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An Open Letter to Fiscal Conservatives in the Senate: The Marketplace Fairness Act Has No Place in Budget Resolution!

March 19, 2013

Dear Senator:

         On behalf of the 362,000-member National Taxpayers Union (NTU), I write to express our deep concern over reports that the already deeply flawed Senate Budget Resolution could be made even worse with an amendment supporting the “Marketplace Fairness Act” (MFA). Opening the door to this legislation, even through a seemingly benign amendment creating a “deficit neutral reserve fund,” would inflict a great deal of harm upon taxpayers as well as small businesses. To be clear, NTU regards a vote in favor of such an amendment as a vote to advance MFA and give Congress’s blessing to destructive extraterritorial state tax collection schemes.

        NTU has stridently opposed MFA, introduced in this session by Senators Enzi and Durbin as S. 336, on a number of grounds. The bill would hinder tax competition among the states, and may even encourage governments to “round up” their levels. The Supreme Court’s Quill ruling has prevented state tax collectors from aggressively reaching across their borders, but MFA would overturn this important protection against abuse of power. The bill’s attempt to carve out a sales-tax only exception to this ruling likely won’t survive long, and the way would be paved for state administrators to gain authority over other taxes. Finally, S. 336 gives wide latitude to define taxable “nexus,” including its controversial extension to online advertising affiliates. Even states not participating in MFA’s framework would have new powers.

        Furthermore, MFA would heap heavy burdens upon small businesses, which would face the task of collecting and remitting to nearly 10,000 taxing jurisdictions. These burdens would not simply disappear through the existence of compliance software, as some supporters of S. 336 seem to imply. After all, despite the widespread use of preparation programs for federal individual and corporate income taxes, citizens and businesses spent some 6.4 billion hours complying with Treasury Department paperwork, according to a recent annual Information Collection Budget. NTU calculated that the value of this time, along with software and other out-of-pocket costs, was more than $228 billion.

        MFA’s supporters have tried to mitigate these burdens with a “small seller” exception, which is paltry by comparison to other government definitions of what constitutes a small business. Further, it fails to acknowledge that so many of the “Main Street” businesses the proposal aims to protect are actually thriving because of, not in spite of, the Internet. E-commerce allows “mom and pop” firms to market their goods and services to the entire world, not just to their immediate neighborhoods. It also gives these firms a much wider range of options to purchase supplies and other inputs, maximizing their cost-efficiency and productivity.  

        In addition, a March 11 letter to Congress signed by 16 groups, including the R Street Institute, Americans for Prosperity, Americans for Tax Reform, FreedomWorks, and NTU warned against MFA, calling it “bad news for … the cause of limited government.” The signatories noted that, “Conservatives in Congress should oppose this unwise legislation and instead pursue thoughtful alternatives that preserve geographical limits to tax authority and encourage tax competition.” The millions of citizens who participate in these organizations will be watching carefully how legislators vote on MFA as well as on proxy amendments to promote it.

        An amendment advancing MFA would be included in NTU’s annual Rating of Congress and a “no” vote will be heavily weighted as a pro-taxpayer vote. Taxpayers in your state are counting on you to see through supporters’ strategy and oppose it. For further information on the dangers of MFA, please examine the attached fact sheet by clicking here.

Pete Sepp
Executive Vice President