Tomorrow, the House Judiciary Committee will hold a hearing on the Marketplace Equality Act (H.R. 3179) – a critical piece of legislation that will finally level the playing field between brick-and-mortar shops and online retailers when it comes to state sales tax.
Currently, online retailers are not required to collect state sales taxes, giving these institutions a taxpayer-funded 10 percent price advantage over our local shops. The virtual bailout has given online retailers a leg up on their competition. In some cases, the advantage has been so significant that its Main Street competitors have been driven out of business.
Especially during today’s financial drought, the unleveled playing field has cost thousands of local jobs. If reforms are not made, countless other small businesses and jobs could be jeopardized.
Hanns Kuttner of the right-of-center Hudson Institute summarized the problem saying, “Current policy makes the sales tax a distortion. Current policy gives remote sellers price advantage, allowing them to sell their goods and services without collecting the sales tax owed by the purchaser. The price difference functions like a subsidy. It distorts the allocation between the two forms of selling. The subsidy from not collecting tax due means a larger share of sales will take place remotely than would occur in a free, undistorted market.”
Due to a 1992 Supreme Court decision, there is ambiguity in the ability of states to implement their own tax policy and may even be barred from asking online retailers operating in their states to collect state sales tax. Political leaders must empower states to control their own revenue intake, rather than preserving a federally mandated loophole for online retailers that states can’t reverse.
Conservative Arkansas Senator John Boozman explained the issue like this in a 2011 interview, “I think it’s a state’s rights issue…. I do think right now it is not a level playing field and you look at rural American and it’s very, very difficult with the economy that we’ve got. But when you have this tremendous inequality, it makes it that much harder.”
States should be empowered – not boxed in – when it comes to state sales tax. If the $23 billion of uncollected sales tax from online purchases was sent in, states could have the flexibility to reduce taxes on consumers and afford to invest in pro-growth policies that can expand and strengthen the economy. When online retailers escape their tax responsibility, the rest of us remain liable to make up that disparity.
The current system requires reforms and the Marketplace Equality Act is a step in the right direction for America’s small businesses and taxpayers. Already, a number of conservative governors – including Virginia Gov. Bob McDonnell, Indiana Gov. Mitch Daniels, South Carolina Gov. Nikki Haley, Georgia Gov. Nathan Deal, and Maine Gov. Paul LePage – and 17 members of the Republican Study Committee support eFairness initiatives.
As the House Judiciary Committee discusses the Marketplace Equality Act tomorrow and continues the conversation in the weeks and months to come, we must – as conservatives – continue our fight for a free, undistorted market where competition is encouraged on a level playing field so as to strengthen local commerce and our economy.
Stephen DeMaura is the President of Americans for Job Security.