Taxpayers, Businesses, and Economy Will Suffer Under New Internet Sales Tax Bill, Citizen Group Warns

(Washington, DC) – Valentine’s Day couldn’t be a worse occasion for Members of Congress to jilt consumers, businesses, and the U.S. Constitution, but they are trying anyway by introducing problematic Internet tax collection legislation – that’s the assessment of the 362,000-member National Taxpayers Union (NTU), which announced its continued, strong opposition to the so-called “Marketplace Fairness Act” (MFA). The bills have been introduced in the Senate by Sens. Enzi (R-WY) and Durbin (D-IL) and on the House side by Reps. Womack (R-AR) and Speier (D-CA).

“The Internet tax collection bill reads like a love letter to overzealous state revenue collectors, not like a piece of legislation designed to address ‘tax fairness,’” said NTU Executive Vice President Pete Sepp. “Despite some tweaks to the version introduced in the previous Congress, the latest proposal will also undermine tax competition among the states, tilt the commercial playing field in favor of big-box stores, and upend the constitutionally based doctrine of physical presence that has shielded sellers and buyers from out-of-state tax collectors reaching into their pockets.”

NTU's Nan Swift Breaks down Ten Facts and Myths about Internet Sales Tax

NTU has long opposed MFA-style legislation, and today launched a new effort to raise awareness of myths and facts surrounding the issues at stake. Besides the concerns Sepp outlined, he also noted:

  • Sophisticated software won’t completely erase compliance costs and burdens associated with nearly 10,000 taxing jurisdictions around the nation; it hasn’t done so with the federal income tax system, which NTU estimates as costing individuals and businesses nearly $230 billion in 2012.
  • Internet-based retailers already pay numerous taxes on profits and property, while customers pay taxes associated with shipping. MFA would let states force online sellers to query customers about where they live to remit proper sales taxes – something traditional retailers wouldn’t do. The bill’s “small seller” exception remains paltry by comparison to other government definitions of a small business.
  • The U.S. 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. After the precedent to collect one kind of tax this way is established, administrators will likely clamor for the same authority over other taxes.
  • The bill gives states wide latitude to define taxable “nexus,” including its controversial extension to online advertising affiliates. Even states choosing not to participate in MFA’s framework would have new powers.   

Sepp contended that if Congress wants a constructive role in this tax policy debate, it should consider the grave consequences of MFA as well as examine other options. Origin-based sourcing, for example, would have all retailers – online or brick-and-mortar – remit sales taxes only to the jurisdiction in which they are located. This would have the advantages of preventing extraterritorial taxation as well as preserving tax competition among states and localities.

“If taxpayers and small businesses could send Congress a message this day about the Marketplace Fairness Act, it would probably take the shape of a giant candy conversation heart with the words ‘No Way’ stamped on it,” Sepp concluded. “Lawmakers who want to be true to their taxpaying constituents should avoid rushing into this legislation and instead call for hearings that can finally explore more rational alternatives.”

NTU is a nonpartisan citizen organization founded in 1969 to work for lower taxes and limited government. The group was among the first to support the federal Internet Access Tax Moratorium and oppose the states’ Streamlined Sales and Use Tax Agreement. Note: For more on NTU’s work in this and other public policy areas, visit