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The Best Holiday Gift: No New Internet Taxes

‘[dropcap1]T[/dropcap1]is the season for reason, it seems, as lawmakers have stepped back from the brink of a deeply flawed Internet sales tax that threatened online consumers and sellers while promising very little revenue to states.

Last month, despite an 11th-hour lobbying drive by state governments and big box retailers, the Senate wisely declined to attach the ironically named “Marketplace Fairness Act” to a must-pass Defense authorization bill. But while this battle was won, the war goes on, as proponents of the tax are rallying their forces for a legislative push in 2013.

What is increasingly clear is that supporters of the tax have zero interest in actually fixing the impossible patchwork of state sales taxes. Instead, advocates have done the political calculus and determined that states are hungry enough for revenue that they’ll grasp at anything that generates it, especially if it can be sold as something other than a new tax.

With so many high-profile state Republican legislators crossing anti-tax lines to support the new Internet tax, it’s not hard to see why advocates are so confident. The only thing standing in their way is the fact that any serious review of this new tax system reveals an awful deal for American businesses and consumers.

When members of the National Conference of State Legislatures (NCSL) descended on Washington last month to beg Congress to enact the new tax, NetChoice reminded lawmakers about the original intent of the so-called “streamlined” sales tax effort.

In 1999, the NCSL and the Streamlined Sales Tax Project (SSTP) set out to simplify and unify the rates and rules of 9,600 state and municipal tax jurisdictions, a patchwork that the Supreme Court said states could not impose on out-of-state retailers.  After a decade of effort, SSTP convinced two-dozen states to adopt some meaningful simplifications, but the project failed to generate much momentum in Congress.  Now NCSL has abandoned its aspiration to truly simplify state taxes, but they want the new revenue nonetheless.

Without real simplification (something the Act is not even close to achieving), a national Internet tax regime imposes unfair and unique burdens on any business that sells over the Internet or through a catalog.  These businesses would be forced to retrofit their systems to work with supposedly “free” collection software, and add staff to handle tax holidays, file forms, and answer audits from 46 different states.

If this tax passes, big box retailers like Wal-Mart and Target will benefit at the expense of their competitors. And Internet giant Amazon (which is already required to collect tax for a growing list of states where it has distribution centers) gains an even greater advantage over small e-commerce upstarts.

The path to fixing this legislation may not be easy, but it is clear. Advocates for e-commerce have proposed a set of minimum simplifications that must be required in a truly streamlined system. These simplifications are utterly achievable, and Congress seems unwilling to approve a new interstate tax regime unless it actually eliminates the costs and complexities of state sales tax systems.

So for now, opponents of the new Internet tax will enjoyed a well-deserved winter holiday. But come the new Congress, we’ll be back on lawmakers’ doorsteps, singing about the true spirit of streamlining.