Marketplace Fairness Act attacks e-commerce

Marketplace Fairness Act attacks e-commerce

March 20th, 2013 in Opinion Free Press

As early as today, the U.S. Senate will attempt to attach a terrible piece of legislation to the fiscal year 2014 Senate Budget Resolution. The amendment, known as the Marketplace Fairness Act, would demolish appropriate limits on state tax collection authority, increase prices for online consumers, damage e-commerce and lay the groundwork for a national sales tax.

The innocuously named Marketplace Fairness Act allows the government to force online retailers to collect sales taxes on behalf of states, counties and cities based on the location of the shipping address -- more than 9,600 separate taxing districts in all.

In its opposition to the Marketplace Fairness Act, the Direct Marketing Association put it best: "The Act would grant states the authority to reach beyond their borders to conscript American businesses with no presence in the state and force them to become the unpaid tax collectors for the state."

By mandating that retailers become tax collectors, any American who buys a few items online faces the possibility of being harassed by multitudes of out-of-state retailers for taxes due.

Currently, retailers are only required to collect sales taxes on customers when a customer resides in a state where the retailer has a brick-and-mortar location. That rule is based on the idea that online retailers should function no differently than their brick-and-mortar counterparts.

As attorney Daniel Horowitz wrote on the website RedState, "An online retailer based in California should collect sales taxes from its customers on behalf of California." Under the Marketplace Fairness Act, 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."

The Marketplace Fairness Act disregards that sensible and long-standing policy.

Supporters of the Marketplace Fairness Act claim that it is unfair that brick-and-mortar businesses collect more in taxes under the current system. Their "solution," however, is even more unfair.

A brick-and-mortar store is responsible for administering one simple tax rate to all shoppers -- 9.25 percent in Chattanooga, for example. Under the Marketplace Fairness Act, online retailers would have to collect taxes for all of the 9,600 separate taxing districts in across the United States. Not just that, but online sellers would have to keep track of each state and locality's definition of what constitutes a taxable good, as well as thousands of various filing and registration procedures, threshold and tax holidays if they hope to remain in compliance. That suffocating deluge of red tape will close businesses, kill jobs and hike the cost of goods.

In reality, the only way to fix the Marketplace Fairness Act's impossibly confusing tax collection responsibility would be to enact a national sales tax. And once there's a national sales tax structure to collect revenues for state and local governments, it will be only a matter of time before the federal government asks for a percent or two, leaving Americans with a federal sales tax.

Is there a solution to making sure that states like Tennessee whose revenues are based on sales taxes aren't left shortchanged by the increasing number of online purchases? Yes, and that solution is already in place.

Tennessee requires residents to pay a "use tax" based on how much each resident bought in online purchases each year. That amount is then taxed by the state. Few people, however, ever report their purchases.

So why don't states just enforce the use tax? According to Horowitz, "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."

The Tennessee Department of Revenue -- and every state's revenue agency -- should do its job rather than hoping the federal government will force thousands of online retailers to become revenue collectors of behalf of states.

That would be a much better solution than the misguided Marketplace Fairness Act.