Marketplace unfairness: the Internet, & obliterating taxpayer protections

Doug Kellogg Comm. Manager, National Taxpayers Union
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The Senate’s recent vote to pass the Marketplace Fairness Act (MFA), a.k.a. the federal online sales tax mandate, should stir concern in those feel the government continues to use technological development as an excuse to undermine existing legal protections we enjoyed in an offline world.

“MFA” for short was hustled through, taking advantage of Senate rules to avoid committee review and an appropriate amendment process. In large part so the public would not have time to start asking tough questions…

What is in this bill? Why the rush job? Perhaps most importantly: Why is the Internet’s existence reason enough to return to “taxation without representation” where an individual online business owner can be held responsible to out-of-state politicians whose elections they never voted on?

To illustrate the absurdity of MFA’s policy in a pre-Internet world: Imagine it is 1994 and you are an Illinois resident on vacation in New Hampshire, enjoying the mild summer weather…

You decide to buy a hat from a local store. It would be quite the shock if the clerk asked you for your address, and then demanded you pay an extra percentage for Illinois sales tax (which the merchant shipped back to your home state), right?

Would you ever have the thought that you should be paying Illinois for this activity?

Yet, if the 69 U.S. Senators who voted for MFA had their way, this type of scenario would be imposed on the digital world ONLY.

MFA means an online business would have to deal with tax compliance and collection for over 9,000 jurisdictions, but standard retailers get to stick with the traditional scenario described above, and one tax jurisdiction (maybe a locality’s tax law as well).

Furthermore, MFA has no limitation on how states can seek to expand their sales taxes. We would likely see all sorts of sales in the digital realm, from apps to movies, exposed to new layers of taxation (even though the current environment leaves a lot of latitude as is).

If it’s about Use Tax, simply “collecting what is owed” as MFA advocates would say, states already have the right to collect it!

If states are unwilling to do the work on enforcement, it would seem far more logical to avoid any double standard and extend the same “origin-based sourcing” tax system we already have for retail business to the Internet. Why reinvent the wheel with MFA’s extra-constitutional cross-border taxing powers?

For proponents of MFA who claim it’s ‘not about the Internet’, that rings hollow. The Internet has more openly exposed uncompetitive tax policy.

It’s not that there wasn’t bad tax policy before, or that it didn’t affect behavior. It’s just that the ease of communication we’ve developed online has democratized limiting exposure to the harsh financial burdens imposed by short-sighted governments.

Changing behavior to legally avoid taxes is not just for rich guys with high-priced accountants anymore.

This is where those claims by pro-“Fairness” folks that this is not about taxing the Internet reveal some truth: it isn’t just about taxing people through the Internet, it’s about controlling you.

Do they truly believe there is anything “fair” about shooting online business in the foot with a tax compliance burden nobody has ever had to contend with before in history?

It’s hard to believe this will actually do any good for a failing “brick and mortar” store in a bad business environment that cannot adjust to the digital age; and yet, no part of this discussion includes reducing the tax burden on storefronts.

It is far more plausible the interests that stand to gain any advantage are looking to gain control over this situation before the public wakes up and realizes that when something gets 70 votes in the Senate, either it’s about renaming a Post Office or the American taxpayer is about to get fleeced.

After more than 200 years, we shouldn’t go back to “taxation without representation” just because there’s an Internet.