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This Article presents a case study in designing cooperative interstate institutions. It takes as its subject the Streamlined Sales and Use Tax Agreement (“SSUTA”), a recently-developed compact among the States now awaiting congressional ratification. The SSUTA’s primary goal is to bring uniformity to the field of state and local sales taxation, a regime in which multi-jurisdictional sellers now confront literally thousands of different sets of rules. I predict here that the SSUTA as currently designed is unlikely to accomplish that goal, and attempt to suggest possible amendments that could improve its expected performance. From these efforts I extract larger lessons about the workings of many similar cooperative ventures.

My prognosis for the SSUTA turns largely on the political economy of state taxation. Extending Daniel Shaviro’s seminal work on state incentives for tax-law disuniformity, I examine how the institutional arrangements set out by the SSUTA respond to the pressures identified by Shaviro. I additionally weigh a number of factors omitted in his analysis. For example, I consider the possible public-regarding tendencies of bureaucratic ideology or sense of mission among either state-level tax administrators, state courts, or the governing body of the SSUTA. I also examine the possibility that ongoing intervention by Congress or a reviewing federal court might help either to check rent-seeking by, or instill a stronger sense of public regard in, the SSUTA Governing Board and state-level actors.

I find none of these alternatives especially promising. For example, federal judicial review is often offered as a panacea by present critics of the SSUTA. However, it was precisely the relative incompetence of federal judges in balancing the goods of uniformity against the possible autonomy and experimental benefits of diversity that lead the Supreme Court to, in essence, punt the problem back to Congress. And the failure of local businesses to internalize the costs of national disuniformity likely distorts the decisions not only of state politicians and bureaucrats but also of state courts and Congress.

Having made a more precise diagnosis of the problems that confront the SSUTA, I am able to suggest more precisely targeted solutions. Somewhat radically, I propose tying the deductibility of businesses’ federal deduction for state and local tax paid to federal administrative approval of the taxing state’s compliance with SSUTA, with approval subject in turn to federal judicial review. In this way, the businesses are made to internalize the costs they impose on others. And the most politically remote actors, federal judges, would have a reliable interpretive partner to supplement their own, ordinarily rather weak, fact finding and policy analysis.

Finally, I claim that this analysis is generalizable. It helps to evidence the weakness of nationwide policy making that is dependent purely either on unmitigated “market” federalism, or on relatively rigid and uninformed judicial mandates. And it opens the possibility that conditional taxes, like conditional spending, can be a significant tool in coordinating our national policy goals.


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  • Journal title
    • U.C. Davis Law Review

  • Pagination
    • 1381-1436

  • Date submitted

    7 September 2022

  • Keywords