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

(Washington,DC) – Healthy tax competition among states and the future well-being of smallbusinesses are just two important benefits to our nation that would beendangered by legislation empowering a new state-run tax-collection regime onsales beyond their respective borders. Those are the words of caution the362,000-member National Taxpayers Union (NTU) gave lawmakers today as a HouseJudiciary Committee hearing explored whether Congress should enact proposalsthat would force a business to collect state and local taxes on its “remotesales” with consumers in potentially thousands of jurisdictions across theUnited States.

“Forthe sake of taxpayers, job creators, and our economy, Congress should avoidgiving the green light to predatory state tax cartels,” said NTU Executive VicePresident Pete Sepp.

The hearing will include discussions oflegislation known as the Main Street Fairness Act (MSFA) and the MarketplaceFairness Act (MFA), both of which embrace concepts found in the StreamlinedSales and Use Tax Agreement (SSUTA). NTU has objected to these plans on manygrounds. Contrary to proponents’ claims, Internet-based purchases are not“tax-free.” Online sales involving a buyer and a seller in the same state aresubject to tax at purchase, as are “click and mortar” sales. Numerous taxliabilities of other kinds are triggered in the course of these activities. Aswith income taxes, the sales-tax collection costs under SSUTA would not simplydisappear through the existence of compliance software, and neither bill’ssmall-seller exemption provides adequate protection from the problem.

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

AsNTU has noted in previous communications, designing a truly revenue-neutralsystem that shields small sellers from harsh compliance costs will take morecomprehensive protections and reforms than either the MFA or the MSFA couldpossibly offer. One step to explore would be requiring all firms to collect salestaxes only for the jurisdiction where they are based, rather than formultitudes of governments around the country. Another would be passingbicameral legislation (H. Res. 95 and S. Res. 309) that affirms Congress’intent not to give states “the authority to impose any new burdensome or unfairtax collecting requirements on small Internet businesses.” The bills are authoredby Representatives Lungren (R-CA) and Lofgren (D-CA), and Senators Wyden (D-OR)and Ayotte (R-NH).

“Congressshould recognize that a vote for the so-called Main Street Fairness Act or theMarketplace Fairness Act is a vote to trample on the very meaning of the words‘Main Street,’ ‘Marketplace,’ and ‘Fairness,’” Sepp concluded. “The way to helpsmall 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-testedprinciple of interstate tax competition.”

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