The Unfair Online Tax Act

The Marketplace Fairness Act, which was reintroduced a few months back, is being attached to the Senate budget currently making its way through the Senate.  A vote on the bill, through a “reserve fund” proposal, is expected soon, forcing a decision on a bill that has been bandied about Congress for the past several years.  The bill gives tax municipalities the right to collect sales tax from purchases made online, something that many proponents say puts Internet retailers on a level footing with brick-and-mortar retailers.

The bill being proposed is anything but fair.  Aside from the mountains of paperwork that would be imposed on the thousands of small business retailers that operate on the Internet, consumers would also be hurt.  As small and medium sized businesses are pushed out of the marketplace due to the onerous tax regulatory environment, the market would be left with only a few massive Internet retailers.  This limits the choice of consumers, and would inevitably cause prices to rise as the retailers aren’t kept in check by the abundance of competition they currently face.

Of course, this proposal would give a huge boost to brick-and-mortar stores, and put Internet retailers at a huge disadvantage.  Detractors of the bill rightly point out that  brick-and-mortar retailers only pay sales tax to one municipality; Internet retailers would be forced to comply with the tax rules of over 9,600 tax jurisdictions.

It’s no wonder that so many big businesses, lobbyists and other powerful Washington interests support the bill.  Big business can afford the lawyers, accountants and other workers it takes to wade through the sea of paperwork—unfortunately, most small to medium sized businesses cannot.  Amazon has long been a supporter of the bill, as have many other large retailers, such as Best Buy, Target and Wal-Mart.  OpenSecrets.org, the watchdog group, notes that of the 10 groups that most frequently mention the Marketplace Fairness Act in their lobbying reports, only 2 are against it.  According to OpenSecrets.org, these groups have spent an average of $2.6 million dollars in lobbying over the past year.

A more fair proposal for Internet taxation might be origin-based sourcing, which allows states and localities to only collect sales tax from businesses whose headquarters resides their jurisdiction.  This system of taxation would truly put Internet retailers on level footing with their brick-and-mortar siblings.  If Congress wants to continue the explosion of commerce and economic activity on the Internet, it needs to do away with anything involving the proposals inside the Marketplace Fairness Act.

Zack Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research

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