Sales taxes on e-commerce in America are a very, very bad idea
The nation’s biggest retailers and their allies on Capitol Hill are getting nervous. Their collective top priority, a bill disingenuously titled the Marketplace Fairness Act, has been effectively killed by the House of Representatives in the face of bipartisan opposition.
Worse for the retailers, prognosticators suggest that Republicans will take the majority in the Senate this fall, demoting their most prominent allies to minority status.
So what are desperate lobbyists and legislators to do? Why, pervert the legislative process and hijack a popular and commonsense bill for their own purposes, of course!
But first, let’s take a step back. Its name to the contrary, there’s nothing “fair” about the Marketplace Fairness Act. While its alleged purpose is to “level the playing field” between small e-retailers and brick-and-mortar stores, what it would actually do is subject those e-retailers to a regulatory assault many wouldn’t survive.
If the MFA were to become law, tax collectors from roughly 9,600 state and local jurisdictions would be set loose on the Internet. Small e-retailers selling in any of those jurisdictions, even if they had no physical presence there, would be required to calculate and remit the sales tax in those 9,600 differing jurisdictions. And in the case of even the most innocent mistake, they would face the threat of litigation and audits. For many firms, the costs of fighting a lawsuit or complying with an audit could force them out of business.
For the retailers supporting MFA, like Wal-Mart and Amazon, these are the affordable costs of doing business. But for small e-retailers unable to afford a cadre of lawyers, these compliance costs could force them out of business.
Ignoring the bill’s potentially devastating impact on a dynamic and innovative sector of our economy, a majority of senators supported it last year. Since then, however, the House has been firm in its opposition, with one House leader calling the bill a “nonstarter.”
But in the face of a new, and potentially less friendly, political reality next year, MFA supporters have desperately sought a vehicle for their bill to hitch a ride on.
In their desperation, they’ve settled on a wildly popular bill called the Internet Tax Freedom Act.
First passed in the late 1990s, the ITFA prohibits states and localities from levying taxes on Internet access. Last month, the House unanimously passed a permanent extension of the ITFA. Had Senate Majority Leader Harry Reid brought it up for a vote, the Senate would likely have followed suit.
Instead, a handful of senators including Reid’s top lieutenant, Illinois Sen. Dick Durbin, have taken the ITFA hostage. In an utterly illogical marriage, Durbin and his co-conspirators have tied ITFA to MFA, effectively raising the specter of new taxes on Internet access, affecting almost every American family, if they don’t get their way.
So far, Reid has gone along with this power play, helping Durbin and his cronies bypass the Senate’s regular order of operations and threatening to move this new bill called the Marketplace and Internet Tax Fairness Act straight to the floor when Congress returns to Washington next month. But even for some senators who voted for MFA last year, this is too much, and some of them are now calling for a vote on a clean extension of ITFA
That approach is not only reasonable, it’s the best course of action for America’s families, and Reid should take it as soon as the Senate returns to session. If he refuses to do so, and assuming Senator Durbin and his colleagues follow through on their threat to shoot the hostage, every American with Internet access could pay more.
If this comes to pass, the MFA supporters desperate for a Democratic Senate will help to ensure exactly the outcome they don’t want. Instead, Reid, Durbin and the rest of the Senate should take a step back, listen to common sense, and reauthorize the ITFA as soon as possible.
Phil Bond is a former U.S. Undersecretary of Commerce for Technology.