Why I Don't Support the Marketplace Fairness Act

This week, the Senate is considering a bill known as the Marketplace Fairness Act, which is intended to mandate that Internet retailers collect sales taxes on all purchases and send the revenue to the appropriate states.

It is my understanding of current law that online retailers are only required to collect taxes in states where they have some type of physical presence. On numerous occasions, the Supreme Court has held that a business can only be compelled to collect taxes on a state's behalf if that business has a "substantial nexus" located in the state. For instance, offices buildings, a storefront, warehouse, or some type of sales force. I find the intent of this bill is bad on so many levels. 

"No taxation without representation"

As Jim DeMint has said, this violates the classic American principle of “no taxation without representation.” Why? Well, retailers would be compelled to collect taxes on behalf of states that they are otherwise not associated with. DeMint put it like this:

Consider the absurdity of such a law. When a customer buys a product in a store, does the cashier ask for the customer’s home address? Of course not. The store simply charges the state and local sales taxes applicable for its physical location, no questions asked.

Largely supported by agenda-driven big businesses

Supporters of this legislation want us to believe that it will help Main Street by leveling the playing field between brick and mortar stores and online retailers. In all actuality, this is a classic example of big government politicians scratching the back of big business at the expense of the American people. Don't think so? 

In addition to receiving the full support of President Obama (lest I remind you, this is a man who has repeatedly said he is not in favor of any taxes on low and middle-income Americans) this legislation is strongly supported by the corporate lobbying efforts of Amazon.com, Walmart and others.

According to The Hill:

"The National Retail Federation, which represents chains such as Macy’s, and the Retail Industry Leaders Association (RILA), which counts Target and others among its membership, announced it would score lawmakers’ votes."

There are a few lone voices within the big business community that oppose this legislation. The two most notable ones are eBay and OverStock.com, Most of the companies that oppose this legislation are members of NetChoice, a coalition of eCommerce companies. 

NetChoice Executive Director Steve DelBianco has expressed his concerns with the legislation on the company website:

“The bill that the Senate is voting on today needlessly threatens a fragile economic recovery, by failing to require true simplification of incredibly complex sales tax regimes in 46 states,” DelBianco said. “Rather than do the work to require real simplification, Senators are ramming through a law that will unleash a horde of state auditors on small and midsized businesses across the country.”

DelBianco acknowledges the appeal for the big online businesses that have shown their support of the legislation:

“The big box stores love this legislation, because it adds to their competitive advantage over smaller retailers that took refuge on the Internet after they were driven off Main Street,” DelBianco said. “Consumers, however, should be very concerned about a measure that will hurt businesses they rely upon, and very likely lead to less choice and higher prices.”

Bad for the economy and free-market competition

At a time when the economy is still under-performing, this legislation will only stifle growth. We've already seen how the expiration of the payroll tax holiday slowed down consumer spending. It would only make sense that an internet sales tax would further chip away at online retail sales, which is obviously bad for the economy.

According to research done by David Addington of the Heritage Foundation, this legislation would not only increase the tax dollars that we pay, it would do the opposite of what its supporters claim. It would hurt free-market competition in interstate commerce.

The National Conference of State Legislatures has said with respect to state sales taxes that “[a]llowing some remote sellers to avoid collecting this tax is unfair to the main street merchants that make up the lifeblood of our local communities.”[24] The SSUTA member states complain that “[a]t a time when Main Street retailers face enormous competitive challenges it is appropriate for Congress to end this unfair treatment.”[25] The Federation of Tax Administrators believes “the current system disadvantages ‘bricks and mortar’ stores to the advantage of out-of-state businesses and this Act will help improve business activities in our states and the employment these in-state businesses generate.”[26]
These organizations are remarkably transparent about their purpose: They seek enactment of S. 1832 so that states can prefer in-state businesses over out-of-state businesses in the kind of anti-competitive economic discrimination the U.S. Constitution was in part adopted to prevent. As the U.S. Supreme Court has stated, “[p]reservation of local industry by protecting it from the rigors of interstate competition is the hallmark of the economic protectionism that the Commerce Clause prohibits.”[27]

Some additional points to consider..

  • People are struggling to find ways to save money on expenditures as it is. How can the Senate conclude that this is really the best time to raise taxes? Remember, this is not just an addition of taxes on the rich. This would affect everyone who buys online, rich or poor.
  • One thing that has been largely overlooked in the overall discussion of this bill is the inevitably huge advantage it would give eCommerce merchants in China. 
  • The bill infringes upon the right of a business to choose where it locates in order to be the most profitable. That is the entire idea behind free-market capitalism: choice. Businesses choose to set up in states like Delaware because the laws there are designed to attract more businesses. 
  • Rather than fighting for fewer regulations and lower taxes for all businesses, many businesses are turning to government to hamper their competition. Unfortunately, We the American people don't have lobbyists, so it is up to each of us to demand that our Senators vote against this.