50 state uniformity in developing a VAT tax will create a clearinghouse system that is compatible with the Destination principle. – states solve.

Both the VAT and the RST are suited to the Destination Principle. In theory, the RST is destination based since it is collected at the final point in the sales chain. However, since most RSTs permit some cascading, such as by taxing entrepreneurial purchases of capital goods, it is probable that exports from an RST jurisdiction are not entirely free of tax.5 2 This means that those exports will be at a competitive disadvantage vis-a-vis similar goods produced in a jurisdiction where such cascading is avoided.53 Still, one may say that for the most part the RST allows exports to leave the origin state free of tax. The VAT's compliance with the Destination Principle takes a different form from the compliance of the RST. This is because the multistage structure of the VAT means that exports will almost certainly have been subjected to some tax prior to shipment out of state. Thus, the VAT's compliance with the Destination Principle requires that the tax collected on goods and services prior to their export must be refunded, or some other mechanism must be found for freeing the goods from domestic VAT.M In the context of our federal system, refunds are the most likely approach unless we posit a scenario under which a large number of states all adopt a VAT within a short time of one another. In the event of multiple adoptions of the VAT, it is conceivable that some sort of clearinghouse system could be adopted in the form of an interstate compact.5 Such a clearinghouse system would avoid the necessity for refunds to the exporter by allowing him to deduct the VAT he paid from the VAT he collects (even though the VAT he paid was remitted to the exporting state's treasury and the VAT he collects is remitted to the importing state's treasury). Instead of making refunds to exporters, the exporting state would credit the account of the import state in the amount of the tax it collected prior to export. A simple example will serve to illustrate the clearinghouse system. Suppose Exporter Alpha, located in California, makes a sale to Buyer Beta, located in Delaware. Suppose further that Alpha had previously paid forty dollars of VAT on its product when it purchased that product in California. Suppose also that the Delaware VAT applicable to the sale to Beta is fifty dollars. Under the clearinghouse system, Alpha will collect the fifty dollar Delaware VAT but remit only ten dollars to the Delaware treasury (the excess of the fifty dollars it collected over the forty dollars it paid). Delaware will obtain the remaining forty dollars of the Delaware VAT from California. Since it is likely states will be both importers and exporters with respect to all other VAT states, actual cash payments would be minimized. Instead, each state will receive or pay only the net difference between the tax it collects on its exports and the tax it is owed on its imports.5 6 Obviously, such a system would involve elaborate bookkeeping. Ideally, it would operate with a single central authority keeping track of the balances in all of the states' accounts with one another. The interesting point about the clearinghouse approach, for present purposes, is the potential it possesses for addressing the National Bellas Hess problem. If an exporter can only recover the VAT he has already paid by deducting it from the VAT he collects from his buyer, then the mail order companies will have an economic incentive to collect the tax from their out-of-state purchasers. Thus, the VAT holds the potential for creating voluntary compliance among mail order companies in the collection of the VAT on their out-of-state sales.57 To summarize this somewhat lengthy section, both the VAT and the RST are largely compatible with the Destination Principle in the context of interstate sales. The VAT is somewhat more complicated to administer in the interstate sales context, but that complexity is manageable. Neither form of sales tax offers any particular advantage with respect to the neutrality problem posed by National Bellas Hess unless the clearinghouse approach is adopted by those states employing the VAT. However, the clearinghouse approach holds out the potential for voluntary compliance with the VAT by mail order companies in order to obtain the indirect return of the VAT they paid on their purchases.