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Chairman Goodlatte’s Principles Stop Durbin’s Internet Sales Tax From Taking Us Over the Cliff

Growing up I read comics about super-heroes stopping a trains before they went of the cliff.  Today, Chairman Bob Goodlatte showed his own form of heroics by stopping the internet sales tax train from taking us all over the cliff.  He released a set of principles which set this train on a new path…one without a cliff.

I boarded this train a decade ago when the states created a real effort to simplify tax collection on remote sales.  Back then it was called the Streamlined Sales Tax Project (SSTP).  While this train was on the right track, it wasn’t moving fast enough for some.  And like the bad guys in the comics, the big-box stores took over the train, switched the tracks, and set it full throttle on a collision course with mid-size businesses and over the cliff…enter the Marketplace Fairness Act (MFA).

The MFA barreled its way through the Senate without a hearing.  And it looked like the MFA was going to tear through the House too.  After that it would barrel over mid-size businesses across the country.  You can see their concerns in this video.

Under Chairman Goodlatte’s principles, the MFA score ZERO on all 7.

Chairman Goodlatte’s principles provide a litmus test for any plan that would impose new tax burdens on catalog and online businesses; and the MFA clearly fails that test — MFA went a ZERO for 7 (you can see how it stacks up below).

While MFA advocates may think they can tweak their bill to arrive at the Judiciary principles, the message they should take from the Chairman is clear: you can’t get there from here.

So, thank you Chairman Goodlatte for putting this train back on the right track.

How does the Marketplace Fairness Act (MFA) measure up to Chairman Goodlatte’s Principles?
Principle How does the Marketplace Fairness Act (MFA) measure up to these principles?
1.  Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world.  Nor should any fresh precedent be created for other areas of interstate taxation by States. MFA Fails.  Only businesses selling online or via catalog would face new taxes and audit demands from 46 states.
2.  Tech Neutrality Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing.  The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses. MFA Fails. Brick and mortar stores file in only 1 state – but internet and catalog sellers must file for 46 states and up to 550 Indian tribes.
3.  No Regulation Without RepresentationThose who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement. MFA Fails.  There is no recourse when states make unreasonable demands for taxes and audits.  To seek justice an internet or catalog seller must travel to a foreign state and face the foreign court.
4.  SimplicityGovernments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary. MFA Fails.  Lacking true simplification and help with software integration, the MFA has to exempt small businesses that could not comply with 46 state tax regimes.
5.  Tax CompetitionGovernments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors. MFA Fails.  By granting new tax and audit powers to every state, the MFA encourages states to export their tax collection burdens to businesses in other states.  There is no incentive to lower sales taxes.
6.  States’ Rights – States should be sovereign within their physical boundaries.  In addition, the federal government should not mandate that States impose any sales tax compliance burdens. MFA Fails. Gives new tax and audit powers to every state, allowing them to reach across their borders.  This also threatens the physical presence standard for other taxes like the business activity tax.
7.  Privacy RightsSensitive customer data must be protected. MFA Fails.   While previous internet tax bills had a privacy protection clause, MFA says nothing about privacy.

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