We have a variety of concerns with the so-called “Marketplace Fairness Act,” which will require companies selling things online to track, collect and distribute taxes based on where buyers are coming from. For small and medium-sized businesses, this is likely going to be a big burden online (and for buyers in many places, this will likely increase what you have to pay on checkout). Given the fact that the bill is mostly supported by brick and mortar stores and shopping centers, it’s not difficult to see how it’s an attack on online shopping (for what it’s worth, Amazon was initially against the bill, but eventually flipped when it realized that it could use the bill to hold back smaller competitors).
Unfortunately, the Senate passed the bill by a decent margin, 69-27. The bill will move to the House where it may be more difficult to pass. So it may die on the vine, even as the administration has said it will support it.
Last month, we noted that the Senate was coming closer to forcing a sales tax on all internet purchases — something the big brick-and-mortar retailers have wanted for years to burden online competitors. State governments also love the idea because they’re all dying for tax revenue. However, it’s unclear why this makes any sense, in particular because it puts a huge burden on anyone selling goods online. And yet, the Senate is pushing forward with S. 743, or what it has euphemistically called the Marketplace Fairness Act. It sounds like Senator Harry Reid is pushing for a vote on it as early as Monday.
Two of his big concerns: that it takes a government function (taxation) and forces it on small businesses and internet retailers, and secondly that this will drive more people to buying from foreign online retailers, mainly in Canada and Mexico. Even the Congressional Research Service has noted that the bill has a massive loophole for foreign retailers selling in the US and that it is “complicated legally.”
Others have pointed out that this bill would also have a massive impact on privacy because it requires retailers to turn over the addresses of buyers to state authorities to figure out where to allocate the tax revenue.
Let’s say a seller of naughty toys were audited by the tax authority in another state. To prove that it has remitted all the taxes due in that state, it woud have to turn over, at the least, data reflecting the amount of its sales by geographical location. There are something like 30,000 state and local jurisdictions with authority to impose sales and use taxes, more than 7,500 of which have already adopted this kind of tax. If not ZIP+4, then the actual address of recipients would have to be turned over. Could they turn over non-identifying summaries? The point of an audit is to check the honesty and accuracy of summary filings, so the answer is no.
So state tax authorities would get troves of data about online purchases delivered into their state. The standard misuses apply. It might be transferred to other organs of government, legally or not, for investigation and examination. Curious state bureaucrats might look up the purchasing habits of ex-spouses, famous names, and political figures. The list goes on and on
The more you dig into this bill, the worse it gets. Just the fact that it’s suggesting that internet firms should enforce taxation laws that are outside of their own jurisdiction (i.e, “taxation without representation”) raises significant due process questions at a time when lots of countries are looking to try to regulate internet companies outside of their own borders. Passing this law will give fodder to other countries to claim jurisdiction over American companies, and provide them with direct evidence that even in the US we don’t take jurisdiction and due process seriously.
On top of that, the bill will apply to not just physical goods, but services as well. While those are often not taxed by states, this could also provide more incentive for them to be taxed, which doesn’t seem good for anyone.
Honestly, the biggest question in all of this is why it’s even necessary in the first place — other than the fact states who misused existing revenue are now hungry for more. Perhaps they should focus on getting their own houses in order before just demanding more cash from internet companies (and, more directly, their users).
A bunch of anti-tax groups have also put together a petition against the bill. Whether or not you support their general anti-tax position, it does seem ridiculous to put all the burden on anyone selling goods online to have to collect and distribute taxes in states where they have no presence at all. As a site that has its own small store, the idea of having to figure out how to deliver cash to 50 separate states is terrifying.