Well. . . It has been quite a while since Al Gore invented the internet. So, I guess it’s about time government finds a way to start making money off the 21st Century’s greatest vehicle for economic expansion. The US Senate passed the Marketplace Fairness Act. It has been advertised as an online sales tax that would “level the playing field” between online, and brick and mortar retailers. With the exception of “The Affordable Care Act” it one of the most illustrative examples of false advertising since Camel ran that picture of a doctor lighting up.
Generally speaking, when the word “Fairness” appears in a tax bill, you can guarantee someone is getting ripped off. For the sake of “Fairness” we should tax this group of people more than that group. For the sake of “Fairness” we should give preferential treatment to minority groups. For the sake of “Fairness” we should tax internet sales. Rife with altruistic platitudes and Orwellian interpretations of market competition, the bill is being championed by its supporters as a way to give small businesses a fair chance in an increasingly not-so-free market. What will it really accomplish? It will entrench small online retailers in a world of regulatory nightmares, and drown out all but the largest of corporations from ecommerce.
Mathew Shay, CEO of a special pro-tax interest group called the National Retail Federation, said in a press release that “this bill and its companion in the House will level the playing field for all retailers – both online and offline.” Outside the confines of the White House there has rarely been a more disingenuous sentence constructed.
The Marketplace Fairness Act allows the state where the buyer lives to implement a sales tax on any transaction done via the internet. Mind you, this is not a sales tax on a retailer in a particular state. . . This is inflicting upon any retailer the burden of collecting the sales tax due in the jurisdiction of the purchaser. If, for example, Flowers.com sells a bouquet of roses to someone in New York City, Flowers.com will then be responsible for collecting state, county and city sales taxes for the buyer’s place of residence. Keep in mind, by the way, that Flowers.com already pays state and local taxes in the State where they are headquartered.
But, nothing spells “fairness” like making online retailers conform with roughly 9,600 tax jurisdictions while the brick and mortar stores comply with only one. According to proponents of the bill, making a small business comply with nearly ten thousand local taxes will “level the playing field.” If selling goods online is that advantageous, it would seem to be just one more reason brick and mortar stores should join the 21st Century and begin expanding on the inter-webs.
Most states already require sales tax be paid on all online purchases. If someone purchases something on Amazon, they are already required to report the purchase and send a check to the state for tax purposes. (Show of hands: How many liberals volunteer this information to their local taxing authority?) But, in a desperate grab for revenue, states are now looking at deputizing - against their will - all ecommerce sites as tax collectors. This would do little more than thrust upon them an unconscionable burden of tax compliance; the like of which a brick and mortar store will never face. After all, the hardware store down the street is not required to collect sales tax for your tax jurisdiction. . . That, of course, would be crazy.
In a wonderful display of economic illiteracy, states are complaining about the “lost revenue” they experience due to online sales. States and municipalities have rightfully identified that consumers prefer lower prices, and that sales taxes are considered a part of the price for goods and services. Yet, rather than examine how they can make their sales tax more competitive, or at the very least less burdensome, they are pushing for the Marketplace Fairness Act; an Act that would grant them the power to tax beyond their border. (It should also be pointed out that the term “lost revenue” is indicative of government’s assumption that they are entitled to your money.)
Assuming most consumers flock to the inter-webs in a fiscally sane effort to avoid sales tax, both local and federal coffers benefit. As online retailers sell more products (and consumers enjoy the free parking their computer shopping experience provides) profits go up. As profits go up, so do tax revenues on corporate income, property taxes, business licenses, and payroll taxes. Believe it or not, thriving companies generally tend to contribute more to the treasury than businesses that scrape by. If taxes have a deterring effect, how will a sudden tax on online businesses impact the profitability, and therefore the tax contributions, of those evil ecommerce sites?
The National Retail Federation claims the bill will safeguard small businesses by eliminating a competitive edge that their online counterparts currently enjoy. But the sudden expense and headache of complying with thousands of individual local taxes will surely discourage a great deal of small businesses from engaging in ecommerce to begin with. While Amazon might have the capital and organization to comply with the requirements outlined in the bill, the mom-and-pop store that has decided to expand their reach with online offers will not be so lucky. They quickly find themselves relegated to the finite market of their local neighborhood.
This brings us to another point: Economic expansion. The internet has been one of the greatest vehicles for entrepreneurship that the world has ever seen. Businesses that would otherwise be shackled by local demographics, or geographical limitations, can now engage with parties that are thousands of miles away. With a computer, phone line, and limited imagination, businesses can expand their consumer base by hundreds, thousands, or even millions of people. In a time of anemic economic growth, Congress and the Senate should be looking at ways to make commerce – online or offline – easier. Businesses should not be punished for selling goods on a specific venue to out-of-town buyers.
Imagine an initiative that would impose nearly ten thousand separate taxes on a small business in Ogallala, Nebraska. Imagine a bill that would require a mom-and-pop retailer to collect sales taxes for all 9,600 tax jurisdictions. Imagine a piece of legislation that would require garage sellers, and hobbyists to comply with a tax code hundreds or thousands of miles away. Imagine a new regulation that would allow the country’s largest retailers to adapt, while making life impossible for the new start up small businesses.
Congratulations. You just imagined the “Marketplace Fairness Act.” George Orwell would be proud.