Thanks to The Heritage Foundation’s Morning Bell for a heads-up about this:
The Senate is planning to vote on a bill as soon as Monday that would give states the authority to collect sales taxes on all Internet purchases, handing local governments as much as $11 billion per year in added revenue that they are legally owed — but that hasn’t been paid to them for years.
Since before the dawn of Internet shopping, the basic rule was that as long as a retailer didn’t have a physical presence in the state where the consumer was shopping, the company wouldn’t have to collect a sales tax. Technically, shoppers are supposed to track these purchases and then pay the taxes owed in their annual tax filings. Few people, however, do this or are even aware of it.
Tea Party Patriots analyzed the Marketplace Fairness Act, which is the bill under consideration, a short time ago. According to Senator Mike Enzi’s (R-WY) Press Secretary Daniel Head, this is not a tax increase by Congress – it is federalism at its best, since states would be in charge. Head also pointed out that current law requires taxpayers who purchase items online to initiate payment of sales taxes when they file each year – but few taxpayers do so. Thus, this legislation merely empowers states to enforce existing law.
This bill is making a splash in conservative circles. From Seton Motley at Red State:
Why would anyone object to being taxed by forty-nine states with which they have no relationship? Taxation without representation on stilts, perhaps?
And of course it doesn’t at all complicate compliance matters.
(The MFA will) forc(e) online retailers to calculate and remit to more than 9,600 distinct taxing jurisdictions.
Nothing like in these interminably tough times making things for businesses infinitely more difficult and expensive.
No problem – they can begin figuring out compliance to the Marketplace Fairness Act right after they finish doing so with ObamaCare. And Dodd-Frank. And the President’s all-encompassing, on-all-fronts regulatory overrun. And….
After they pay all those new taxes, and plow through those thousands-of-pages-of-new-law and hundreds-of-thousands-of-pages-of-new-regulation, I’m sure they’ll have plenty of money, time, and energy left to, you know, actually concentrate on their businesses.
Ed Morrissey has a different take over at Hot Air:
In the end, though, the question is one of equal application of the law. Is it just to keep the exemption on tax collection almost twenty years after the commercialization of the Internet, which shows no sign of abating at all? The competitive disadvantage for brick-and-mortar stores is real, and they’re already in big enough trouble without forcing them to collect taxes while their competition doesn’t. Enzi’s proposal is certainly reasonable, and arguably necessary — and worthy of serious debate, which would be nice to see before a floor vote on the proposal.
I reached out to Head with several questions about the bill via e-mail, and he responded this morning. The questions and answers are below:
DS: Could supporters of the Act simply apply existing law instead of giving greater authority to states to raise taxes?
DH: Nothing under the Marketplace Fairness Act raises taxes. Sales tax rates are set by the states, not the federal government. The 1992 Quill v. North Dakota decision said that states lack the authority to collect the sales tax but Congress has the authority to grant it.
DS: If the Act becomes law, will the federal remittance “nobody does” be eliminated as law, to make sure double taxation doesn’t happen?
DH: Since the already owed sales tax would be collected at the time of purchase there would be no need to remit the sales tax with your tax fillings.
DS: Why aren’t states lowering spending, instead of raising taxes? And regarding the “conversation” within states, do Senator Enzi and other fiscal conservatives think most states aren’t going to utilize this ability to garner new revenue?
DH: Again, nothing in this bill raises taxes. Sales taxes are owed on all purchases—in-store, online, through a catalogue. The states just lack the authority to collect it. Some of states have indicated that they would be able to lower their sales tax rate or even eliminate other taxes since this is technically broadening the base.
DS: How much will these forthcoming higher taxes hurt the economy?
DH: It won’t. The bill provides small businesses with a $1,000,000 exemption. That means a business only has to start collecting the sales tax when they have more than $1 million in online sales. States are also required to provide free software and services to the business for the collection and remittance to the states. This is to make sure there isn’t a cost to businesses. This bill also puts Main Street businesses on a level playing field with their out-of-state and online counterparts that are selling to customers but are able to offer lower prices because they are not collecting the sales tax. This puts local businesses at a disadvantage.
DS: Are there other ways to create this “fairness?” Do supporters think there is a better way to go than opening up the state spigot to higher taxes.
DH: The federal government has no role and should have no role in how states manage their finances. This bill is about states’ rights and letting states make their own decisions without having to ask Washington for permission.
To me, this debate is not clear-cut, though I lean fairly strongly against the legislation. Internet businesses do have a tax advantage over their brick-and-mortar competitors, one that is not easily overcome, and certain business models do require overhead such as physical locations. Furthermore, while Congress is giving states the authority to tax, it is essentially giving states more power. So from this perspective, it’s debatably a good idea.
On the other hand, as was pointed out in the other post Tea Party Patriots did on the subject:
…Internet businesses don’t have the same “contract” with states that brick-and-mortar businesses do. They are not using the roads, fire stations, police resources, etc. in the same way. Thus, taxing them at the same rate as businesses with physical locations is unfair.
Additionally, even Head’s responses indicate this bill could be a raw deal for taxpayers. First, why protect businesses with smaller online presences if this legislation would be such a great law? Should small businesses have an advantage over larger competitors?
Second, nothing is “free.” States will provide software and likely tax citizens (who are both business owners and consumers) to make up the difference, or go into debt, or have to cut spending elsewhere – perhaps spending that is legitimate.
Lastly, the federalist argument Head makes is countered by Congress still regulating which businesses can be taxed, and how states must provide software for “free.” So even the federalist component of the bill is questionable.