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States’ rights and lower taxes – why opposition to online sales tax is misguided

Photo of Allen Fletcher
Allen Fletcher
Alliance for Main Street Fairness

As a conservative Tea Party leader in the Texas Legislature, I’ve watched the online sales tax debate with great interest. I’ve listened to arguments, seen studies and talked at length with fellow conservatives who appear to be largely split on the issue – in Washington at least.

I respect all my brothers and sisters on the front lines of the conservative movement who are fighting for liberty, free markets and smaller government; but I’ve come to the conclusion that much of the rhetoric in opposition to collecting sales tax that’s due for online purchases is misguided, and in many cases, misleading.

Tax policy that creates disparities within industries and picks winners and losers leads to government meddling in the free market—something I fundamentally oppose. Loopholes that benefit a select few are really a low-tax mirage, giving benefit to one group while ultimately resulting in higher taxes for the average Joe that isn’t getting a special break from the government. Conservatives rightly opposed the Obama administration’s sweetheart tax deals for so-called green energy companies like Solyndra, and the same principles should apply to online retailers. If a brick and mortar retailer must add a sales tax to the price of a product based on the state they are doing business in, so should an online seller. It’s just common sense. End the corporate welfare and special deals, and let the free market pick the winners.

Some have suggested closing the online loophole is nothing more than a money grab for state governments, but that’s simply not accurate. In Texas, we pride ourselves on having the best business climate in the nation, and my goal as a legislator is to ensure we build on that tradition by lowering taxes and giving every Texas business a fair shot to compete. That’s why I support e-Fairness legislation like the Marketplace Fairness Act that would end special treatment for online-only retailers. Closing the loophole that gives out of state Internet companies an artificial leg up over Texas-based businesses is smart policy in its own right, but it will also give power back to Texas and give us the opportunity to lower taxes.

What e-Fairness Means to Small Business

While some Republicans in Washington seem to have had a hard time coming to grips with this issue, this has not been the case in Texas. Our conservative state legislature went on record with votes of 31-1 in the Texas Senate and 125-20 in our House of Representatives in support of closing the unfair and destructive internet sales tax loophole, but states are limited in what they can do without action by Congress.

Further, my colleagues and I in the legislature are already drawing up legislation to cut or eliminate the Texas Margins Tax once Congress closes the online loophole. Fewer loopholes and lower rates is the key to long-term economic growth, and it’s what makes Texas a great place to do business.

Getting rid of the Texas Margins Tax requires Congress to give us back control of our own tax code, but how they do it is also important. A few misguided politicians in Washington are floating a system called “origin-based sourcing” – a taxation without representation approach would charge consumers sales tax based on the online vendor’s location, not the buyer’s. This is a terrible idea, and my argument here is fairly straightforward. If you live or do business in Texas, you should follow Texas laws, not someone else’s. A Texas consumer making a purchase online shouldn’t be paying sales tax to California or Washington—that’s a violation of the long sacred ideal of taxation with representation and it should be a non-starter.

AMSF - Lower Taxes InfographicOrigin sourcing would also create an incentive for online companies to continue to evade sales tax collection by creating shell corporations in one of the few states without a sales tax. These new tax havens would punish states like Texas that have enacted pro-business tax codes with a more broadly-based consumption (sales) tax instead of an income tax. Endorsing tax evasion is not the same as promoting tax competition—they are two vastly different things. Origin sourcing would blow a hole in the sales tax base of states like Texas, and would inhibit our ability to manage our finances with a business-friendly tax code.

Restoring states’ rights and free market competition at the same time ought to be a no-brainer. A sale is a sale, whether it is transacted over the Internet or at a cash register. The current de facto policy of allowing online sellers to evade collecting taxes is simply a vestige of the pre-Internet era when collecting taxes from many jurisdictions was an unreasonable burden. Technology has changed all that, and our laws need to be updated to get government’s thumb off the free market scale and to give power back to the states.

With a lack of leadership in the White House, Washington will likely continue to dither on the subject of reforming our federal tax code. But here in Texas, we’re ready to enact pro-growth tax reforms that welcome entrepreneurs and investment to our state. If Congress does nothing else this year, they should unshackle our hands and give us the tools to make these reforms by closing the online loophole.

State Representative Allen Fletcher is Chair of the Texas Legislative Tea Party Caucus which includes 66 members of the Texas Senate and House of Representatives.

To learn more, visit http://standwithmainstreet.com/usmap.aspx.