You don’t have to be an economist to know that Main Street retailers are struggling. Drive through any downtown or shopping district and you can see how the landscape has changed from a decade ago. Stores within our communities have faced increasingly tough competition from online competitors in recent years, but federal government rules are making it exceedingly difficult for local retailers to compete.
Since 1992, retailers without a physical presence in a state have enjoyed a competitive advantage over traditional brick and mortar stores, because the former are not required to collect sales taxes while the latter are. This obvious advantage for out-of-state retailers comes from the U.S. Supreme Court decision in Quill v. North Dakota, holding that while such taxes could be levied, they could only be done so if Congress authorized it under the Constitution’s Commerce Clause. This has resulted in a court-imposed benefit to out-of-state retailers at the expense of those holding down real estate on Main Street.
This twenty year old decision no longer reflects the reality of 21st century technology, which has removed most of the burdens from the calculation and remittance of online sales taxes. In today’s world, it harms Main Street business’ ability to compete on a level playing field with online competitors.
Now, Congress has a rare opportunity to take bipartisan action to correct this inequity and provide a roadmap for economic growth that will benefit the still growing Internet economy and brick-and-mortar retailers that are the backbone of our local economies. The United States Senate has already acted to reform the current disparity, passing the Marketplace Fairness Act in May of last year in a rare bipartisan vote of 69-25. The House has yet to act, although Utah Rep. Jason Chaffetz has been reported to be leading an effort in the House to address perceived flaws in the Senate-passed bill.
Congress should take this opportunity to restore free market competition for retailers of all stripes by closing the loophole created by Quill that currently gives online sellers a direct competitive advantage over Main Street.
Besides taking the government’s thumb off the competitive scale, the Marketplace Fairness Act (or similar legislation) will put power back into the hands of state legislatures over their own finances. MFA does not compel states to require out-of-state vendors to collect sales tax, it merely authorizes them to. If constituents at the state level want representatives who will continue to grant out-of-state retailers special treatment over local retailers, then that is their prerogative.
For those opposed to leveling the playing field on grounds that it will ultimately lead to more revenue for state governments, there is also a simple solution: cut taxes. In Wisconsin and Ohio, Governors Scott Walker and John Kasich have already signed into law legislation that will cut the state’s income tax to match any growth in revenue from collecting online sales tax. Let’s give our governors and state legislatures the power to enact meaningful tax reform. Like welfare reform in the 90s, perhaps their efforts will lead to a roadmap for Washington to finally fix our broken federal tax code.
Some DC-based think tanks are currently touting poll numbers suggesting that voters are opposed to changing the status quo. Congress shouldn’t be fooled. Voters are self-interested, but they aren’t stupid. While I have met very few voters who enjoy paying taxes, I’ve met even fewer who believe the tax code should only apply to some of us. When presented with the facts—instead of misleading rhetoric—most voters believe in fair play and want every business to have a shot to compete in the free market without the government picking winners and losers.
This issue has been debated at length, and it time for Congress to act. For those who favor free enterprise and federalism, passing this legislation should be a no-brainer.
Nathan Mehrens is president of Americans for Limited Government.