Millions of first-time entrepreneurs strive to make a living by selling their products on the Internet. The low barriers of entry allow anyone to share their products worldwide with just a few clicks of the mouse. It’s quick and easy to buy and sell goods online—the way it should be.
The online marketplace empowers entrepreneurs with big dreams but not a lot of capital in their pocket. An independent jewelry maker can sell her handmade beaded necklaces on her website. A small town artist can gain a fan base and sell his unique paintings on eBay.
Compared to mortar-and-brick stores, online businesses have to deal with less regulatory hurdles and red tape. Not every entrepreneur can afford the high cost and risk of opening up a brick-and-mortar outpost. The Internet enables the clothes designer to experiment with selling her clothes online before she invests in a physical store. This is a great option for people who are unsure about the consumer demand for their product and want to test the waters first.
There are pros and cons to online shopping. People are able to shop in the convenience of their own home, there is a greater diversity of goods, it can be less time consuming, and it is largely tax free. The downside is that it usually takes several days for the product to arrive, shipping costs can be expensive, and people cannot see or try on the exact item that they are purchasing.
Current law does not require online businesses to collect taxes from customers out of state. Buyers are technically supposed to pay taxes on their online purchases at the end of the year, but this relatively unknown law is rarely enforced.
Buying an item online is often more expensive than purchasing it in a store. Sure, you’ll have to pay sales tax in a store—but the cost to ship that item to you is likely more expensive.
Now imagine if you were forced to pay both shipping cost and sales tax on your online purchases. Yikes. Buying items online would instantly cost a heck of a lot more than buying off line.
That’s exactly what Congress has proposed.
The Senate is currently debating the Marketplace Fairness Act that would force online businesses to collect sales tax from customers in other states. Complying with sales tax laws would be a massive headache for small businesses—to put it lightly.
There are nearly 10,000 different tax codes throughout the United States!
Anyone surprised that tax lawyers love the idea of an online sales tax? Many small businesses would have no choice but to hire a tax lawyer (not cheap!) to understand the complexity of thousands of different tax codes. Surely, the business owner would prefer to spend that money on making more products instead of through-the-roof lawyer fees.
No business owner should have to suffer through thousands of pages of tax law. That’s cruel and unusual punishment.
Other proponents of the sales tax are big online businesses like Amazon. It is not uncommon for big businesses to support more government regulation in their industry. After all, big businesses will be able to afford the cost of complying with the new sales tax. The impact will be minimal to them. They already have their team of lawyers ready to go.
The real harm will be done to small business owners. Small businesses will be severely impacted by the sales tax and it could wipe many of them out of business.
That’s the secret motivation behind the online sales tax. Big businesses want to create barriers of entry for their small competitors.
The Market Place “Fairness” Act has nothing to do with fairness. It’s about big business being afraid of any competition. A better idea is to beat out competition by providing better products rather than lobbying the government for more regulation that grants them an unfair advantage.
If the intended goal is to make the marketplace “fairer”, why not reduce government red tape for mortar-and-brick establishments? Increasing regulation for online businesses to burden all businesses equally is not the solution.
Republicans should especially know better than to support more regulation on businesses. Despite their lip service to opposing tax increases, many Republicans support the Internet sales tax bill. So much for their campaign promises to cut taxes—they’re instead advocating for new ones!
Congress is putting tax-free shopping online in jeopardy. The ridiculously complex law would hurt entrepreneurs and online customers while enriching politically connected big businesses. It’s time to hit the back space on this bad idea and permanently delete it from history.
Julie Borowski is a Policy Analyst at FreedomWorks, an organization dedicated to lower taxes, less government, and more freedom. Her writings on economic policy have appeared in numerous newspapers and online outlets. She is on the Board of Advisors for the Coalition to Reduce Spending and she launched an independent YouTube channel called TokenLibertarianGirl in June 2011.
She was previously selected to be a Charles G. Koch Summer Fellow with the Institute for Humane Studies where she worked at the Center for Competitive Politics. Most recently, she was a government affairs associate at Americans for Tax Reform.
Julie has volunteered for political candidates in Kentucky and in her home state of Maryland. She graduated Magna Cum Laude from Frostburg State University in May 2010 where she studied political science, economics and international studies. She is now located in Washington, D.C.