Online sales tax loophole is anti-competitive, bad for business

Stephen DeMaura President, Americans for Job Security
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As momentum builds in favor of ensuring sales tax equity between Main Street businesses, which are required to collect state sales taxes, and many online-only retailers, which are not, a growing and bipartisan chorus of public officials and opinion leaders have voiced their support for new House and Senate measures to end this uncompetitive loophole. But that chorus does not include the American Legislative Exchange Council (ALEC).

It’s not that ALEC opposes the idea of tax simplification and fairness in principle. Indeed, in a recent Daily Caller op-ed by two ALEC representatives, “Revenue-Hungry Politicians Attack Online Sales,” they call the effort “laudable” and the goal “worthy.” Rather, their main objection appears to be that included in this bipartisan chorus supporting sales tax fairness are “revenue-hungry tax administrators, politicians and interest groups — all too excited to continue their never-ending quest for more state tax revenue.”

This view pits ALEC against folks such as former Florida Governor Jeb Bush, who counseled his successor to consider pursuing tax fairness in the Sunshine State. “It seems to me there has to be a way to tax sales done online in the same way that sales are taxed in brick and mortar establishments. My guess is that there would be hundreds of millions of dollars that then could be used to reduce taxes to fulfill campaign promises,” Bush wrote to Gov. Rick Scott.

Whatever one thinks of Governor Bush, few people would characterize him as a “revenue-hungry” politician who is “all too excited to continue his never-ending quest for more sales tax revenue.”

Few would characterize South Carolina Governor Nikki Haley in such a manner, either. Nevertheless, Governor Haley said the following during a press conference last spring, “Don’t ask us to give [Amazon] sales tax relief when we’re not giving it to the book store down the street or we’re not giving it to the other stores on the other side of town. It’s just not a level playing field.”

There is a reason conservatives have begun to recognize that “exempting Internet sales can no longer be justified,” in the words of Al Cardenas, chairman of the American Conservative Union (ACU). The online sales tax loophole is an anti-competitive giveaway to some retailers at the expense of others. The government continues to pick winners and losers in the retail industry at the same time politicians and the public are coming to reject that kind of intervention in every other sector of our economy.

The Marketplace Fairness Act in the Senate and the Marketplace Equity Act in the House both enjoy bipartisan support. The two measures take slightly different approaches to achieving the goal of sales tax equity. ALEC claims that “small businesses would face substantial and costly compliance burdens under both bills,” but what small businesses are they talking about? The ones shuttered on barren Main Streets across the country, victims of an unfair tax regime that literally forced them to charge more for their products than their competitors?

As the father of modern conservatism William F. Buckley prophesied in 2001, “We have to come to earth, and face homespun economic truths. If the advantage of tax-free Internet commerce marginally closes out local industry, reforms are required.”

Ten years later, the nature of that reform is now obvious to a growing number of Americans. An October study conducted by the University of Cincinnati estimates that closing the sales tax loophole would create up to 11,000 retail jobs in that state. A Carnegie Mellon University study shows Pennsylvania could gain up to 3,000 new jobs. The same is true in state after state across the country.

Closing the sales tax loophole is about fundamental fairness and allowing states to enforce their own tax laws. It will result in more jobs and help our local economies recover. Conservatives understand the consumer should be picking winners and losers in the marketplace, not the government, and that’s what e-fairness is all about.

Stephen DeMaura is the president of Americans for Job Security.

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Stephen DeMaura