US Lawmakers Push for Internet Sales Tax

Eric Blair

Did you pay sales tax on the last item you bought on the Internet? Unless it was from Amazon, you probably did not. You may soon though if a gaggle of U.S. lawmakers working hand-in-hand with big business get their way.

And if you’re an online retailer, you may have to collect and remit sales taxes for all fifty states no matter where your online business resides. But don’t worry, lawmakers want to force all states to adopt the same standard for sales taxes, thus making it easier for you to comply.

Earlier this month, a large collection of lawmakers introduced the Marketplace Fairness Act in both the Senate (S. 336) and the House (H.R. 684). Lawmakers who oppose the measure have renamed it more appropriately, the “National Internet Tax Mandate” because that’s what it is.

The law essentially does three things:

1. Forces customers to pay sales taxes for online purchases.
2. Forces states to “simplify” their sales tax laws.
3. Forces online retailers to collect and remit state sales taxes..

That’s right, no transaction in America must be allowed without the State taking its portion. The legislation has so much corporate support that it has its very own website which describes the law as follows:

The Marketplace Fairness Act grants states the authority to compel online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction – exactly like local retailers are already required to do.

On the website they argue that this is not a new tax even though it hasn’t ever been enforced in the history of the Internet, saying “Consumers are required under existing state laws to pay sales and use taxes on the goods they purchase, but online sellers simply are not required to collect the tax in the same way that local businesses do – which puts local businesses at a disadvantage.”

The law attempts to solve two problems. First, it seeks to protect brick-and-mortar businesses from “unfair” competition from online retailers and, second, it seeks to increase revenues to state coffers.

Yet the lack of sales taxes is just a tiny part of why most brick-and-mortar retail businesses are struggling. The Internet offers a massively competitive marketplace for the same products, thus better prices. Customer reviews are just a click away, and products can be purchased in our underwear from the comfort of our homes. No driving, no annoying salesman, no lines, etc.

Besides, leveling the taxes won’t work. For example, online retail giant Amazon.com started collecting state taxes in June 2012, and yet, in 2013 Barnes and Noble announced it would close up to 500 stores over the next decade. They’re not closing their storefronts because of unfair taxing systems, rather because the business itself has changed due to the Internet. Borders Books declared bankruptcy in order to restructure to this new model. No law can save retailers who don’t adapt to the competitive realities of the Internet.

Next, the law attempts to boost state tax revenues, which it may do. But at what cost? And will this solve the state deficit problems?

The lobbyists, who no doubt put together the website for the legislation, write:

Although some suggest these States have a “spending problem” rather than a “revenue problem,” it is important to recognize that these States have already been reducing their spending levels year-over-year and increasing collection and enforcement efforts based upon their existing sales and use tax laws. However, a State can only enforce these laws within its own borders unless (or until) Congress recognizes the significant advances made by “man and his ingenuity with machines” over the last 44 years. Simply put, without the Marketplace Fairness Act, our States are unable to require remote retailers to collect the existing sales or use tax already approved by that state’s residents.

And what will be the cost to enforce this tax collection on every worldwide online retailer? Please don’t laugh, they actually believe it will be possible and beneficial.

The first thing that states must do is fall in line with other states to simplify (unify) their state sales tax laws:

States are only granted this authority after they have simplified their sales tax laws.

Simplification is required because of two Supreme Court rulings (Bellas Hess and Quill, described below) cite concern that collecting sales tax for multiple states would be too difficult.

The Marketplace Fairness Act requires that states must simplify their sales tax laws in order to ease those concerns and make multistate sales tax collection easy.

States are given two options for how to do this; join the Streamlined Sales and Use Tax Agreement, or adhere to the following rules:

Notify retailers in advance of any rate changes within the state.
Designate a single state organization to handle sales tax registrations, filings, and audits.
Establish a uniform sales tax base for use throughout the state.
Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to California to fund projects and services there).
Provide free software for managing sales tax compliance, and hold retailers harmless for any errors that result from relying on state-provided systems and data.

Yes, they give “free software” to help online retailers comply with the regulations, ehem, taxes. Surely, the millions of average people who make a living from selling things online won’t have any problem getting up to speed complying with ~~regulations~~ taxes for all 50 states. Most of them have lots of time to learn new software, accounting, and mailing 50 more checks.

It won’t put any small online retailers out of business, right? Regulations are good for business, right?

This law is bad for customers, worse for online retailers, and the effectiveness for helping brick-and-mortar businesses and increasing tax revenues is questionable. The one thing it does is begin to regulate small online retailers who will have to comply.

Former Congressman Ron Paul vehemently warned against the government toying with the Internet, calling it the last “truly free market” left. His technology manifesto, through Campaign For Liberty, states:

Technology revolutionaries succeeded not because of some collectivist vision that seeks to regulate “fairness”, “neutrality”, “privacy” or “competition” through coercive state actions, or that views the Internet and technology as a vast commons that must be freely available to all, but rather because of the same belief as America’s Founders who understood that private property is the foundation of prosperity and freedom itself.

Technology revolutionaries succeed because of the decentralized nature of the Internet, which defies government control.

As a consequence, decentralization has unlocked individual self-empowerment, entrepreneurialism, creativity, innovation and the creation of new markets in ways never before imagined in human history.

But, ironically, just as decentralization has unleashed the potential for free markets and individual freedom on a global scale, collectivist special interests and governments worldwide are now tirelessly pushing for more centralized control of the Internet and technology.

If this legislation passes you can bet it will open the door for the government to begin regulating more aspects of Internet businesses. This must be opposed.

Read other articles by Eric Blair Here