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EDITOR OF REDSTATE

Led by Sen. Mike Enzi, Republicans Will Vote to Raise Taxes & Tax iTunes Downloads

By: Erick Erickson (Diary)  |  March 20th, 2013 at 03:30 AM  | 

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Congressional Republicans led by Senator Mike Enzi of Wyoming and Democratic Senator Dick Durbin of Illinois, are about to raise Americans’ taxes and set in place the foundation for states to be able to tax downloads from the internet, including from places like iTunes. Senators Durbin and Enzi are inserting an internet tax as an amendment to the Senate budget bill.

The tax sounds innocuous enough. The tax is hiding under legislation called the Marketplace Fairness Act. The Act purportedly just harmonizes state laws so internet sales are also taxed. After all, it is not fair that Amazon does not charge all its customers sales taxes. It puts them at a competitive advantage over mom and pop shops. Sounds good until you realize what’s actually going on with this latest scheme to peddle “fairness.”

One day I will have a scorecard for conservatives. And those Republicans who vote for the Marketplace Fairness Act in any form will be blackballed from that scorecard. Until then, I hope groups like Club for Growth and Heritage Action will score against it. It is a damnable piece of legislation whose backers are a who’s who of major corporations.

The staggering irony of the Marketplace Fairness Act is that it is written by states craving more money and massive corporations like Wal-Mart who want to hurt small businesses that have become successfully competitive against big retailers online. And in selling the Marketplace Fairness Act, these big businesses and governments have hired lobbyists to claim the law actually benefits small businesses. But the backers are a whose who of major corporations who have a history of using their connections in government to hurt small businesses that have figured out how to successfully compete against big businesses.

Even more shameful, these big businesses and state governments have been pouring money into conservative outfits and right-of-center lobbying outfits to try to convince conservatives that tapping a massive new revenue stream for states to balance budgets is somehow a conservative milestone.

Some of those supporting the Marketplace Fairness Act are good people with good intentions who believe the law is noble in purpose and buy the spin. But many are bought and paid for by the major corporations who have for too long rigged the system to their advantage by shutting out entrepreneurial competitors through the tax code and other laws.

Republicans who vote for the Marketplace Fairness Act, including Mike Enzi, should be, metaphorically speaking because it’d otherwise be illegal, flogged.

I don’t shop online to avoid sales taxes. I do so for convenience and because I hate people and don’t want to interact with people in a store. (kind of kidding) I don’t really care if I have to pay sales taxes online. It just sounds so fair.

As we’ve learned from Barack Obama, beware politicians peddling fairness. Republicans doing this are about to open a pandoras box and, behind closed doors, they admit they know it. Are you ready for your downloads from iTunes to be taxed?

The nation has thus far successfully shielded the internet from Washington taxation and regulation for decades, and the Marketplace Fairness Act would break the floodgates open. Even more troubling, the Marketplace Fairness Act establishes a pretty solid precedent that the federal government can step in to regulate state tax policy. After all, this legislation attempts to exert federal regulatory power over state internet tax policy with state complicity.

Once Congress has opened the pandoras box of federally authorized internet sales taxes, it is only one step away from taxing internet downloads, not just goods purchased online.

But here’s the other troubling thing. The Marketplace Fairness Act, for the first time, establishes a national sales tax. It does so by hiding behind the states. They told us the individual mandate wasn’t a federal tax either.

Here’s the situation. As you may know, the Supreme Court has long held that a business has to have some physical nexus in a state to be subject to sales tax collections — an storefront, distribution center, etc. This is based on the fundamental principle of no taxation without representation.

States have tried to weasel their way around this, but each state taxes goods in different ways. Some states, for example, don’t tax baked goods, but do tax candies, even if made in a bakery. So your cake is not taxed, but if you buy fudge at the bakery it is. And it’s not just states, there are over 7,500 different local tax systems, many with special tax holidays or exemptions for different products. Trying to move these varied tax systems to the internet would drive up the burdens of businesses online by forcing compliance with the various taxing schemes of 50 states.

That actually puts a heavier burden on online vendors than brick & mortar local vendors, who only have to comply with the taxes of the state they reside in. Then there are the compliance costs. How does a candy company in Georgia that sells fudge to someone living in Iowa handle a tax dispute with Iowa tax authorities?

MFA would destroy the concept of states as laboratories of democracy that allow businesses to move between states based on better business environments. Today, a business located in New Hampshire charges no sales tax, but if MFA passes, overnight they could be forced to collect taxes for dozens of states with no escape.

Now, let me explain what is really going on here. States have grown huge and bureaucratic. Instead of downsizing and becoming more efficient, states have decided to just look for a new tax scheme to fund the leviathan. They see online sales as the way to go. iTunes downloads will be next. Congressional Republicans are helping.

But consider that there is a carve out for businesses that sell less than $500,000.00 a year online. As Senator Jim DeMint noted last year this is a pretty good admission that the law will be a burden on businesses.

Proponents of MFA also like to brag that Amazon now supports their internet tax bill after years of opposition. That’s true, but there is a simple reason why: Amazon’s future business model of same-day delivery requires them to have distribution centers in nearly every state in the nation. You see, MFA won’t affect Amazon, because like Target or Walmart expanding to every state, Amazon will be forced by current law to collect sales taxes. So of course Amazon now supports MFA, this is nothing more than a big corporation using Washington politicians to punish their competition, like the many small business sellers on Ebay.

Senator Enzi and the Republicans joining him should be ashamed that they are willing to open a new front in Congress’ quest to tax everything. The Marketplace Fairness Act should really be called the Marketplace Fleecing Act.

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  • gscandlen

    Your strongest argument here is the compliance one. Wish you had put that first. I hate arguments that are all about the nefarious intent of the backers. It is too much like the liberals who discount any research “paid for by the (drug, energy, or whatever) industry.” If the research is sound and replicable it doesn’t matter who paid for it.

    But I’m not sure the compliance argument stands up. Yes, it is complex, but I expect that some service like PayPal will come along to simplify it.

    Meanwhile, I much prefer a consumption tax over any other.

  • reggie1

    Fairness? Au contraire. In trying to level the playing field, the act tilts it in favor of the bricks & mortar guys. Why? Because each of their locations is burdened by tracking, filing and submitting for only one state, the state where they reside. Internet merchants were already held to that, but the act will make their lives 50 times more difficult than for the bricks & mortar guys.

  • http://teapartisan.wordpress.com Loren Heal

    Once again, as with Obamacare and the minimum wage, we see big players using the power of government to stick it to the smaller ones. The bigs are already paying minimum wage and health insurance, so they aren’t affected by laws mandating them. The bigs can afford to track the sales tax details, while a smaller player can’t.

  • mt32

    is the the “balanced approach” Barry is looking for?

  • fredflintlock

    Set a date and pull the trigger on an online boycott, or icott. Let these incestuous conjugators know that online sales are off limits. While most of the people won’t get the constitutional arguments, they will understand that this means paying more for their Justin Bieber downloads, and that could put a dent in online sales that’s too big to be ignored. Let’s see how much Jeff Bezos loves him some MFA when Amazon has to idle a server rack or two.

  • NuMex Phil

    Spot on, on so many counts, and in particular the nefarious motives of the big players seeking to use crony capitalism favors to lock out online competition.

    However one particular issue should be raised. Similar to ObamaCare, this monstrosity is being pushed without the technology to actually be able to do what they claim. There are those who claim that the software already exists and that it’s a simple issue of just plugging in to it (some of those claimants on these pages are nothing more than peddlers of said software).

    However that may be, the problem is there simply is no data base to support it. Currently, there is no one who has a complete and accurate record of exactly which taxing district any given person or business is in. Even USPS, UPS, and Fedex can’t keep their data bases up-to-date on where someone is located, let alone which taxing district they may be in.

    This will create yet another huge federal bureaucracy, will take another swipe at federalism and state sovereignty, and put a tremendous burden on tens of thousands of small online businesses (and if you think they’ll leave that $500k limit in place you’re kidding yourself).

    A far simpler solution is for states to rethink how they generate the revenues needed, but more importantly to rethink how they spend the peoples’ money.

  • NuMex Phil

    Hear! Hear!

  • remalimo

    How many jobs will be lost by the different carriers? I live in a small town in west Texas and the closes big store is 25 miles away. We have a Fed Ex, or United delivering goods to us almost daily. I know that the United carrier is independent and probably will lose at least half of his job due to the increase in price due to paying sales tax. We mostly justify the Internet purchase by the price for delivery is off set due to the non payment of sales tax. So the question is do we dry-up these delivery jobs OR pay for a bloated state gov. payroll with a large retirement package attached.

    Hey Dem’s you know that many of these delivery jobs that will be lost are UNION?

  • adair

    Lots of people have said they favor a consumption tax over income taxes, but it was to be instead of, not in addition to. It’s always been the case that the cautious among us have wanted the income tax to be eliminated before a consumption or even a v.a.t. tax is enacted, because we all know that whatever new tax is levied probably won’t ever, ever go away. With this MF(ing?)A thing, the rascals in D.C. have their dream situation: a new, big tax on top of all those others.

  • theccur

    Seems EVERYONE is making the assumption that internet sales taxes will NOT destroy internet merchandising. I believe otherwise. Those who comparison shop in brick and mortar stores will see even LESS reason to delay a purchase.

  • theccur

    States do not have the LEGAL authority (at this time) to charge sales taxes to consumers who have NO physical presence in the state at the time of purchase.

  • atnor

    Yeah, but it seems “physical presence” is a poor standard, since as I said, the telephone or Internet is effectively extending them, temporarily, to the business’s physical location in order to conduct commerce.

  • gscandlen

    I don’t know about that. I live in PA. If I buy cigarettes in VA where the tax is much lower, I am responsible for paying PA The tax I avoided. This is not just some unenforcible hypothetical. PA is actually going after people for years of unpaid cigarette taxes.

  • patriotaz

    Why is it that the legislators can’t get it through their ‘thick skulls’ that taxing is not the answer–cutting is the answer. They are all so drunk on their spending that they can’t see the forest for the trees. The Department of Education is unconstitutional, Obamacare is unconstitutional, Department of Energy is unconstitutional, Department of Transportation is unconstitutional, etc., etc., etc., because the Constitution does not give the federal government authority to do any of these things. Why not get rid of all the unconstitutional things the federal government is doing. That will go a long way to helping ‘right’ the ship–balanced budget, debt paid off, taxes lowered, limiting government. What’s wrong with this picture?

  • patriotaz

    I also believe the media takes a big part of the blame. The people who still believe in the Democrat Party are the elderly who still thinks their party is the party of Kennedy. They don’t use the internet and they get their news the ‘old fashioned way’–spoon fed by CBS, NBC, ABC nightly news and liberal local newspapers. So you know how well informed they are!!!

  • gscandlen

    The attitudes here seem to be in the “what’s in it for me” category — “I buy a lot on the internet, and I don’t want to pay taxes on it.” Even though people who shop locally have to pay taxes on everything they buy.

  • Bill S

    Wrong. We have term limits. They happen every 2, 4 or 6 years. They’re called “elections”. The problem is that we don’t have stupidity limits for voters. They keep putting these assclowns back in office.

  • WY_Cowboy

    The problem comes in as to which jurisdiction would be entitled to collect the tax; is the nexus in the locality where the vendor is located, or is the nexus where the puchaser lives? Or is nexus where the goods are shipped to or shipped from? What about the location of where the order was placed, is that where nexus occurs? So, you are out of town and you order something on your smart phone from Amazon? Hmmmm.

    Big Brother, bug gubment solution: No worries, the federal government will collect all sales taxes on internet sales nationally and allocate them out to the states based on all information available, and all states will just end up sharing the collected taxes to cover every possibility.

    Now do you see the problem?

  • patriotaz

    Yeah and it’s everyone! Have you heard the screaming over the possibility of canceling the Easter Egg Hunt? Oh my gawd, the world is coming to an end–the Obama Administration’s and Congress families won’t be able to hunt easter eggs because of sequestration. So it’s always “quit spending, cut the budget” but when it’s done in our own backyards we scream like
    stuffed pigs.’ People we better get use to discomfort because there is a lot more to come and much more serious than a damn easter egg hunt!!

  • atnor

    Yeah, after a quick search it seems Penn. is particularly evil when it comes to taxes on cigarettes. They charge not only a high sales tax, but they charge a “use tax” too. I find it highly repulsive, and using the basis I outlined above, such things would probably need to fall by the wayside where they belong.

    From the PA Dept of Revenue:

    Out-of-state businesses and Internet vendors often falsely advertise that they sell taxable items “tax free”. However, Pennsylvania law requires the payment of use tax by any person who purchases taxable goods or services delivered into or used in Pennsylvania if sales tax is not collected by the vendor. Use tax is the counterpart of the state and local sales taxes.
    When Pennsylvania sales tax is not charged by the seller on a taxable item or service delivered into or used in Pennsylvania, the consumer is required by law to report and remit use tax to the Department of Revenue. The use tax rate is the same as the sales tax rate: 6 percent state tax, plus an additional 1 percent local tax for items purchased in delivered to or used in Allegheny County and 2 percent local tax for Philadelphia.

  • keepcoolwithcoolidge

    I’m sold.

  • stenwilson

    The truth of the matter is freely available modern technology easily enables any business small, medium or large to easily and seamlessly automate sales tax processing. The same API technologies providing real time shipping to over 40,000 zip codes and credit card processing easily enable sales tax processing. There is no increase in costs. In fact, the opposite is true. As a small business owner I now free sales tax automation enabling the elimination of legacy 1992 tax burdens. The year is 2013 and what the eBays of the world seem to fearful of is increased competition. S.336 encourages innovation, efficiency and competition. Small business benefit the most.

    Interent businesses only provide .8 jobs for every $1MM in sales, while their prick and mortar counterparts provide 3.8 jobs for every $1MM in sales. That means continuing to provide preferential treatment to Internet retailers will have net negative effect upon the economy.

    Just today the state of Alabama released a statement based on a comprehensive study detailing the 10 states with greatest economic growth over the past ten years are those maintaining sales tax policies and no income taxes. So Alabama has announced it plans to discard income taxes in favor of sales taxes. Many other states such as WV desire to get rid of other harmful taxes in favor of being granted rights to choose collection of sales tax already due.

    Sales tax poses no burdens to businesses. The burdens facing small businesses is the misinformation hiding the truths.

    I strongly support and urge Congress to immediately pass S.336 the Marketplace Fairness Act.

  • stenwilson

    Actually they are known as Certified Service Providers (CSPs). The services are already seamlessly integrated into multiple checkout platforms offering merchants free sales tax calculations, collections and remittances for any jurisdiction in any state with simplification standards in place. Currently 23 states have simplified their tax policies. The legislation requires any state seeking collection authority to enact the same or similar simplification measures as SSUTA states already have done. Each SSUTA state offers merchants the ease of one standard automated e-file remittance process. My business already uses CSP services seamlessly integrated with PayPalExpress Checkout buttons enabling my business to tremendously benefit from free tax processing.

  • stenwilson

    See above comment

  • jaykali

    Ya all of this has me pretty mad at politicians. I don’t know what the hell happened to the GOP.

  • jaykali

    The state or local should tax the purchase at it’s origin if they’re so bothered. I don’t know why a county in Iowa needs a company selling something out of Dallas to collect their sales tax for them. This has to be unconstitutional.

  • jaykali

    Ya it’s way to complicated and unconstitutional for a retailer in 1 state to be responsible for collecting taxes in another. If states want to close the loophole they can tax the origin of the sale. All sales in their state would be taxed including retailers selling to other states.

  • jaykali

    It’s a real reach to say the transaction occurred there. They should just charge businesses in their states making sales online or shipping out from that state.

  • jaykali

    I agree, it should be POS. Another thing worth mentioning, so you are a small retailer with sales all over the US. Now you are required to collect sales taxes for every district you sell to, nice. Sounds pretty unconstitutional, but nice. You use some kind of software to at least make the collection of the tax not super complicated either you have to a) use some kind of web service you pay for or b) use some govt created service which you may or may not also pay for. So at year end how many hours/dollars are you going to spend sending all of these taxes you have collected to the 4 corners of the US? What kind of paperwork are you filling out? This seems alone like a huge burden. Maybe if you only have to send it to the state and let them sort it out, but they would need some sort of documentation/forms filled out that say when and where the purchase occurred.

    These politicians have not simplified this whole mess enough. There can be some sort of “fairness” argument I suppose, altho all of the cries for fairness are coming from massive retailers, so even that line of argument is suspicious.

  • jaykali

    I am really tired of these RINOS.

  • jaykali

    I still want term limits.

  • jaykali

    Ya or more. I mean there’s 50 states but sales taxes can exist in like county/city level as well. So it could be many times more of a burden.

  • jaykali

    Ya that’s good news. I know that SSUTA has been underway for a while so I guess this is the natural progression. My concern is ab the burden placed on small businesses. If these services can do a lot for you that’s good. I don’t know that every payment processor integrates with this sort of thing for you. I have worked with payment processors for years but I’ve never dealt with this sort of a problem, ie collecting taxes for another state. If the software basically just does everything for you then that would be ideal. I care more ab that aspect than anything else.

  • jaykali

    I don’t agree that it places no burden. You says Paypal does it for free. It’s not free, Paypal is charging all sorts of fees based on what plan you have. They have per transaction fees sometimes they also have minimum fees, monthly fees, etc.. So maybe the tax collection is included in certain plans. I haven’t ever messed with it. Not every business in the world uses Paypal, there are other payment processors out there, are they all using this same tax service “for free.” Otherwise is the solution for everyone to use Paypal? There’s Authorize.net and a bunch of others out there. Do they offer the same sales tax integration you speak of?

    Also when I have built web applications with checkouts we calculate the sales tax on the website, we don’t “ask” the processor to figure out the sales tax for us. So if Paypal or another processor is going to be responsible now for calculating/collecting/reporting on the sales tax that would require some refactoring for sure. It wouldn’t be a drop in a replacement. So there’s some burden for sure. It’s hard to say that it’s constitutional for a state to force that burden on another.

    I don’t know I still need to see more details. This will definitely affect the business I am in.

  • jaykali

    You say Paypal does this for you for free. Can you show me a link specifically to what you are looking at? Can I see a link to your store? Why are you collecting sales taxes for other states at this time?

    When I google “Paypal ssuta” I just see articles of Paypal opposing internet sales taxes. Paypal is owned by Ebay which has thousands of small sellers so they are going to be opposed to this sort of thing. I am skeptical that sales tax integration already exists. I suppose maybe it would for retailers collecting sales tax for purchases in their state. I guess that is what you are doing right now? So if you are in Colorado you have to charge sales taxes for your state. Is that what you’re doing?

    I would like to know if this capability (collecting sales taxes for every state in America) exists right now. If today I wanted to sign up and collect, report for taxes collected across the US could I do that.

  • atnor

    Odd, since I consider it a reach to think that the transaction occurs in the consumer’s home.

    For an Internet transaction…. they use their web browser (or mobile device) to go “to” the companies shop… whether that be a marketplace, like a Google Play store, or a website like amazon.com. Those servers are hosted nowhere near the person’s home, the consumer “sends” them his information, including payment, and it is all processed on other computers, again no where near the consumer’s home or phone.

    It would seem the majority of the transaction occurs at the company’s location. I know that established law seems to think differently, but it really seems to me that consumers are using technology to enable them to “virtually” travel to a company’s “store” (virtual or not) and conduct business.