The Myths and Realities of “The Marketplace Fairness Act”

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The Marketplace Fairness Act is being bounced around once again, this is the proposal to allow States to require businesses to collect sales tax on all items sold via internet and catalog. The National Taxpayers Union reports several myths have cropped up about the bill and what it would do.

Some people claim that allowing States to require businesses from outside its jurisdiction to pay taxes for anything shipped into the jurisdiction is a “State’s Rights” issue. That is 100% false. The NTU reports “[g]iving states the power to collect sales taxes across their borders isn’t about states’ rights, it’s about state coercion. Governments would have fewer incentives to keep their own tax rates low, eroding the important federalist principle of tax competition.” Allowing States to tax items shipped into it could theoretically allow the States to tax those items at higher rates than items purchased within the State. Thus, harming any business that relies on online or catalog sales.

Other myths claim online stores receive a special tax loophole and that such a tax would “level the playing field.” Again, both are false. NTU reports the so-called loophole “is actually the physical presence standard, a firmly grounded constitutional doctrine the Supreme Court has upheld for decades to protect businesses and their customers from predatory tax administrators.” The bill would also “require remote sellers to collect sales tax on every item, it would force them to do so by a completely different and harsher set of rules than currently exist for brick-and-mortar sales… forcing online retailers to quiz each and every customer about their residency” in order to comply with more than 9,600 separate sales tax jurisdictions across the country. Does that sound like “fairness” to you?

The Marketplace Fairness Act is NOT fair and if enacted, there will be winners and losers. Among the losers are those customers who prefer to shop online where their purchases are mostly free from sales tax and those smaller companies who will find it difficult and/or expensive to comply. The winners will be the governments that will see an increase in tax revenue and the bigger online companies that will be able to fill the void left when the smaller companies either refuse to sale online or go out of business.

2 thoughts on “The Myths and Realities of “The Marketplace Fairness Act”

  1. As a conservative small business owner currently benefitting tremendously from the simplifications standards already achieved in the 24 SSUTA states I am disheartened that fellow conservatives seek to prohibit my business, and millions more, the benefits of modern technology. What many do not know, as well as Mr. Perry, is that modern technology freely available freely easily enables any business to process sales tax already due.

    This is a States’ rights issue since the tax is being applied to goods being purchased within the boundaries of the tax jurisdiction. Since states must provide free software to merchants. My business utilizing the same modern API protocol technologies enabling real time shipping to over 40,000 different zip codes, is now easily enabled to calculate, collect and remit sales tax for any jurisdiction in any state for only 9,600 different jurisdictions.

    The truth of the matter is due to the increasing amount of sales taxes being evaded via Internet sales and the unequal application of tax already due. Sales tax are more regressive than ever. Less fortunate families without access to the Internet and necessary credit are paying the lions’ share increasing sales tax at local registers while others shopping on the Internet knowingly and unknowingly evade their honorable sales/use already tax due.

    Historically the simple economic lesson of supply an demand tells us that increased competition yields lower demand and prices greatly benefitting consumers. Leaving local merchants with no options compels them to close their businesses. Incidentally, 3.8 jobs are created for every $1MM in brick and mortar sales while only .08 jobs are created for the same amount of Internet sales. Regressive tax policy favoring one business over another eliminates fair competition giving the remaining merchants the ability to charge consumers higher prices as demand for goods from only a few merchants increases.

    The Marketplace Fairness Act does simply grants States’ rights to choose to collect sales/use taxes already due in many states since 1933. Electing to leave the status quo guarantees higher unemployment and higher prices for consumers. Retail vacancy rates are already above 24% nationally and increasing.

    1. I disagree that allowing States to steal from people even more than they already do is a “State’s Rights” issue. The issue is about governments wanting more money. I will continue to avoid as many taxes as possible and encourage others to do the same! I wish I could say I was shocked that a “conservative” wants to increase government power, but I’d be lying.

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