Memo for the Movement

Current Event:

On April 25, the U.S. Senate passed a key procedural vote to consider S. 743–the so-called Marketplace Fairness Act–nearly ensuring passage.  The bill expands the authority of individual states to cover out-of-state retailers, allowing them to force those retailers to collect sales taxes for them.  This is a dangerous extension of state power, violating core principles of federalism. At the same time, it subjects consumers, businesses, and entrepreneurs to thousands of state and local tax regimes. With Senate passage imminent, the House must reject this misguided bill.

Action:

• House Speaker John Boehner and Majority Leader Eric Cantor should not bring the Senate-passed bill directly to the floor.
• Conservatives should reject any bill that expands the authority of out-of-state governments to regulate businesses with regard to online taxation

Issue in Brief:

The 1992 Supreme Court decision, Quill Corporation v. North Dakota, bars states from requiring a retailer to collect sales taxes on its behalf, unless that retailer has a physical presence in the taxing state.

For example, a company whose workforce and warehouses are in New Hampshire, and which has no contacts with Illinois other than taking remote sales orders over the Internet cannot be required by the state of Illinois to collect sales taxes from customers living in Illinois.

Under the Marketplace Fairness Act, the Quill standard would be eliminated, allowing states that meet certain minimal streamlining standards to require retailers in all states to collect taxes for them.

As a result, retailers would be subject to laws imposed by states with which they have no direct connection, and in whose political system they have no voice.  It is regulation without representation, allowing politicians to raise revenue, without fear of a public backlash.   The result would be added costs for retailers and American consumers, directly through the sales taxes imposed, but also through the added burden of collecting the taxes for the 9,600 separate taxing jurisdictions in the U.S., each with its own unique definitions, holidays, and rates.It is also unfair to require online businesses to collect and remit sales taxes from all their customers based on their residence but not to require brick-and-mortar businesses to do the same.  No such requirement should exist for any type of business.

A Congressional Research Service (CRS) report suggests the compliance burden associated with the bill would force businesses to set up shop outside of the United States, leading Sen. Ron Wyden (D-OR) to call the proposal the “Shop China Bill.”

Rather than pass this misguided legislation, Congress should pursue alternatives that encourage tax competition and preserve the American standard of geographical limits to tax authority.  As Rep. Jim Bridenstine (R-OK) said about the bill, “Taxes must be simplified not made more complex, reduced not expanded.” We agree.

Signed:

(All organizations listed for Identification purposes only)