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Federal Preemption of State and Local Government Taxing Authority

Background

The U.S. Constitution assigns certain responsibilities to the federal government and reserves the balance to the states. When the federal government preempts the rights of states and local governments to determine their own tax policies, it violates the principles of federalism. State and local governments must guard against the preemption of their Constitutional authority, including the power to regulate, tax, and charge enterprises that operate in their jurisdictions. Where the federal government has a legitimate policy concern, it should work with state and local governments, who are partners with the national government in our federal system.

State and local governments strongly support access to reasonably priced technological advances and appreciate the concerns regarding the effect that taxation may have on the fiscal health of emerging and changing industries. However, state and local governments' autonomy and the ability to meet the needs of their citizens must be preserved along with their taxing authority.

Proposals to limit the ability of state and local governments by placing a moratorium on state and local taxation is a significant infringement on state and local government authority and undermines the legitimacy of the partnership among the three levels of government. In addition, the prohibition of a legitimate source of revenue prevents state and local governments from accommodating changes in industry within their jurisdictions and reduces their flexibility to respond to changes in circumstances by adjusting their sources of revenue.

GFOA Position

The Government Finance Officers Association (GFOA) opposes legislation that fails to preserve the right of state and local governments to enact and administer their own tax laws without intervention from or preemption by federal authorities. GFOA supports efforts of the federal government to work with emerging and changing industries such as computer services, telecommunications and utilities, as well as state and local governments, in finding a mutually beneficial way to address concerns over taxation.

Adopted: June 3, 1997