Online Sales Tax
April 22, 2013- This week the Senate will consider legislation—The Marketplace Fairness Act (MFA)—that forces Internet retailers to collect taxes on behalf of state and local governments that they have no physical presence in. This is an unprecedented effort to apply local laws to the global medium that is the Internet.
The MFA takes the Internet down a very dangerous path. It endorses the position that Internet entities -- American businesses -- should enforce laws that are outside their home jurisdiction. This is the position taken by many repressive foreign regimes and the International Telecommunications Union - a position that every single member of Congress is on record opposing.
This could set a precedent that it is appropriate to require Internet firms to enforce many other areas of law that are enacted in jurisdictions where they are not located. Today, the Senate may be considering taxation, but tomorrow it may be asked to consider similar schemes to enforce laws and regulations about content, speech, religion and other issues that are important powerful political interests.
MYTH: The MFA is a proposal that restores state sovereignty, because it enables states to better collect taxes that other state governments have put into law.
FACT: The MFA is a proposal that fundamentally violates state sovereignty. It is a scheme that enables one state to impose the enforcement of its laws on 49 other states and the territories without the approval of such states and territories. Under the MFA, businesses can be audited by a myriad out-of-state tax collectors and be forced to defend themselves in out-of-state courts. Many state court systems rely on elected judges. A vote for the MFA is a vote to subject your home state Internet companies to the will and whim of tax collectors and state courts around the nation.
MYTH: The MFA levels the playing field between bricks-and-mortar firms and Internet companies, for purposes of collecting and remitting sales taxes.
FACT: The MFA fully discriminates against Internet companies. The MFA relies on Internet sellers to determine the address of where consumers are located in order to generate a proximation of where a good or service sold by an online retailer will be consumed. There is no similar requirement imposed upon brick-and-mortar businesses even though consumers often travel across state lines in order to purchase goods and services that may be unavailable to them in their home jurisdiction, or available at lower sales or use tax rates. The MFA does not require brick-and-mortar firms to obtain and use consumer information to determine where a good or service may be consumed. Why should the federal government require Internet companies to collect and remit sales and use taxes on behalf of consumers but not impose any such burden on brick-and-mortar firms that are providing goods and services to out-state-consumers?
For example, under the MFA, a Virginia online retailer who sells a television to a consumer residing in Washington, DC would be required to collect the Washington, DC sales tax, which is higher than the Virginia sales tax, and remit the proceeds to the District of Columbia. However, under the MFA, if a Washington, DC resident drives into Virginia and purchases a new television at Best Buy, Best Buy is allowed to blindly assume that the consumer resides in Virginia and need only collect and remit a sales tax on behalf, and to, Virginia. Furthermore, even if Best Buy knows that the consumer resides in Washington, DC because Best Buy provides the consumer with a credit card or a rewards card that is associated with a Washington, DC address, Best Buy is still allowed to assume that the television will be consumed in Virginia.
MYTH: Requiring Internet businesses to determine and collect sales and use taxes for the 10,000 taxing jurisdictions in the U.S. is not burdensome because there may be software to accomplish this task.
FACT: Requiring Internet retailers to obtain and integrate new software is a major burden. Big businesses, like Overstock.com, have spent millions of dollars on such software, and they still have not found it reliable. The principal problem that the MFA seeks to solve is that consumers are not complying with their local sales and use taxes. The MFA responds by seeking to enable state and local governments to outsource the tax collecting burden to out-of-state Internet businesses.
MYTH: The proposal does not establish new taxes, it merely requires enforcement of taxes owed.
FACT: Collecting sales and use taxes for goods or services that were acquired in another state has long been a low priority for state and local governments. Because these taxes go uncollected and unenforced, the establishment of an unprecedented regime to collect them for the first time is going to require American consumers to pay more sales taxes and more use taxes. Furthermore, the creation of this new trans-state enforcement scheme will create significant new incentives for states to establish new sales taxes and new use taxes and to increase the tax rates of these taxes. Ultimately, the MFA will require consumers to pay an additional $22 billion in sales taxes that they have never had to pay before.
MYTH: The stated purpose of the MFA is to ensure that consumers pay the correct amount of taxes on the merchandise they consume.
FACT: The MFA is written to provide the states with the ability to collect sales and use taxes on services provided by out-of-state service providers. The MFA opens the door for states to collect taxes on out-of-state providers of financial, legal, and health care services to name just a few.
- CCIA Letter Opposing Marketplace Fairness Act
- TechNet Statement Opposing Marketplace Fairness Act
- Coalition Letter Opposing Marketplace Fairness Act
- eBay Marketplace Fairness Act Myth vs. Fact Sheet
- American Society of Pension Professionals & Actuaries (ASPPA) Statement Opposing MFA
- Wall Street Journal Editorial- The Internet Sales Tax Rush: Harry Reid and Wal-Mart hope nobody will notice their online revenue raid
- TechDirt- Senator Wyden Takes A Stand Against Overbroad Tax On Internet Transactions
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