Redstate
The
Marketplace Fairness Act is
More Unfair Than Status Quo
By Daniel Horowitz
March 18th, 2013
The
advent of the internet has
simplified life for millions of consumers in this country. But for state governments,
many of which are
hungry for more tax revenue to purvey their rapacious welfare states,
e-commerce has complicated their ability to collect all sales taxes
owed to the
state – at least without directly taxing the consumer, something the
statists
are too scared to do.
Most
states have been collecting
sales taxes for over 50 years – long before the internet was invented. The tax was structured so
that the seller
would automatically collect the tax from the buyer on behalf of the
state. Many
jurisdictions have multiple layers of
sales tax – some of them collecting city, county, and state taxes.
In
theory, online retailers should
function no differently than their brick and mortar counterparts. An online retailer based
in California should
collect sales taxes from its costumers on behalf of California. However, because the
consumers are the ones
who owe the tax, not the retailers, online retail companies would be
forced to
collect taxes for other states. The
Supreme Court has already ruled in Quill v. North Dakota that an
individual
state has no power to directly tax or compel tax collection of citizens
of
other states. A
business must be
physically located in a state in order for that state to require it to
collect
sales taxes on the state’s behalf.
This
1992 decision took place long before e-commerce became a factor in the
economy.
Some
conservatives who are pushing
a federally-mandated internet tax claim to be bothered by a question of
free
market fairness. After
all, isn’t the
current sales tax system tendentious and beneficial to online retailers
who
could offer the same products to consumers as brick and mortar stores
without
having to charge sales tax?
Let’s
first acknowledge that far
from crushing mom and pop shops, the internet has actually leveled the
playing
field for them. The
internet has allowed
smaller businesses to compete everywhere, even if they lack the capital
necessary to build a national network of wholesalers, distributors, and
retailers like the Walmarts of the world.
As for collecting taxes, there is no
good way of collecting e-commerce
sales taxes across state lines without growing government, creating
even worse
market distortions, and hurting low-tax red states.
The
solution that is being pushed
by companies like Walmart, revenue-hungry governors, and those who
claim to be
concerned about the free market, is the Marketplace Fairness Act
(S.336/H.R.
684). Yes, that’s a
real conservative
sounding name. The
bill would
essentially allow states to join together to force online retailers to
collect
sales taxes on behalf of all 50 states based on the location of the
shipping
address.
To
the extent that the status quo
gives an advantage to online vendors, the MFA would overcorrect the
problem and
hurt online vendors. While
brick and mortar
stores are forced to collect taxes from everyone, they are only subject
to the
tax of their home state. So
if they are
located in a state with no sales tax or a low tax they collect the
lower tax,
even if the customer is from a high tax state.
Under the MFA, online vendors in a state
like New Hampshire would still
have to collect the high rate of taxes of customers from California. So red-state companies
will have to serve as
tax collector for high-taxed blue states, thereby obviating the benefit
of
being in a red state and blurring the effectiveness of laboratories of
democracy.
Moreover,
why would we want to
encumber online businesses with the technicalities of establishing a
tax
collection system that would satisfy nearly 10,000 unique tax
jurisdictions in
this country? Hence,
whereas under the
current system brick and mortar businesses have to collect more in
taxes, under
the MFA online vendors in red states would pay even more, plus they
would incur
the cost of the new regulatory burden of complying with the myriad of
tax
codes. That is a
recipe for killing jobs
and raising the cost of goods. It’s
for
good reason that the Quill decision referred to such a scheme as a
“burden” and
violation of due process.
In
fact, collection, enforcement,
and reciprocity of this tax would be so complicated that it would
engender yet
another fix in the endless cycle of government incompetence. The only way to
effectively collect it would
be with a uniform national sales tax.
There is no question in my mind that the
MFA would be the easiest way
for liberals to leverage their much sought-after national sales tax –
an
entirely new revenue stream.
More
broadly, why would we ever
push for new revenue and a new stream of taxation that will totally
disrupt
e-commerce? Let’s
find ways to lower the
tax burden on brick and mortar stores instead of raising them on online
vendors. Yes,
technically the tax is
already there, but because it is never collected for practical reasons,
it is
ostensibly not there. Why
open up the
spigot when we are trying to turn it off?
The
governors pushing this couldn’t
care less about the free market argument; they want new revenues
instead of
cutting wasteful spending and state welfare programs.
The only way to deal with the inherent
unfairness
to brick and mortar stores would be to have online retailers collect
the sales
tax from all costumers just on behalf of the retailer’s home state. That would definitely be
more practical, less
cumbersome, and beneficial to low tax states, many of which would be
quite
eager to attract online retailers to their respective states. However, such a plan would
completely change
the sales tax from a tax owed by the buyer to one levied directly on
the
seller. Besides,
why should we open up
any new stream of revenue when we should be lowering the tax burden on
everyone?
The
reality is that although states
can’t collect a sales tax form citizens of the other states, most
states
require you to pay a “use tax” and report how much you bought in
internet purchases
that year and then tax you for it.
Of
course, most people don’t report anything.
So why don’t states just enforce the use
tax? Because they
would rather have an arrangement
in which other states would collect it so that the disquiet over higher
taxes
would not be directed at them. They
want
the revenue but are too cowardly to ask for it the old way.
Note
from Redstate editor Erick
Erickson...
The
so-called Market Fairness Act
passed in the form of a second degree amendment by 75-24, with the
support of
26 Republicans. This
will send the
message to Harry Reid that he has more than 60 votes to pass this as a
standalone bill. In
doing so, they have
voted to grow government all over the country, hurt low-tax states,
impose
taxation without representation, saddle small businesses with
collecting taxes
for 10,000 distinct tax jurisdictions, and adulterate the freest most
successful entity known to man.
Read
this and companion articles at
Redstate
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