely to become the next speaker, with Matt Windschitl moving up from House speaker pro-tem to majority leader. Current Majority Leader Chris Hagenow may not be part of the new leadership team, for reasons that remain unclear. UPDATE: The caucus selected Grassley as speaker, Windschitl as majority leader, and State Representative John Wills as speaker pro tem.

I’ve been thinking about Upmeyer’s legacy and how she influenced the chamber.

Former State Senator Jack Hatch appears to be seriously considering a campaign for mayor of Des Moines.

In recent days, numerous Democrats living in the capital city have received a lengthy telephone poll testing positive messages about Hatch and mostly negative messages about Mayor Frank Cownie, a four-term incumbent who has held the position since 2004.

Hatch did not immediately respond to a phone call and e-mail seeking comment on his plans and whether he commissioned the poll. I’ve paraphrased the questions below, based on detailed notes from a source who took the survey on September 9, and will update this post as needed when Hatch makes his intentions clear.

Bleeding Heartland continues to catch up on the legislature’s significant actions during the session that ended on April 27. Previous posts related to the work of the Iowa House or Senate can be found here.

Republicans showed little interest in amending the Iowa Constitution during the 2019 session. Only one amendment passed both chambers. If and when that proposal appears on a statewide ballot, it will spark a costly and divisive campaign about gun rights and regulations.

The Senate and House debate over the pro-gun amendment is the focus of the first half of this post. Arguments raised on both sides will surely return in future television commercials and mass mailings.

The rest of the post reviews this year’s unsuccessful attempts to change the constitution. One amendment (backed by Governor Kim Reynolds) made it through the Iowa House, and four others advanced from a House or Senate committee but did not come up for a floor vote. The rest did not get through a committee, even though some of the same ideas went further last year.

By Simon Davis-Cohen for Tarbell.org

This is a reprint from Tarbell.org, a news website pioneering journalism that reveals who runs America and empowers readers with solutions. Read this on Tarbell.org.

If you have any feedback on this piece, please contact Tarbell’s engagement editor, Danielle Keeton-Olsen, at danielle@tarbell.org.

In 2016, Iowa privatized Medicaid under then-Governor Terry Branstad. He was a founding member of the American Legislative Exchange Council (ALEC). “Obamacare” is often attacked by the David and Charles Koch-backed group that opposes government action in health care or the economy.

Branstad claimed outsourcing Medicaid would save the state and taxpayers money. However, Iowa has not been able to provide any data that shows privatization saved the state money. In fact, privatization is now costing Iowa money. (Branstad resigned the governorship in 2017 to become the U.S. Ambassador to China.)

Thomas Nelson of the Waterloo/Cedar Falls Courier was first to report last week that former U.S. Representative Rod Blum’s campaign has spent $11,365 on polling this year. Blum’s quarterly filing with the Federal Election Commission showed two disbursements to the candidate’s longtime pollster in early January.

The payments exceeded the $4,119 Blum for Congress owed The Polling Company at the end of December, indicating that Blum commissioned new surveys in the first district and wasn’t merely settling debts left over from the 2018 campaign.

While I have not been able to find details about the questions asked, his campaign likely tested voters’ views on key issues as well as approval and favorability numbers for himself and Representative Abby Finkenauer. Blum hasn’t ruled out running for office again. Nelson noted that he appeared at a Jones County GOP event on April 11.

No Republican has confirmed plans to run against Finkenauer. I see Blum as a weaker challenger than State Representative Ashley Hinson, who has said she’s considering the race and will make her intentions known after the legislative session ends.

ISU economist Dave Swenson exposes how a Republican property tax bill relies on flawed assumptions and would make the “important job of governing harder” for cities and counties. -promoted by Laura Belin

It is a common canard among the anti-property taxers that city and county governments, those closest to the electorate, are gouging unsuspecting taxpayers. It is their rallying lament, and it requires no substantiation, just confident assertion.

As is frequently the case with made-up woes like this, Iowa House Republicans have a solution. The remedy is House Study Bill 165, a bill to place limits on city and county government property tax growth.

State Senator Claire Celsi: “Governor Reynolds has chosen private schools over the public schools 92 percent of Iowa’s children attend.” -promoted by Laura Belin

Governor Kim Reynolds’ private school and voucher activism has gone from coy to brazen. Simply entertaining “Secretary of Education” Betsy DeVos at the state capitol is a signal. Reynolds has never been a credible supporter of public education and now has publicly chosen a side. She chooses the 8 percent of Iowans whose kids attend private schools over the 92 percent who attend public schools. Reynolds has thrown down the gauntlet.

Now, an important question for you. Yes, YOU. Sitting in your comfy chair reading this post. Do you support Iowa’s public schools – or not? Time to make a decision.

Sable Knapp is from Iowa and currently lives in Maine. She is a member of Resource Generation, “a multiracial membership community of young people (18-35) with wealth and/or class privilege committed to the equitable distribution of wealth, land, and power.” -promoted by Laura Belin

The United States is currently experiencing a $30 trillion intergenerational wealth transfer. For anyone still wondering how the U.S.A. could possibly afford a Green New Deal with a framework that includes a single-payer health care system and accessible higher education, there is an obvious way: Stop handing out tax breaks to us trust fund babies.

Please, vote to tax my inheritance. The estate tax makes sense.

Voters in Cedar Falls, Hudson, and part of Waterloo will elect a new state senator on March 19. Three candidates are on the ballot for Iowa Senate district 30: Republican Walt Rogers, Democrat Eric Giddens, and Libertarian Fred Perryman.

Republicans took some advantages into this campaign, which is on a shortened timetable because Senator Jeff Danielson resigned during the legislative session. Rogers was better-known than Giddens, and Governor Kim Reynolds scheduled the vote during spring break for the University of Northern Iowa and Cedar Falls public schools, when many people in Democratic-leaning constituencies would likely be out of town.

But since Bleeding Heartland previewed this race in late February, Giddens has emerged as the favorite. Republicans tacitly acknowledged their weaknesses by launching a second over-the-top negative television commercial on March 15, rather than closing on what was supposed to be Rogers’ selling point: giving Black Hawk County and UNI a voice in the Iowa Senate majority caucus.

Governor Kim Reynolds appointed former Iowa House Speaker Kraig Paulsen as director of the Iowa Department of Revenue on February 22, only six weeks after she had named Adam Humes to lead the agency. A late Friday afternoon news release did not explain the reason for the change, saying only that Humes “has decided to pursue other opportunities.”* Paulsen will start work this coming Monday. Leadership transitions at state agencies typically are weeks or months in the making.

Humes’ predecessor, Courtney Kay-Decker, also left under odd circumstances. Appointed by Governor Terry Branstad in 2011, she sounded excited to continue to lead the department after the 2018 election. But in early December, Kay-Decker announced her resignation, effective at the start of the new year.

Nine-term U.S. Representative Steve King will face at least one challenger in the 2020 Republican primary to represent Iowa’s fourth Congressional district.

State Senator Randy Feenstra announced his candidacy today, and Story County Supervisor Rick Sanders confirmed to Bleeding Heartland that he is seriously considering the race.

The moves are the clearest sign yet that Iowa’s GOP establishment is tired of King.

The Bleeding Heartland community lost a valued voice this year when Johnson County Supervisor Kurt Friese passed away in October. As Mike Carberry noted in his obituary for his good friend, Kurt had a tremendous amount on his plate, and I was grateful whenever he found time to share his commentaries in this space. His final post here was a thought-provoking look at his own upbringing and past intimate relationships in light of Dr. Christine Blasey Ford’s allegations against Judge Brett Kavanaugh.

Friese was among more than 100 guest authors who produced 202 Bleeding Heartland posts during 2018, shattering the previous record of 164 posts by 83 writers in 2017. I’m thankful for every piece and have linked to them all below.

You will find scoops grounded in original research, commentary about major news events, personal reflections on events from many years ago, and stories in photographs or cartoons. Some posts were short, while others developed an argument over thousands of words. Pieces by Allison Engel, Randy Richardson, Tyler Higgs, and Matt Chapman were among the most-viewed at the site this year. In the full list, I’ve noted other posts that were especially popular.

Please get in touch if you would like to write about any political topic of local, statewide, or national importance during 2019. If you do not already have a Bleeding Heartland account, I can set one up for you and explain the process. There is no standard format or word limit. I copy-edit for clarity but don’t micromanage how authors express themselves. Although most authors write under their real names, pseudonyms are allowed here and may be advisable for those writing about sensitive topics or whose day job does not permit expressing political views. I ask authors to disclose potential conflicts of interest, such as being are a paid staffer, consultant, or lobbyist promoting any candidate or policy they discuss here.

Second in a series of post-election commentaries by Amber Gustafson, who was the Democratic candidate in Iowa Senate district 19. -promoted by desmoinesdem

Remember the Hippos – A Parable

Once a non-profit organization decided to “help” a poor, rural village in a country in Africa. When the fresh-faced, idealistic, young European aid workers arrived, they noticed many things right away. They noticed that the people in the village were malnourished. They also noticed that the village had no fields, no vineyards, and no orchards.

The aid workers, full of compassion, saw that what the people of the village needed was food; and more than that, they needed to be taught how to farm.

Nate Williams is a labor attorney and served in the Iowa House from 2009 through 2012. -promoted by desmoinesdem

I am not sure whether to think of this as “three mistakes Fred Hubbell’s campaign made” or “one mistake the Hubbell campaign made and two missed opportunities.”

Either way, there are three things I wish the Hubbell campaign would have done very differently.

U.S. Senator Chuck Grassley told reporters today that he will lead the Senate Finance Committee in the new Congress. The current chair, Senator Orrin Hatch, is retiring. Grassley’s official website notes,

Senator Grassley calls this committee the quality of life committee because of the committee’s jurisdiction, which includes all tax matters, health care, Social Security; Medicare, Medicaid, social services, unemployment compensation, tariffs and international trade. Legislation acted on by the Committee on Finance raises virtually all federal revenue, and expenditures authorized by this committee represent as much as two-thirds of the federal budget.

Hundreds of Iowa Democrats got their first chance to hear U.S. Senator Kamala Harris on October 22. On her first major swing through the state, the senator from California had a packed schedule, including:

Though Harris is widely viewed as a potential 2020 presidential candidate, she kept her focus on the election happening November 6. I enclose below the full audio and partial transcript of the evening speech, which was similar to remarks Harris delivered earlier in the day.

Whereas some politicians tend to use convoluted, run-on sentences, Harris was striking in how she used simple sentence construction and repetition to great effect.

Governor Kim Reynolds and Democratic challenger Fred Hubbell debated for the third and last time today in Davenport. Too bad not many viewers are likely to tune in at 8:00 am on a Sunday morning, because the discussion was yet another study in contrasts. For those who prefer a written recap, I enclose below my detailed notes. Click here and here for Bleeding Heartland’s analysis of the first two Hubbell-Reynolds debates.

As during the second debate, journalists kept the candidates on topic and within the time limit, so kudos to moderator David Nelson of KWQC-TV6 and panelists Erin Murphy of Lee Enterprises, Forrest Saunders of KCRG-TV9, and Jenna Jackson of KWQC-TV6.

Both candidates recycled many talking points from their first two meetings. My impression was that Reynolds performed about equally well in all three debates, while Hubbell improved each time. For instance, after Reynolds noted that Iowa had moved up in mental health rankings three years in a row and was now rated sixth in the country for mental health, Hubbell pointed out that the study the governor cited covered the years 2013 through 2015. That was before the Branstad/Reynolds administration closed some mental health institutions and privatized Medicaid, which has led to worse care for thousands of Iowans.

For those who prefer to watch the replay, KCRG-TV posted the video in a single file, which is the most user-friendly option. You can also find the debate on KWQC-TV (with closed captioning) and WOWT-TV’s websites, but you will have to watch a series of clips, with advertisements before each segment.

Televised debates mostly attract viewers who already support one of the candidates. But Iowans who are on the fence between Governor Kim Reynolds and Democratic challenger Fred Hubbell could learn a lot from watching their October 17 debate.

You can find the full video on the website or Facebook page of KTIV in Sioux City. My takeaways and notes on the discussion:

Governor Kim Reynolds and Democratic challenger Fred Hubbell held the first of three debates tonight in Ankeny. You can watch a nearly-complete video on the Des Moines Register’s website. I’ve enclosed the notes I took in real time (live blog style) at the end of this post. But first, my takeaways:

Five weeks before the general election, the Republican Party of Iowa has begun airing television commercials to promote Senate Majority Leader Jack Whitver and State Senator Julian Garrett.

The advertising suggests that Republican internal polling shows Democrats Amber Gustafson and Vicky Brenner within striking distance in Senate districts 19 and 13, respectively. Democratic internal polling presumably shows competitive races too, since former President Barack Obama included Gustafson and Brenner on his list of Iowa endorsements this week. Only five state legislative candidates made the cut.

Third in a series by Tyler Higgs, an activist from Clive, Iowa. He previously explored how to corrupt a school district and how to corrupt the Iowa House. -promoted by desmoinesdem

Let’s say you are a state senator with strong political aspirations and no moral compass. You can rise to power quickly, if you play your cards correctly. State Senator Charles Schneider (Senate District 22) demonstrated how it pays to sell out your constituents:

If Iowans were voting for governor today, 43 percent would support Democrat Fred Hubbell and 41 percent Governor Kim Reynolds, according to a new poll by Selzer & Co for the Des Moines Register and Mediacom. Another 9 percent of the 555 likely voters surveyed were undecided, and 7 percent backed Libertarian Jake Porter. The poll validates the view of leading election forecasters that the governor’s race is a toss-up. Selzer’s poll has a margin of error of plus or minus 4.2 points.

If this snapshot of the race accurately reflects the views of Iowans likely to vote in November, I’d rather be Hubbell than Reynolds. An incumbent barely above 40 percent despite much higher name recognition than her opponent is not in a strong position. Nevertheless, the Register’s survey points to ways either Reynolds or Hubbell could improve their prospects during the final six weeks of the campaign.

For a team that’s run a smooth and successful operation all year, Fred Hubbell’s campaign was surprisingly inept at managing the controversy over whether the candidate would release his tax returns.

Democrats have opportunities to make big gains in the Iowa House this year. Thirteen of the 59 Republican-held seats in the lower chamber are open. A number of Democratic challengers have done well on fundraising, in some cases even out-raising the GOP incumbents in their districts. The past year’s special elections for Iowa House seats suggest that Democratic turnout may be much higher than the level seen in Iowa’s last two midterms, thanks to extreme laws enacted by statehouse Republicans and an unpopular president in Washington.

But winning a state legislative race often requires more than a favorable political environment. Bleeding Heartland observed in February that “the latest set of campaign financial disclosures reveal little sense of urgency among Democratic incumbents who could do much more to help others win competitive districts this November.”

Unfortunately, the latest fundraising numbers tell the same old story.

A provocative idea from Richard Lindgren, emeritus Professor of Business at Graceland University and a past president of the Lamoni Development Corporation in Decatur County. -promoted by desmoinesdem

I have lived in Iowa for almost 20 years of my life in total, over several tenures, and for the life of me, I still can’t understand why the voters of the state allow the degree of governmental centralization that exists in the Des Moines area while so many smaller towns in the state continue to experience demographic and economic decline.

Humor me for a bit and engage with me in a “What If?” exercise. What if all the jobs involved in running the Iowa state government were more equally distributed around the state, say on a per capita basis, or better, weighted to local economic need? In this world of high-tech communication, why does Des Moines, already awash in private and public economic development dollars, continue to hold such a disproportionate share of the jobs required to run the state government? We’ll look at the obstacles in a bit, but we first may need some “whack on the side of the head” re-imagining here.

Seven Orlando parks in eight days equals gallons of sweat, aching legs, and gigantic lines. It means grandchildren smiles and fast food overdose. Days divided into ride time waits, Fast Pass deadlines, and heat-induced observations before being dropped and twirled. These are those observations.

If a party is going to defend ripping babies from their families at the border, it can’t call itself pro-family or even pro-life.

Tax and budget policy expert Randy Bauer explores the likely impact of a court ruling that will allow states to collect more sales tax from online purchases. Iowa Republicans were counting on that authority, having approved expanded sales tax collections as part of the tax bill enacted in May. -promoted by desmoinesdem

Years ago, I did a tongue-in-cheek summary of major tax issues and used variations on movie titles as lead-ins to discussions of various taxes. At that time, I lamented the various factors eroding state and local government sales tax collections (and recently reprised these concerns on Bleeding Heartland), labeling the discussion “Dearth of a Sales Tax.” With that background in mind, it’s time to cue up Star Wars theme music for this year’s summer tax blockbuster, The (Sales Tax) Force Awakens.

On June 21, 2018, the U.S. Supreme Court (SCOTUS) threw sales tax dependent state and local governments something of a lifeline, as it overturned two long-standing sales tax precedents that had limited the ability of governments to compel the collection of sales taxes from sellers without a physical presence in their state.

Randy Richardson has the rundown on how the Iowa legislature’s final actions of 2018 will affect public school districts and higher education. -promoted by desmoinesdem

While controversial issues like abortion and tax reform grabbed the headlines last week, a number of bills impacting education saw last-minute approval before the Iowa House and Senate adjourned for the year on May 5.

“Republicans led on tax reform in 2018,” Governor Kim Reynolds asserted in a news release after lawmakers adjourned for the year on May 5. “As a result, hardworking, middle class Iowa families, farmers, small business owners and workers get meaningful relief, all while Iowa’s budget priorities in future years are protected.”

None of those claims withstand scrutiny.

Iowa’s campaign regulator may soon break new ground on interpreting language that forbids government bodies from spending public money for political purposes. When deciding whether two city governments went too far in encouraging residents to vote for a local option sales tax, the board will determine whether “express advocacy” can include language that stops short of explicitly urging citizens to vote a certain way.

Ron Corbett ended his Republican campaign for governor this morning after a Polk County District Court rejected his effort to be added to the GOP primary ballot.

Iowa’s most endangered U.S. House incumbent and some of his high-profile policy positions remain unpopular among voters in the first Congressional district, according to a new survey. Two-term Representative Rod Blum has trailed named challengers in Democratic polls taken before news broke about his shady internet company.

Adding to the incumbent’s troubles, many competitive Iowa House races will take place within the 20 counties that make up IA-01. Recent special legislative elections suggest that GOTV campaigns for down-ballot candidates could drive Democratic turnout significantly higher than the level seen in 2014, when Blum was first elected.

As the Iowa legislature considers extending sales tax to internet purchases and some other goods and services that are now exempt, Randy Bauer explains what’s at stake and other factors that have eroded sales tax revenues. -promoted by desmoinesdem

For many American taxpayers, April 17 is understood as the 2018 due date for federal (and many state) income taxes. It also features prominently in state and local tax discussions, as it is the date when the U.S. Supreme Court will hear oral arguments in a case that may impact on remote sales and use tax collection practices for state and local governments.

While that would be a major development and boon to many state and local governments, it is really only part of the story.

Supreme Court Limits on Collection of Sales Tax by Remote Sellers

The case to be heard next month, South Dakota vs. Wayfair, concerns sales tax collection related to sales conducted over the Internet. Two 20th century Supreme Court cases, Bellas Hess v. Illinois (1967) and Quill v. North Dakota (1992) have established limits on government’s ability to compel collection of sales taxes on remote transactions. In the Bellas Hess case, the high court determined that physical presence in a state was necessary to require the seller to collect sales tax for catalogue sales transactions conducted via phone or mail. As the catalogue sales era declined and the Internet became a more important part of commerce, the court extended this “nexus via physical presence” standard to include e-commerce transactions via Quill.

Background on Major State and Local Tax Revenue Sources

In general, the three largest revenue sources for state and local governments are property taxes (the largest local government source) and individual income and sales and use taxes. In the last few decades, sales taxes have become the largest state tax revenue source, and several states have sought to increase the use of this consumption-based tax source while reducing the use of income-based taxes.

There are credible arguments for relying on a consumption-based tax. For one, the tax is collected in generally small increments, which allows taxpayers to base purchasing decisions around their ability to pay. These small incremental payments also reduce the “sticker shock” that often comes from large lump sum payments of property and individual income taxes. Consumption taxes will also be borne by nearly all consumers – unlike, say, income taxes that can often be avoided by a large number of citizens.

That said, there is no “perfect tax,” and sales taxes are no different. All taxes will have a negative impact on economic activity (the “deadweight loss” associated with the increased cost for goods and services subject to tax). Sales taxes are also considered to be something of a regressive tax, in that lower income individuals and households tend to pay a higher percentage of their income as tax. Some of this concern is reflected in exemptions for broad categories of goods and services – all states exempt prescription drugs from sales tax, and a majority do the same for food. It is also possible to use refundable credits via the individual income tax to reimburse lower income taxpayers, as is done in several states.

Sales Tax and e-Commerce

As Amazon boxes on our doorsteps have become a ubiquitous part of everyday commerce, the revenue loss associated with the Quill case has become a significant concern to state and local governments. As Supreme Court Justice Anthony Kennedy noted in a 2015 concurring opinion (where he signaled his willingness to reconsider the decision in Quill), “When the Court decided Quill, mail-order sales in the United States totaled $180 billion. But in 1992, the Internet was in its infancy. By 2008, e-commerce sales alone totaled $3.16 trillion per year in the United States.”

That number continues to grow – according to Internet Retailer, U.S. web sales in 2016 reached $394.86 billion, or 11.7 percent of the nation’s total retail sales ($4.846 trillion).

State Strategies to Heighten Sales Tax Collection

In the face of this significant revenue loss, states have pursued a number of strategies to deal with the revenue loss. The first strategy was to seek to address the Court’s concerns in Quill, by working to simplify and develop greater consistency in sales tax statutes, primarily around definitions and other requirements directed at those who collect the tax.

The Streamlined Sales Tax Initiative was initiated by the National Governors Association (NGA) and the National Conference of State Legislatures (NCSL) in 1999. The goal was to increase uniformity that would either lead to greater vendor voluntary collection or the reconsideration of the two Supreme Court decisions. As of 2017, 24 states participate in the program as full members. While this is a significant number of states, several major states (such as California, Texas and New York) do not, which limits the agreement’s impact. While it is true that there are vendors who are voluntarily complying with this initiative and collecting tax on behalf of the participating states, it will likely never reach the necessary “critical mass” from a compliance perspective.

The next foray came via the U.S. Congress. Via its authority to regulate interstate commerce, Congress could establish a national requirement for collection of state and local sales taxes on purchases via the Internet (or, for that matter, on catalogue and phone sales as well). Bills have been introduced for many years in Congress to do just that, and they have, in recent years, also received support from major “bricks and mortar” retailers who argue the existing taxing structure creates a double standard that harms this segment of the retail market.

From a tax policy perspective, the point is well taken: a commonly accepted principle of taxation is “horizontal equity” – that taxpayers in similar circumstances should be treated fairly. When local retail establishments are required to collect this tax but remote sellers are not, the resulting price disparity is a perfect example of horizontal inequity.

To date, no version of the “Marketplace Fairness Act” has made its way through the legislative process. It came (somewhat) close in 2013, when the bill was passed by the Senate on a bipartisan 69-27 vote. However, it did not clear the House, and current efforts to revive the bill do not look promising.

It is important to remember that sales (or use) taxes are nearly always owed on these remote purchases – the issue isn’t one of creating a new tax but getting compliance with payment of the existing tax. As previously noted, an advantage of the sales tax is it is paid in hundreds/thousands/millions of separate transactions. The downside is that it is administratively difficult to collect the tax from the hundreds/thousands/millions of consumers who, if the tax isn’t collected at the time of purchase, are to remit it to comply with state and local sales tax statutes.

As a result, state legislatures have resorted to a variety of statutory strategies to induce sales tax collection. Some of the first attempts related to creating nexus beyond mere physical presence. This was initiated by the State of New York in 2008, often referred to as the “Amazon tax.” Under the New York State statute, a rebuttable presumption is created that a nonresident Internet seller has nexus with the State for sales/use tax purposes if (i) the nonresident has agreements with in-state companies whereby potential customers are referred to the nonresident, and (ii) the nonresident’s gross receipts from customers under such an agreement exceed $10,000 during the previous four quarters. According to a report by the New York State Comptroller, since the law’s inception, online retailers remitted $360 million in sales taxes (on over $4 billion in taxable online sales) as of February 2012.

Since that first state foray – and the litigation that followed – other states have also considered and/or adopted similar legislation. It could be argued that the multiple state efforts to create “Amazon nexus” has proven successful, as Amazon is (as of April 1, 2017) collecting sales tax on sales in all 50 states. Additional attempts to create “economic nexus” (where the amount of sales into a state alone creates sufficient grounds to require collection of the tax) have become popular, with many states enacting this type of statute.

State Efforts to Create an Economic Nexus Standard to Compel Collection of Sales Tax

The economic nexus standard was first adopted by the States of Alabama and South Dakota – and South Dakota legislative and policymakers have been up-front about the fact that the economic nexus statute was crafted as a method to bring the issues of Quill back before the Supreme Court. Several other states passed economic nexus standards last year, including Indiana, Maine, North Dakota, Ohio, Rhode Island, Tennessee (done by rule) and Wyoming. The South Dakota statute is now the one before the high court.

A somewhat different state strategy has been undertaken by the State of Colorado, which enacted a law focused on enticing retailers to collect the tax or face significant paperwork requirements. The law, which survived court challenges (including the U.S. Supreme Court declining to review it, and then U.S. Court of Appeals Judge Neil Gorsuch writing a concurring opinion strongly implying that, given the opportunity, the Supreme Court should overrule Quill), requires retailers that do not collect sales taxes to file a report with the State Department of Revenue on how much their Colorado customers have purchased and to inform customers that they may owe state taxes on the purchases. The law requires large online retailers to send customers a notice every time they buy something to explain that they may owe use tax; if the customer makes more than $500 a year in purchases, the retailer must also send them an annual summary of their purchases. The seller must also file an annual report with the State detailing customer name, billing and shipping addresses and the total amount spent each year.

Other states have replicated this approach. Advocates for the policy believe that it will better inform consumers of their obligation to pay use tax on their out-of-state purchases or lead to sellers voluntarily collecting the tax to escape the reporting requirements (for both them and their customers). States who adopted Colorado-type reporting standards (all effective July 1, 2017) include Alabama, Louisiana and Rhode Island.

What’s At Stake?

The revenue at stake in this area is significant. While the estimates of lost revenue vary considerably (and some of the “lost revenue” estimates include Amazon sales that are now applying sales tax in all 50 states), there is little doubt that it is “real money” to state and local governments. The federal General Accountability Office (GAO) estimated that state and local governments could have collected up to $13 billion more in 2017 if they’d been allowed to require sales tax payments from online merchants and other remote sellers. That said, that estimate comprises a significant amount of business-to-business sales – and pretty good data suggests there already is reasonable compliance by businesses through payment of use tax on at least the majority of these transactions.

Besides the obvious issues related to revenue loss and impact on the economy, what are the issues on both sides of this controversy? Those who support the Quill standard (or at least something other than unfettered state ability to compel collection of the tax by sellers) argue that the thousands of different taxing jurisdictions and definitions make collecting the tax overly burdensome.

It is notable, however, that in the years since Quill, a number of Internet-based businesses have cropped up to handle the administrative side of determining the tax that is owed and applying it to electronic transactions. Meanwhile, the thousands of vendors who already comply with varying state and local sales taxes suggest this is not unsolvable. In fact, much of the effort on the seller side has been focused on providing some reimbursement for collection of the tax – which suggests the issue is more one of economics than legal compliance. While opponents also argue that the burden will fall disproportionately on small businesses, it is notable that the state “economic nexus” statutes to date have included an exemption for businesses with low levels of sales into a state.

On the other side of the argument, supporters of collection point to Justice Kennedy, when he noted, “There is a powerful case to be made that a retailer doing extensive business within a State has a sufficiently ‘substantial nexus’ to justify imposing some minor tax-collection duty, even if that business is done through mail or the Internet.” After all, “interstate commerce may be required to pay its fair share of state taxes.” D.H. Holmes Co. v. McNamara, 486 U.S. 24, 31 (1988).

My guess is that the Supreme Court will, in some way, overturn its ruling from Quill – perhaps via the “substantial nexus” approach Justice Kennedy suggests. The question will be how far the court goes and whether their action leads the Congress to consider finally taking action to create something of a national standard for nexus and the amount of obligation to collect the tax that might be imposed on sellers.

While any greater latitude for state and local governments in collecting these taxes will be welcome news, my personal belief is that there are bigger issues at play relating to sales tax and the U.S. economy, and some of the focus on South Dakota v. Wayfair blinds policymakers to more fundamental issues.

Sales Tax Erosion of the Base

The fact is that the sales tax base has been eroding for decades, using common measures such as sales tax collections as a share of personal income. While state and local governments have attempted to ameliorate these declines through rate increases, that creates its own set of problems.

Why is this happening? There are several reasons. For one thing, legislatures continue to provide new or expanded exemptions from the tax (after all, most every legislator loves to cut taxes). In Iowa, a good example is the broadened sales tax exemption for supplies used in the manufacturing process. When passed in 2016, that exemption was estimated to reduce revenue by approximately $29 million a year, but it now looks like a revenue loss in the neighborhood of $100 million a year.

Some of the reduction in sales tax revenue is simply a function of demographics. As a population, we continue to get older – and as we get older, we generally make fewer purchases, per capita, that are subject to the sales tax.

Sales Tax Statutory Construction

An even bigger problem, in my estimation, concerns how state sales tax statutes are structured. The state sales tax statues generally were written in the early part of the 20th century, when most consumption consisted of tangible goods. As a result, nearly all state sales tax statute will broadly tax all tangible goods – the standard generally is that tangible goods are presumed to be subject to tax unless specifically exempted. On the other hand, relatively few services were a part of everyday commerce; as a result, the statutes generally presume that services are not subject to tax unless specifically enumerated.

This “double standard” related to sales tax on consumption has become increasingly more important, as what we consume has gradually – but dramatically – shifted from goods to services. Fifty years ago, about two-thirds of consumption was tangible goods, but now about two-thirds is services. Absent legislative action to change the standard of presumption related to consumption subject to the sales tax, states have had to rely on the often heavy lift of identifying specific services to be subject to tax. This is a difficult process, and few states (generally only those with the greatest reliance on sales tax) have been able to broadly apply the tax to services.

This trend is likely to continue in the coming years. For one thing, health care has become a huge service industry in this country. An example of how health care and the consumption tax code have played out in Iowa is instructive. In 1999, the Iowa legislature passed and Governor Tom Vilsack signed into law a sales tax exemption for goods and services related to non-profit hospitals. At the time of passage, the fiscal note suggested the annual cost of exempting these services (granted, some goods as well, but mostly services) was about $15 million. However, when the Department of Revenue issued its tax expenditure report in 2000, the cost was now estimated at $53.7 million. It ballooned to $108.4 million in 2005, $125.4 million in 2010 and $160.6 million in 2015.

Several governors – Republicans and Democrats alike – have made attempts to significantly broaden the sales tax base to include more services. However, to date, those efforts have been largely unsuccessful.

If states are to rely on consumption taxes as their primary revenue source, they will have to come to grips with a system that has mostly ignored well over half of what is actually consumed. While changes to collection of taxes from Internet sales are nice, it is still only improving collection rates on a minority of consumption – and that is, in the long run, a losing proposition for state and local governments.

Randall Bauer is a director in the Management and Budget Consulting practice for the PFM Group. Since 2005, he has led its state and local government tax policy practice. He has numbered nearly half the state and many large local governments among his clients. Prior to joining PFM, he spent 18 years in state government, including serving for seven years as Governor Tom Vilsack’s State Budget Director.