The Myths and Realities of “The Marketplace Fairness Act”

The Marketplace Fairness Act is being bounced around once again, this is the proposal to allow States to require businesses to collect sales tax on all items sold via internet and catalog. The National Taxpayers Union reports several myths have cropped up about the bill and what it would do.

Some people claim that allowing States to require businesses from outside its jurisdiction to pay taxes for anything shipped into the jurisdiction is a “State’s Rights” issue. That is 100% false. The NTU reports “[g]iving states the power to collect sales taxes across their borders isn’t about states’ rights, it’s about state coercion. Governments would have fewer incentives to keep their own tax rates low, eroding the important federalist principle of tax competition.” Allowing States to tax items shipped into it could theoretically allow the States to tax those items at higher rates than items purchased within the State. Thus, harming any business that relies on online or catalog sales.

Other myths claim online stores receive a special tax loophole and that such a tax would “level the playing field.” Again, both are false. NTU reports the so-called loophole “is actually the physical presence standard, a firmly grounded constitutional doctrine the Supreme Court has upheld for decades to protect businesses and their customers from predatory tax administrators.” The bill would also “require remote sellers to collect sales tax on every item, it would force them to do so by a completely different and harsher set of rules than currently exist for brick-and-mortar sales… forcing online retailers to quiz each and every customer about their residency” in order to comply with more than 9,600 separate sales tax jurisdictions across the country. Does that sound like “fairness” to you?

The Marketplace Fairness Act is NOT fair and if enacted, there will be winners and losers. Among the losers are those customers who prefer to shop online where their purchases are mostly free from sales tax and those smaller companies who will find it difficult and/or expensive to comply. The winners will be the governments that will see an increase in tax revenue and the bigger online companies that will be able to fill the void left when the smaller companies either refuse to sale online or go out of business.

posted by southernpatriot
  • http://vforvandyke.com/ Stephen VanDyke

    This sounds eerily like the “Fair Share Law” from Atlas Shrugged.

  • http://www.facebook.com/stenrw Sten Wilson

    Back in 1992 when the Supreme Court last ruled on this issue it is important to note the decision focused on the burden of remittance not obligation. This is an important distiction as your article promotes the misinformation of online sales tax being mostly free from sales tax. Consumers have always been required since 1933 to self track and remit sales/use tax due on all their out of state purchases. Today that obligation includes out of state Internet purchases.

    What many business owners need to know is the simplification set forth in the MArketplace Fairness Act encourages innovation, increased competition, and lower prices for consumers.

    Internet savvy shoppers and merchants all agree that API protocol technologies taking into account dozens of variables easily provides real time shipping at checkout processes to over 40,000 different zip codes. Real time shipping has been a win win for merchants, shippers and consumers keeping pricing fair and competitive ultimately creating new markets and opportunities.

    Today the very same API technologies freely and seamlessly provide automated tax processing for any merchant to a mere 9,600 tax jurisdictions. Free automated tax processing is actually a win win for consumers, merchants and local governments keeping pricing fair and competitive ultimately creating new markets and opportunities.

    Basic economics teaches us competition benefits consumers providing a strong supply of goods and services lowering demand and prices. I personally find it interesting that opponents of this legislation already using API technologies to deal with complexities of shipping (for some time now) all of a sudden find it too burdensome when it now challenges their only real market advantage; false tax free pricing. It is clear to me, a small business owner benefitting from automated tax processing, that a few well funded influential companies are frightened of new efficiencies, opportunities and competitiveness.

    The MFA simply grants States’ rights to collect existing sales/use tax already due in 45 states. The MFA encourages equal application of tax policy providing small businesses with free software, simplified tax policy standards, and a fair and competitive marketplace. Consumers benefit from lower pricing, and tax jurisdictions efficiently receive their honorable sales/use taxes already due ensuring a greater percentage of every tax dollar honorably remitted funds intended programs and services. That’s a trifecta in my book.

    • Susan

      To make it fair, when you go into a store while you’re on vacation, the clerk should ask you where you live, and where you’ll be taking your purchase, then tax you thus. After all, you may be vacationing in California, but you live in Idaho. So shouldn’t you have to pay Idaho sales tax on that purchase? That’s what you’re asking of online merchants: To pay sales tax NOT on where the item was purchased, but on where it ultimately will be used. The Act will devastate tens of thousands of small businesses nationally, eliminating that competition you profess to support. Any sole proprietorship (the majority of small internet sellers) who cannot afford a full-time accountant will be out of business. It’s as simple as that. Unless that software includes registering as a business entity in all 50 states, and filing tax returns in all 50 states, it will be useless. On top of that, you’re asking people to pay sales taxes in states where they have no presence. That’s taxation without representation, and it’s unconstitutional.

  • Revolution

    What’s next? We have to pay State Income Tax based on where our clients reside rather than where we live?