In just two sentences, buried deep within the Governor’s 2015 budget, Governor Chris Christie claims the power to tax outside the borders of New Jersey.
Governor Christie wants to force out-of-state online businesses to collect and remit New Jersey sales tax. He claims that it’s only fair to the brick and mortar small businesses in New Jersey that already must collect sales tax from their customers.
Under current law, when a New Jersey resident makes a purchase from an out-of-state online business, they are required to calculate the New Jersey sales tax they owe and pay it when they file their income taxes. But most people don’t know they have to disclose their online purchases to the state, and so they don’t. Governor Christie and his supporters say that we need to “level the playing field,” among other jargon, to bring online businesses onto equal footing as brick and mortar businesses.
But what’s so irritating is that it’s not about fairness at all. It’s about filling up New Jersey’s coffers with new revenue.
When Amazon struck a deal with the state to build its warehouses in exchange for collecting NJ sales tax, the conversation was hardly about fairness. It was about the tax revenue that Amazon would bring in. It sure wasn’t about Amazon receiving tax incentives or millions of tax dollars in grants. And it certainly was not about the unfair advantage Amazon would then have over New Jersey small businesses who weren’t so fortunate to receive grant money from the state.
Christie’s newly claimed authority to tax beyond the boundaries of New Jersey is essentially the same as the Marketplace Fairness Act (MFA) legislation — the vaunted “internet sales tax” — pending in Congress that would allow states to require out-of-state online businesses to collect and remit their state’s. It’s supposed to take away the “unfair advantage” that out-of-state online businesses have on businesses with a physical presence in New Jersey.
But the MFA, and likewise Governor Christie’s agenda, is hardly fair, especially for small businesses. The next time the Governor touts “fairness” and the need to pass the MFA, remember these points:
1. The MFA allows states to levy taxes on individuals and businesses from other states. This is a clear violation of the Constitution, which provides that Congress shall regulate interstate commerce, not the states. It sets a dangerous precedent for states to tax other areas of interstate commerce.
2. The MFA will put upward pressure on sales taxes. If states are allowed to tax beyond their borders, it will destroy the barrier of competition among the states. States currently must compete with one another to entice businesses to set up shop in their state, primarily through offering low taxes. But if every state can tax individuals and businesses in every other state, there is no more incentive to keep taxes low. In fact, it would be in a state’s interest to raise sales taxes.
3. Small businesses will be crushed under the onerous MFA compliance regulations. Businesses with a physical presence only have to comply with the tax laws of their jurisdiction. Online businesses will be forced to comply with tax laws and regulations in up to 46 states and over 9,000 tax jurisdictions. That also means that online businesses can be audited by every state and tax jurisdiction they do business in. This is especially devastating for small businesses, who unlike Amazon and other big retailers, don’t have teams of corporate lawyers.