A Further Perspective
Don’t Tax the Internet
Conservatives should run, not walk, away from the so-called “Marketplace Fairness Act.”
Senate Republicans will face a fork in the road this week when Sen. Dick Durbin, D-Ill., forces a vote on a measure paving the way for expanded state sales tax collection for online purchases. The route Durbin would have them take would eventually lead to passage of the so-called “Marketplace Fairness Act,” a bill that dramatically expands state and local tax authority in order to help bail out states like his native Illinois. The other avenue would protect taxpayers from perhaps the scariest Internet predator: government. A vote on Internet sales taxes during this week’s budget process will tell us which path conservatives will choose.
On the occasion of the first Senate budget resolution in more than four years, Sen. Durbin is likely to introduce a “deficit neutral reserve fund” amendment that is essentially a proxy for his bill, S. 336. Despite what its supporters claim, this legislation is bad news for conservative principles and limited government. Though there are innumerable problems with the bill, there are several that should be of particular concern to Senate Republicans.
First, it countenances an enormous expansion in state tax collection authority by wiping away a protection that shields taxpayers from harassment by out-of-state collectors. The “physical presence” standard dictates that a state can only require businesses physically present within its borders to collect its sales tax. This common-sense principle underpins virtually all of American tax policy, but this legislation would eliminate that protection for remote retail sales, allowing state tax collectors to target businesses all across the country.
Though supporters claim that it would “level the playing field” between brick-and-mortar and online retailers, the bill would in fact do the exact opposite. Brick-and-mortar sales across the country are governed by a simple rule that allows the business to collect sales tax based on its physical location, not the home of their buyer. Tourists making purchases in Washington, D.C. establishments pay the district’s sales tax, not that of their hometown back in Cheyenne or Memphis.
Meanwhile, online retailers would be denied that convenient standard and would instead be forced to collect based on where their innumerable customers live. This means quizzing purchasers about their location, looking up the appropriate rules and regulations in more than 9,600 taxing jurisdictions across the country, and then collecting and remitting sales tax for that distant authority. No brick-and-mortar shop has to do this for in-store sales, and yet every online retailer would have to do it for remote sales.
This much more burdensome collection standard would create substantial interstate commerce burdens. Because they would now have to comply with the complex sales taxes in thousands of jurisdictions, online sellers would face serious collection and compliance costs. In fact, the paltry $1 million “small seller exception” in the bill (itself a good $29 million short of what the Small Business Administration says a small business is) is an explicit acknowledgment that it will impose significant costs and that some should be spared the pain.
And while technology has advanced greatly since the Internet’s infancy, we are no closer to having solved sales tax complexity with software than we are to solving income tax complexity with TurboTax. The challenge in tax compliance (of all sorts) comes not in mustering the computing power to do the math, but in the interpretation of a specific circumstance through endless rules and regulations.
In seeking to address the failures of the existing tax systems employed by states, S. 336 ends up giving federal blessing to a massive expansion in state tax collection authority, the dismantling of a vital taxpayer protection upon which virtually all tax systems are based (the notion that physical presence is the appropriate limit for state tax authority), all while harming a sector of the economy, online sales, that still only accounts for roughly $0.07 of every $1 in retail spending.
When Dick Durbin lays out his path this week, conservatives in Congress should run, not walk, in the other direction.
Letter to the Editor View all comments (16) | Leave a comment
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FedTax | 3.19.13 @ 7:41AM
Mr. Moylan is worried that online sales tax collection will open the door for states to tax people outside its borders. Let’s be clear: Proponents of online sales tax collection are suggesting only that states be allowed to collect sales tax from their own residents. No one is suggesting that states be allowed to impose tax on residents of other states, and the Marketplace Fairness Act does not challenge this sensible border.
Also regarding his concerns about software... Income tax is much different than sales tax. Income tax is complex because it is different for virtually evey taxpayer. Sales tax on the other hand is very consistent, and predictable - and whenever it changes it is a legislated event. In other words, easily managed and tracked by software - even software that is free.
Pecos Pete| 3.19.13 @ 8:30AM
I call Bull Shit on both of FedTax's points! The link for FedTax is to a web site for TaxCloud. "TaxCloud is a sales tax service for online retailers." FedTax is probably the sales or marketing manager for TaxCloud.
FedTax wants Internet taxation because then his/her company will make lots of money.
mike 3/505| 3.19.13 @ 8:44AM
And THAT, Ladies & Gents, is why Pesco is my foxhole buddy. He is always alert for any insiduous infiltration.
alice921| 3.19.13 @ 2:46PM
Its definitely the most-financially rewarding Ive ever done. Make money with Google. last monday I got a new Alfa Romeo from bringing in $7778. I started this 9-months ago and practically straight away started making more than $83... per hour. I work through this link, http://tw.gs/YbVcey
C. Vernon Crisler | 3.19.13 @ 5:17PM
I agree in principle with the idea that remote sellers who have nexus with a state (e.g., some physical location in the state, warehouses, salesmen, etc.) should have to pay the same tax as in-state businesses.
However, anything involving Dick D(ist)urbin should be resisted just on principle.
c. j. acworth| 3.19.13 @ 8:40AM
Another advantage that the brick-and mortar stores have over the internet sellers is that their customers walk out of the stores with their merchandise under their arm, It needn't be shipped. I generally look locally for what I need because shipping costs can be as much as the item you buy. If the states feel that their businesses are disadvantaged by their sales tax, then dump it. Here in NH we get along quite nicely without one, and attract a good deal of business from our neighbors.
Pecos Pete| 3.19.13 @ 8:45AM
Internet taxation would be like KingOcare for the Internet: Complete Disaster.
County A of State B sets its sales tax rate at 0%. Credit Card Company C centralizes its operations there. Freight Forwarding Company D opens a massive warehouse for reshipment of products sold on the Internet. Internet Buyer E has a post office box there to which Credit Card Company C mails their statements. Thus, no taxable location for collection of sales tax by Internet Seller F. County A and State B increase their revenue through property or other creative non sales tax methods.
There are, of course, other reasons for non taxation of the Internet. Like not being Constitutional.
"Father of Marines"| 3.19.13 @ 8:49AM
The "fix" for the tax "inequities" borne by the brick and mortar retailers is not to spread around the tax miseries, it is best done by eliminating or meaningfully mitigating the taxing done to those businesses.
Consider what the real issue is here, school taxes. The government school system and it's teachers UNIONS see what's happening, and the market place is walking away from them. My very astute daughter in law buys diapers over the internet, because she saves money. The vendor is not paying inflated real estate taxes for schools whose primary purpose, as we've seen, is to indoctrinate instead of educate while paying inflated wages to our self appointed "betters".
To save this country, we have to have an end to the government "education" system, not forced participation in it's preservation.
Bob K| 3.19.13 @ 9:05PM
If the real issue is school taxes then I can only assume that these places which sell diapers on the internet are located overseas or some place in the USA that doesn't finance it's educational system with traditional school taxes. If the former is the case then we are sending our money overseas instead of keeping it here in the USA.
MikeW| 3.19.13 @ 12:13PM
This article isn't really fair to the "Fairness Act". The act explicitly applies only to states that have simplified the rules for remote sellers via the Streamlined Sales and Use Tax Agreement (which most states have already agreed to). That "9600 taxing jurisdictions" comment is completely false. The retailer has to worry about 50 jurisdictions, at most.
But I agree the small business exemption is far too limited. If you have over 1 million in sales nationwide you have to collect sales tax for every state, even a state where you had, say, only two $20 customers. They should have made the sales threshold state-specific.
CopyKatnj| 3.19.13 @ 1:31PM
I admit it, I am ignorant of tax laws all over the country. What I am not ignorant about is paying taxes. What are we paying state and local taxes for, services such as education, police and firefighters mainly. I have little to complain about funding these vital services.
With that stated, I do not like the policy of professional politicians taxing everything to pay for other non vital services to the state or local communities. We have a spending problem not a revenue problem, created by politicians who are hell bent on taking care of the world at others expense through taxation.
The fact the Illinois has high expenses is their problem caused by the likes of Durbin.
I'm Taxed Enough Already!
CopyKatnj| 3.19.13 @ 1:31PM
I admit it, I am ignorant of tax laws all over the country. What I am not ignorant about is paying taxes. What are we paying state and local taxes for, services such as education, police and firefighters mainly. I have little to complain about funding these vital services.
With that stated, I do not like the policy of professional politicians taxing everything to pay for other non vital services to the state or local communities. We have a spending problem not a revenue problem, created by politicians who are hell bent on taking care of the world at others expense through taxation.
The fact the Illinois has high expenses is their problem caused by the likes of Durbin.
I'm Taxed Enough Already!
Kurt NY| 3.19.13 @ 1:49PM
Have to disagree. Interstate commerce is under the control of the feds so, when business conditions were far different than today, under Bellas v Hess, the principle was established that a state could not compel a vendor to collect sales tax unless it had nexus, or physical presence, in that state. But every state requires consumers to file use tax for each such purchase. So existing law does not release liability from taxation for those transactions, but because it is empirically impossible for states to know what everybody is purchasing at any one time, use tax is practically unenforceable.
Please don't try to tell me that getting a customer's address for an internet sale is too onerous since vendors do it anyway. I agree that complying with sales tax rules (for instance, Colorado used to require separate returns for each of dozens of jurisdictions) can be onerous, and such should not be required. But you could get around that by just requiring out of state resellers to file with each state and work out expedited filing requirements.
Such a law would not be an unwarranted expansion of government but would simply allow them to collect that which they already have been allowed to do for decades. And it would also lessen the artificial price advantage internet resellers have over brick and mortar vendors.
Or would you prefer the vendors report to each state what you bought so they could approach you to conform to use tax law?
John Navratil| 3.19.13 @ 6:18PM
Let's say you are a small brick and mortar operation. What chance to you have of expanding your business through on-line sales if you have to collect and remit taxes for up to 9,600 (according to the article) taxing jurisdictions. Far from helping the local brick and mortar store to compete, this guarantees a small boutique operation will never be able to compete with Amazon and will always remain a small brick and mortar operation.
snipelee25| 3.19.13 @ 10:29PM
I'll write this one more time. State sales taxes were in-part concocted to regulate/protect certain activities within the state's borders. The state might tax and regulate farm trade , for instance. However, since no state has any authority beyond it's borders - buyers of goods from outside the state border should have no expectation of any service that the state might supply. This "fairness" act is a straight-up money-grab - nothing more.
djn1313| 3.20.13 @ 11:58AM
Why does the craphole state of Illinois need to be bailed out? Because it has been under demoRAT control for decades. Demorats like durbin, quinn, madigan, jones, and cullerton only know how to TAX and SPEND, SPEND and TAX. They have enriched themselves while bankrupting the state.
The state is already bogged down with the highest total tax rates in the nation (income tax, property tax, sales tax, gas tax, utility tax, etc) No wonder you can't sell a home in IL, who would want to live in this craphole?