Internet Tax Bill Fight Moves from Senate to House

Internet Tax Bill Fight Moves from Senate to House
May 7, 2013

Steve Stanek

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

Now that the U.S. Senate has voted 69-27 to allow states to compel online retailers to collect sales tax even when they have no physical presence in a state where a shopper is located, will we see a stronger pushback?

Politicos expect a tougher fight in the House of Representatives. Lobbyists including former lawmakers and governors have been hired by supporters of the bill to push it to victory and into law. President Barack Obama has already declared his support for the measure.

The “Marketplace Fairness Act” has the support of some of the nation’s largest retailers—online giant Amazon.com backs it—as well as many traditional “brick-and-mortar” retailers, including the world’s largest, Walmart. Smaller brick-and-mortar retailers also support the bill, arguing it is unfair they must charge sales tax on all their sales while online and catalog retailers must charge sales tax only on sales that originate in states where they have a physical presence.

That difference stems from a 1992 U.S. Supreme Court ruling that held states have no power to force out-of-state retailers to collect sales tax unless the retailer has a physical “nexus” in the state, such as a store, warehouse, or other assets.

‘One Giant Step’

“Senate passage of the Marketplace Fairness Act puts us one giant step closer to a level playing field for America’s Main Street retailers,” said former Small Business Administrator Hector Barreto in a statement. “This legislation ends the discriminatory practice of treating retailers differently just because one sells on Main Street and the other sells over the Internet. Small businesses across America are not asking for preferential treatment from the federal government, just an honest chance to compete fairly without their competition having an artificial advantage.”

Opponents of the bill see major problems with it, not the least of which is what they say its unfairness.

“Please save us from a government looking to legislate ‘fairness.’ The Marketplace Fairness Act would be ‘fair’ only if bricks-and-mortar stores had to do what governments want online merchants to do: Ask every customer where they live and determine, calculate, and collect the relevant state, local, and municipal taxes,” said Seton Motley, editor in chief of StopNetRegulation.org.

“This is taxation without representation on stilts,” he said. “The Marketplace Fairness Act would allow nearly 10,000 governments to abuse businesses, with no recourse for businesses because they don’t live in the relevant jurisdictions and can’t vote to oust the abusers. Governments need to stop looking for ever more revenue streams and instead just stop spending.”

$23 Billion More

Supporters estimate the bill would send another $23 billion annually to states and local governments. Of course, that would mean shoppers would have $23 billion less money to spend, which could reduce sales and the amount of sales tax revenue that actually would be collected.

“The proposed law has nothing whatsoever to do with ‘fairness’ and everything to do with rooting under, around, and beyond the public trough for additional revenues to fund state governments grown morbidly obese with profligate spending,” said Bruce Edward Walker, a longtime writer on technology issues and a telecom policy advisor at The Heartland Institute.

“The Marketplace Fairness Act would do nothing to level the playing field for Internet retailers and bricks-and-mortar because both players possess different strengths and weaknesses that savvy consumers know all too well. If MFA becomes law, these customers will incur the brunt of the much higher prices brought about by increased costs to Internet retailers forced to collect and remit sales taxes for an estimated 9,600 different U.S. tax jurisdictions, while continuing to pay shipping charges they currently avoid at physical retail locations,” he added.

“If the new law kept states from raising income taxes, which are more economically distorting than sales taxes, an internet sales tax might be worthwhile. But the proposed legislation does nothing to preclude state governments from charging higher income tax rates even after they collect the added internet sales tax. In other words, this is just a recipe for Americans to pay higher taxes,” wrote Scott Shane, professor of entrepreneurial studies at Case Western Reserve University, for Entrepreneur magazine.

Steve Stanek

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