Internet Sales Tax Unfair

Internet Sales Tax Unfair
April 2, 2013

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

Backers of the federal Marketplace Fairness Act estimate it would generate another $23 billion of annual revenue for states. Of course, another way to look at the law is to say it would take $23 billion away from consumers. That's $23 billion less money consumers would be able to spend shopping.

The act, known as the Internet tax bill, would require online retailers to collect sales tax from each customer, based on where the customer is located. If Customer A lives where the state sales tax is 6 percent, the retailer would have to collect 6 percent tax on the sale. If Customer B lives where the sales tax is 8 percent, the retailer would have to collect 8 percent on the sale.

Proponents call it "marketplace fairness" because traditional retailers – the "brick-and-mortar" stores – must collect sales tax on every sale they make.

Currently, online retailers must collect sales tax only from customers in states where the retailer has a physical presence. The brick-and-mortar store people say this gives online retailers an unfair advantage, because online retailers' customers come from all over the country, including states where the online retailers have no physical presence. Therefore, many of their sales are untaxed.

Defenders of the bill argue it imposes no new taxes because states already require persons who buy things out of state to pay tax on them. They say shoppers already owe the estimated $23 billion the act would take.

OK, let's ignore the impact $23 billion fewer dollars to spend would have on all retailers, and accept the premise. The money is owed, and online retailers would merely be enforcing existing state laws.

This still isn't marketplace fairness, because brick-and-mortar stores don't collect out-of-state tax. The stores collect whatever the tax is where they are located. They couldn't care less where their shoppers live.

All across this country, cities draw people from near and far. Many small towns also have major tourist industries.

So let's have true marketplace fairness. We'll require every retailer – online as well as brick-and-mortar – to determine where each shopper lives, collect the appropriate sales tax amount, and then send the money to the appropriate tax jurisdiction.

Just a few days ago, in a Daily Caller column, 60 Plus Association Chairman Jim Martin wrote in defense of the Marketplace Fairness Act: "Millions of Internet merchants collect taxes every day with professional accounting tools that are as reliable and technologically sound as the shopping cart software they use to sell their wares. Taxes at the time of sale can be calculated and collected with the ease and reliability of all other steps in the transaction based on the state and locality of the buyer."

Surely the brick-and-mortar stores could install similar tools. Surely it would be no problem for cashiers to ask every customer's address, verify it, and enter that information into the computer system, which would determine the correct sales tax. Surely the brick-and-mortar stores would have no problem using their computers to track this information and send the proper payments to the appropriate taxing jurisdiction for each customer. Surely they would have no problem submitting themselves to audits from tax jurisdictions across the country.

Fairness demands this. Surely brick-and-mortars retailers would have no problem with true marketplace fairness.

[First published in the Orange County Register]

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)