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Nation’s Oldest Taxpayer Group Warns Judiciary Committee: Beware of Predatory Online Tax-Collection Schemes

For Immediate Release November 30, 2011
Pete Sepp, (703) 683-5700

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(Washington, DC) – Healthy tax competition among states and the future well-being of small businesses are just two important benefits to our nation that would be endangered by legislation empowering a new state-run tax-collection regime on sales beyond their respective borders. Those are the words of caution the 362,000-member National Taxpayers Union (NTU) gave lawmakers today as a House Judiciary Committee hearing explored whether Congress should enact proposals that would force a business to collect state and local taxes on its “remote sales” with consumers in potentially thousands of jurisdictions across the United States.

“For the sake of taxpayers, job creators, and our economy, Congress should avoid giving the green light to predatory state tax cartels,” said NTU Executive Vice President Pete Sepp.

The hearing will include discussions of legislation known as the Main Street Fairness Act (MSFA) and the Marketplace Fairness Act (MFA), both of which embrace concepts found in the Streamlined Sales and Use Tax Agreement (SSUTA). NTU has objected to these plans on many grounds. Contrary to proponents’ claims, Internet-based purchases are not “tax-free.” Online sales involving a buyer and a seller in the same state are subject to tax at purchase, as are “click and mortar” sales. Numerous tax liabilities of other kinds are triggered in the course of these activities. As with income taxes, the sales-tax collection costs under SSUTA would not simply disappear through the existence of compliance software, and neither bill’s small-seller exemption provides adequate protection from the problem.

Furthermore, e-commerce allows small firms to thrive, by selling to a much wider market and by managing their own operations more efficiently with online productivity tools. Equally important, SSUTA’s multistate structure could encourage participating governments with lower sales tax rates to “round up” their levels, thus depriving citizens of the tax competition that has characterized the “laboratory of the states.” Though the MFA offers an advisory clause that higher revenues from new collection obligations should be used to reduce tax rates, Sepp said that “taxpayers can be forgiven for worrying that once the money starts filling state and local coffers, it won’t be coming back.”

As NTU has noted in previous communications, designing a truly revenue-neutral system that shields small sellers from harsh compliance costs will take more comprehensive protections and reforms than either the MFA or the MSFA could possibly offer. One step to explore would be requiring all firms to collect sales taxes only for the jurisdiction where they are based, rather than for multitudes of governments around the country. Another would be passing bicameral legislation (H. Res. 95 and S. Res. 309) that affirms Congress’ intent not to give states “the authority to impose any new burdensome or unfair tax collecting requirements on small Internet businesses.” The bills are authored by Representatives Lungren (R-CA) and Lofgren (D-CA), and Senators Wyden (D-OR) and Ayotte (R-NH).

“Congress should recognize that a vote for the so-called Main Street Fairness Act or the Marketplace Fairness Act is a vote to trample on the very meaning of the words ‘Main Street,’ ‘Marketplace,’ and ‘Fairness,’” Sepp concluded. “The way to help small businesses and their customers is by easing tax and regulatory burdens, not giving states license to heap new ones on a struggling economy or dump the time-tested principle of interstate tax competition.”

NTU is a nonpartisan, nonprofit citizen organization founded in 1969 to work for lower taxes, limited government, and economic freedom at all levels. The group was among the first to support the federal Internet Access Tax Moratorium and oppose SSUTA. Note: For more on NTU’s work in this public policy area, visit www.ntu.org.