Internet Tax

                Congress is considering a federally mandated Internet sales tax known as the Marketplace Fairness Act; in fact, it is being rammed through the Senate.  Senators voted on Monday 74-20 to send the act to the floor for final passage.  Since there is bipartisan support for the bill in the House, the final passage of the bill could take place this week.  The President has already endorsed the Senate bill and said he would sign it if it gets to him. 

                The national Internet tax mandate would give massive new controls over state tax policies to the federal government, and it would affect every American, whether or not they use the Internet.  Under this mandate, all Americans would pay more taxes and governments would be able to access and keep records of any and/or all purchases we make over the Internet.  The additional tax money would encourage big-spending governors to keep spending.  The mandate would bring more regulations, and the higher taxes would crush economic growth.

                This bill would affect anything we purchase over the Internet and make all of it subject to new state and local sales taxes, taxes that would be determined by where we live.  Both consumers and on-line companies would have new tax burdens to carry.

                T. Elliot Gaiser explained the consequences of the plan:  “The burden on businesses would be immense and would skew the playing field against online businesses and online consumers.  `This means quizzing purchasers about their location, looking up the appropriate rules and regulations in more than 9,600 taxing jurisdictions across the country and then collecting and remitting sales tax for that distant authority,’ writes Andrew Moylan, senior fellow with the R Street Institute.  `No brick-and-mortar shop has to do this for in-store sales, and yet every online retailer would have to do it for remote sales.’”

                There is bi-partisan opposition to the Marketplace Fairness Act.  Senator Max Baucus (D-MT), chairman of the Finance Committee, said that the proposed law would “violate the rights of citizens who choose to live in states without sales tax” and is a “clear infringement on states’ rights.”  Baucus was joined in his opposition by Senators Ron Wyden (D-OR) and Kelly Ayotte (R-NH).

                Senator Rand Paul (R-KY) said in a Washington Times column that he opposes the bill because it will destroy jobs and impose massive new costs on small businesses. “At a time when businesses are already being strangled by job-destroying regulations, such as those imposed by Obamacare, the Internet Tax Mandate would add even more costs to our nation’s small businesses and job creators.  The requirement to calculate sales-tax rates, much less collect those taxes, for each customer becomes even more burdensome when considering the various state, city and county sales taxes that will be imposed across the United States.”

                The experts at The Heritage Foundation have weighed in on the subject also. Heritage President Jim DeMint, while still a Senator, said that the plan amounts to “taxation without representation” because business owners would be subject, under the proposed mandate, to taxes over which they have no say.”  “The Marketplace Fairness Act recently introduced in the Senate would require online retailers to collect and pay sales taxes to states where they have no physical presence or democratic recourse.  Overstock.com, eBay and the like could have to pay sales taxes to any state from which an Internet user placed an order, even if the company’s headquarters, warehouses and sales staff are located entirely in other states.

                “Such online sales tax proposals are taxation without representation.  The proposed federal law tells businesses that there is no escape from the clutches of tax-hungry politicians. That concept is antithetical to our federalist system, which promotes competition among our states for the best economic policies.”

                David Addington, one of the many experts at Heritage, explained, “The 1992 Quill Corporation decision protects out-of-state businesses that have no facilities or employees in a state, but receive orders by Internet, mail-order catalog, or telephone from in-state customers, often called `remote sales.’  The Supreme Court held that, under the Constitution’s clause authorizing Congress to `regulate commerce … among the several states,’ a state could not force those out-of-state businesses to collect the state’s sales tax on remote sales.  However, the Court made clear that Congress could, if it wished, pass a law to authorize the states to impose that tax collection requirement on out-of-state businesses.  Thus, Senators who wish to authorize states to require out-of-state businesses to serve as their tax collectors have introduced S. 743.

                “Like the money-hungry federal government, many state governments have financial and political interests in getting their hands on more and more money to grow their governments.  It is not surprising that many of those state governments find out-of-state businesses to be lucrative and politically easy targets for tax legislation.

“Take, for example, a company whose workforce and warehouses are in New Hampshire.  This company has no contacts with Illinois other than taking remote sales orders over the Internet.

                “The Internet sales tax proposal would allow Illinois politicians to use the New Hampshire company as their tax collector.  The New Hampshire company would have to collect Illinois sales tax on its remote sales to Illinois residents and send the taxes to the Illinois state government.

                “The Illinois politicians would have nothing to fear, because the damaging effects of the Illinois tax action fall on the New Hampshire company, in the form of an increase in the price of the company’s goods or a cut in its profit margins, or both.  And, of course, the New Hampshire employees who understand what the Illinois government just did to them vote in New Hampshire and not Illinois.  Moreover, the Illinois consumers who would pay Illinois state sales taxes to the New Hampshire company, for subsequent forwarding to the Illinois treasury, would likely not understand that their payment of sales tax to the New Hampshire company is the result of a new taxation decision under S. 743 by their home state’s governing officials.”

                Amy Payne, another expert at Heritage, wrote, “`Brick-and-mortar’ stores like Wal-Mart are in favor of the Internet sales tax, because they see these online retailers as competitors.  But the other big proponents of the tax are state governments, which would be able to reach into other states for revenue.”

                This tax will hurt consumers and small businesses conducting business on the Internet, but it will benefit politicians and special interests.  I do not believe that the Marketplace Fairness Act is fair at all!