The Marketplace Fairness Act will protect free enterprise

Rep. Steve Womack Member of Congress (R-AR)
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“The freedom of private business to organize and operate for profit in a competitive system without interference by government beyond regulation necessary to protect public interest and keep the national economy in balance.” That’s Webster’s definition of free enterprise. And for far too long, the Supreme Court’s outdated Quill v. North Dakota decision has stood as a roadblock to this cornerstone conservative principle.

In this 1992 ruling, the Court simply said that states do not have the authority to compel remote sellers of merchandise — online retailers, catalog stores, and the like — to collect and remit the taxes due on purchases if that retailer does not have a nexus — or presence — in the state. In practice, this has shifted the onus of paying that tax to the governmental subdivision from the retailer to the consumer. But Main Street retailers are not given the option of whether to collect and remit taxes or not, and, consequently, online retailers have been given an unfair price advantage, instead of competing on the price of the product itself.

In the early days of the Internet, this wasn’t much of an issue. But now, as a significant — and growing — portion of sales are made via the Internet, it is easy to see what’s happening: consumers are flocking to the Internet for the opportunity to buy merchandise they consider “tax free.”

But these sales are not tax free. In fact, 46 states currently have statutory sales and use taxes. However, Quill prevents them from enforcing their own laws, making the collection of these taxes — taxes that are due, not new — nearly impossible and amounting to losses of over $23 billion every single year.

Forty-two states and countless local governments are facing budgetary shortfalls this year. Without the ability to efficiently and effectively collect the revenues they are already owed, these state and local governments will eventually be forced to raise other taxes to compensate for these losses and support the most basic local services they provide — firefighters, police, and even local schools — or, even worse, continually ask our nearly bankrupt federal government for bailouts.

Traditional, brick-and-mortar retailers may suffer the most from the status quo. They have become glorified “showrooms” for their online competitors. In fact, “showrooming” has become a common term for the discerning consumer trying out merchandise locally then buying online. Every day this “loophole” goes unfixed, more and more local retailers are going out of business.

My legislation, the Marketplace Fairness Act (H.R. 684), provides a common-sense, conservative solution to this problem by removing the federal restrictions and regulations that prevent states from enforcing their own laws, and empowering — but not requiring — states to shift tax-reporting responsibilities to the vendor, rather than the purchaser, while allowing them to decide how best to do so.

MFA also protects small businesses by requiring participating states to provide businesses the necessary software for tax collection should they choose to participate, and with a robust small business exemption of at least $100,000 in an individual state or $1 million nationally in annual sales to protect those that would be truly burdened.

Most importantly, MFA levels the playing field between brick-and-mortar businesses and online-only retailers. Congress should not be in the business of picking marketplace winners and losers, and our free enterprise system should not continue to allow this unfair tax “policy” to stand. Rather, we should promote free enterprise and give consumers the ability to make decisions driven by price, selection, convenience, and service.

Small retailers across America are struggling to compete. Cities, counties, and states are losing revenue critical to basic services, and are, in turn, looking to the federal government to compensate for it. The federal government is out of money and cannot answer those demands. But it can intercede in this decades-old issue. It is basic. It is simple. It is conservative. And it is time.

Rep. Steve Womack represents Arkansas’s Third Congressional District.