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Marketplace (Un)Fairness Act Quietly Putting Taxpayers & Online Business at Risk

Douglas Kellogg
March 19, 2013

As with many pieces of legislation in Congress, the Marketplace Fairness Act (MFA) may not sound bad at all if you listen to its proponents. Yet, the MFA would not only hammer online business - particularly the small businesses Washington pays so much lip service to, but continually hinders -  MFA would also destroy constitutional tax precedent that protects the people against the worst tax offenders at the state level. And supporters are trying to quietly build momentum for the bill, in the form of a cleverly-worded amendment to the Budget Resolution moving through that chamber as early as Wednesday.

You can read NTU’s letter to the Senate warning against MFA HERE, and TAKE ACTION to stop this dangerous policy HERE!

What is Dick Durbin’s (D-IL) and Mike Enzi’s (R-WY) Marketplace Fairness Act? In short, the bill would provide federal backing for allowing states to reach across borders and impose their sales taxes on businesses in other states. And that means major problems for folks on the ground.

Online sales have become a key part of many independently owned small businesses who are struggling to make it through a devastating recession. Now as they face higher payroll taxes, new “Obamacare” regulations, and maybe even a minimum wage increase, they are expected to take on the burden of tax compliance for nearly 10,000 jurisdictions?

These provisions in the MFA would add a burden to online businesses that brick-and-mortar businesses do not in fact face! Think about it, you don’t have to explain where you live to buy a t-shirt on your vacation, yet under MFA you would have to do exactly that for all online purchases.

Online businesses are not avoiding taxes at all, they pay loads of taxes, on shipping, gas, tolls, property, income, etc. The “missing” tax is unremitted use tax that consumers owe when sales tax is not automatically collected. In the name of solving this, MFA would add a tax enforcement burden only to online retail that nobody in the history of the country has ever had to deal with. Sounds fair right?

Our former colleague, and current R Street fellow, Andrew Moylan does an excellent job explaining how MFA will actually create two entirely different playing fields, not leveling anything, in the Spectator today.

In addition, all of this serves as a reminder that market forces are already working in a leveling direction, and it is unlikely any small brick-and-mortar store that’s struggling pre-MFA would suddenly be saved by the legislation. Here’s what IS likelier: big businesses backing MFA would get a leg up on their competition, which would find the complexity burden more challenging.

NTU Federal Affairs Manager Nan Swift wrote a great piece dispelling all the myths proponents of this Internet tax scheme continue to tout.

All the while, there is another option to tackle the issues MFA claims to address: “origin-based sourcing.” Simply put, making all retailers responsible for tax collection to only the jurisdiction in which they are located. This is not a matter of MFA being the “only choice.”

Those dangers are only the tip of the MFA iceberg... The most pervasive effects of MFA would come as a result of the constitutional taxpayer protections it would weaken – and it is shocking there is any support from so-called “conservatives” in light of this.

Government Bytes readers likely know all about Quill v. North Dakota, the Supreme Court decision that cemented the “physical presence” standard of determining who has to collect sales taxes.

Sure, MFA proponents will point out the bill only targets sales taxes, but NTU has ardently warned that if this power play manages to subvert the Quill decision (and thus the physical presence standard) it will likely be just the beginning of states with high tax burdens imposing themselves on out-of-state businesses, all with the blessing of the federal government.

How can those who pay credence to constitutional principle side with those who call physical presence protections “a loophole caused by the 1992 Quill Supreme Court decision.” How can any conservative stand with misinformed lobbyists who invoke “states’ rights,” when the agenda is to expand the hunting grounds of tax-hungry state officials?

Furthermore, even left-aligned citizens should be wondering why big box retailers like Wal-Mart would so ardently support this legislation – or why it is that after all the teeth gnashing about Congress’ inability to act, small online businesses may soon get bitten because of political pressure from bigger ones?

Tell your Senators NOT to support the Marketplace Fairness Act, and fast! Tomorrow could be a big step toward this terrible tax scheme’s passage. Whatever happens, taxpayers must remain engaged in this vital fight for Internet freedom.


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