Proposed Internet Sales Tax Could Cost Taxpayers $340 Billion

(Alexandria, VA) – The National Taxpayers Union (NTU) released a report today that examines the real economic impact of the Marketplace Fairness Act (MFA), an Internet sales tax proposal, on American families.  The report, The Consumer Impact of the Marketplace Fairness Act, provides a unique look at how the proposed legislation could impact households across the nation.

The report analyzes academic literature and found that though there is some disagreement as to the exact magnitude, all existing studies determined that the MFA would impose measurably heavier state and local sales tax burdens on American households, owing to new business obligations to collect and remit taxes on so-called “remote” purchases.

Key findings from The Consumer Impact of the Marketplace Fairness Act:

  • The MFA’s provisions for remote sales tax collection could amount to $340 billion over the next ten years.

  • Nationally, the average impacted household would pay an additional $360 in state and local sales taxes in 2015 if MFA were implemented. This burden of the MFA on families would likely rise at a rate faster than inflation, as online buying continues to grow.

  • Nationally, the burden of state and local sales taxes on families would increase by 5.9 percent on average. Households in some states would pay up to 16 percent more in sales taxes.

  • Households in the South and Southwest would be hit the hardest. The average impacted household in Louisiana would pay $850 more in sales taxes in 2015 if MFA is passed. Impacted households in Nevada, California, New Mexico and Tennessee would pay between $541 and $620 in additional sales taxes in 2015.

The study did not explore the impact of compliance costs from the new tax collection regime on businesses, which might be forced to curtail or cease operations as a result. Although revenues would be lower, households would still suffer due to fewer shopping choices, reduced employment opportunities at online businesses, and reduced economic activity on the Internet.

Supreme Court rulings have held that a state cannot force a business to collect and process sales tax on Internet and catalog purchases when that business has no physical presence (e.g., a store or a warehouse) within the state’s borders. MFA would overturn this constitutional protection, allowing states to reach across their borders and enforce direct collection of sales taxes.

The paper was commissioned by National Taxpayers Union and conducted by Andrew Chang & Company, LLC a California-based economic and management consulting firm.

National Taxpayers Union (NTU), “The Voice of America’s Taxpayers,” is a leader in the movement to stop the Marketplace Fairness Act. More information on NTU’s work is available at www.ntu.org.