The Marketplace Fairness Act passed last Friday, and conservatives are somewhat lukewarm about it. As Robert W. Wood wrote in Forbes on March 23,
…[the bill] doesn’t impose a federal tax or even a new state tax. Online sellers are already required to collect sales tax from customers in their own states. But under the Supreme Court’s 1992 holding in Quill v. North Dakota, retailers don’t always have to collect.” They must collect sales tax from out-of-state customers only if they have a physical presence (store, warehouse or office) in the customer’s state. Since then, a growing number of states are extending sales taxes to online retailers with in-state sales affiliates. Amazon recently started collecting tax in Pennsylvania, Texas, California and Connecticut and according to the Marketplace Fairness Act website, is now allied with supporters of the bill. eBay opposes it.
Yet, some organizations, like Americans for Job Security (AJS), have advocated its passage for over a year. In fact, the president of the ASJ, Stephen DeMaura, even wrote a pos about it for RedState last summer. In all, he said:
there is a loophole in the tax code that essentially acts as a subsidy for one type of seller over another. And all this bill does is give power back to the states to allow them to decide their own tax decisions. That’s the reason AJS found this bill appealing, and that’s why we first got involved in it.
DeMaura noted if you’re operating in a state, you have to collect the sales tax owed in that state. He used an example of buying a sandwich or a T-shirt, and having to pay a sales tax on the items. Even if he bought that T-shirt online, he would still have to pay for the Virginia sales tax. However, not all agree that the law will be beneficial for American enterprise. David Nalle wrote in the Washington Times on March 19 that:
Despite its deceptively positive name, this is a giant tax mandate. It is designed to benefit big-box retailers and reduce competition from online businesses by enabling state and local taxation of internet sales.
This bill from Senator Jack Reed (D-RI) would lift the usual federal protections on interstate commerce and authorize state governments to tax sales which cross state lines, and put the burden of collecting that tax on the online business, regardless of where it is located. This addresses a perceived inequity suffered by large nationwide retailers which have retail outlets in every state and therefore charge tax on all of their sales in person or online. They are at a presumed disadvantage when competing with businesses which operate primarily online and do not charge taxes on most sales.
The bill is backed by the powerful lobbying machines of companies like Best Buy, Target, Wal-Mart, PetSmart, Lowe’s and PetCo as well as by state and local governments eager to get their hands on a few more consumer dollars. It is largely opposed by consumer advocacy groups who see that it will promote monopoly power, and who realize that competition makes the marketplace stronger and prices lower for everyone.
The giant retailers have already forced most local businesses which try to compete with them out of business, and now they want to do the same thing to online businesses. This is the road to monopoly and it is a terrible idea for our economy and for consumers. We need competition and we need the dynamic influence of online businesses and the pressure they put on other businesses to provide better service and keep prices down.
Yet, DeMaura wasn’t convinced of this argument. I asked him about the impact on Main Street stores, and he said:
due to the Supreme Court decision [Quill v. North Dakota], where they said Congress had to act, it’s up to me to remit that tax to the state, rather it being collected at the point of purchase, like every sale that we know is. So, in regards to your point, I think this would actually – in many ways – help the Main Street retailer that is trying to make these sales. They help other retailers as well. They help Amazon – and they help other big companies, which in many places already have to collect this – the sales tax that’s owed. But this in no way like a new tax…it’s just deciding who collects and remits the sales tax, which is already owed.
Regardless, it seems like DeMaura’s efforts have paid off. Seventy-five U.S. Senators voted in the affirmative for the bill, and it was done with a minimal grassroots network support. DeMaura noted that AJS did have an active email list, but did little concerning the targeting of key members of Congress to drum up support. Writing blog posts, op-eds, and Facebook updates was another integral part of their messaging strategy. Yet, DeMaura noted how this issue became overly complicated before its passage.
He said people were “assigning to it things that don’t really exist, [and] it’s unfortunate.”
Critics were saying that this is a backdoor national sales tax, but “it’s nothing like that,” according to DeMaura. If the bill had those elements, AJS wouldn’t have supported it, and that goes for the other conservative organizations that have backed the Marketplace Fairness Act. DeMaura said that the notion that we’re being duped was nonsensical.
However, that hasn’t stopped suspicion about the bill being a huge tax increase. Katie McAuliffe at Townhall wrote on March 25 that:
Here are the top five reasons conservatives are against this bill…
1. The bill expands state tax authority – State governments will be able to tax across their borders despite clear legal and judicial precedent arguing otherwise. Plus, in the case of an audit, businesses would be required to settle disputes with out of state revenue boards in out of state courts.
2. The bill saddles small business with bureaucratic red tape – Small businesses would be forced to accommodate over 9,000 highly variable state and local tax codes, collection standards, and remittance schedules.
3. The bill threatens privacy – Business and state revenue boards with a track record of losing private information will have more chances to do so.
4. The bill discourages tax competition — Rather than competing to lower taxes and attract businesses, states will compete to raise taxes on residents of other states.
5. The bill imposes bigger and bigger government – The bill will open the door for further government intrusion into the Internet and for states to reach across their borders for other taxes.
For the reasons outlined above, it is no surprise that Americans for Tax Reform, the Heritage Foundation, Heritage Action, National Taxpayers Union, the Competitive Enterprise Institute, FreedomWorks, Americans for Prosperity, the Cato Institute, the R Street Institute, and the Campaign for Liberty all oppose the Marketplace Fairness Act.
Both sides have legitimate arguments for and against this measure. One notes the possible tax increases and red tape, while the other fights to keep federalism alive as it relates to our tax code. Only time will determine who was on the right side.