What’s so iAWFUL?

Continuing to believe that now is the right time to impose a new tax burden on online businesses, Congress is considering the 2013 Marketplace Fairness Act.

The bill, approved by the Senate on May 6, is far worse than previous versions since it imposes more burdens and audits on remote sellers without requiring states to radically simplify their crazy-quilt patchwork of sales tax laws.

Cash-strapped state executives and big-box retail chains finally got what they have been working for, a measure that adds tax burdens on small and midsized businesses around the country, without forcing states to go through with the vexing task of actually simplifying their Byzantine tax codes.

The “new” Marketplace Fairness Act (S 743) is the same as the old Marketplace Fairness Act (MFA) (S 1832) — including the same false promises and flaws. After the last Congress wisely declined to enact new Internet sales taxes, supporters did nothing to make their scheme more appealing to businesses and consumers who’ll have to pay the taxes.

The MFA contains none of the required simplifications proposed in the decade-long Streamlined Sales Tax Project.   It misses on 11 of 12 the simplifications identified by the True Simplification of Taxation coalition.   Yet the MFA grants unprecedented new tax and audit powers to 46 states plus 550 Native American tribal organizations.

Allows taxation of digital goods

Any state can at any time expand its sales tax to cover digital goods like music, TV shows, movies, apps, e-books, and games. And any state can add sales tax on services delivered online, such as news subscriptions, cloud storage and streaming media.

MFA would extend new taxing powers on ANYTHING that a state wants to impose sales tax upon. States will find it irresistible to expand their sales tax to include digital goods and online services, since their new powers would force businesses in every other state to pay the tax.

And there’s this: the MFA passed by the Senate on May 6 included an amendment from Sen. Harry Reid that extends the new tax and audit powers to all 550 Native American Tribal Organizations. Few of these sovereign tribal organizations have sales tax today, since the only businesses who’d have to pay it are those with presence on the reservation lands.

But once these tribes can force Apple, Amazon, Netflix, etc. to pay their sales tax, it won’t take long for them to adopt one. And under MFA each tribe can have its own definitions, rules, rates, filing forms, and demand its own audits — of any business in the United States.


The MFA will be 1099 times ten thousand

Congress found itself on the wrong side of another tax law that imposed onerous requirements on business, and had to reverse course just a few months later.

In 2010, the White House’s Affordable Care Act expanded 1099 reporting requirements for businesses.  This required every American business to compile data and file 1099 reports for every vendor paid at least $600 for the year.

The outcry from businesses was swift and substantial.  Just five months later the 1099 reporting mandate was repealed with overwhelming Congressional and White House support.   It sailed through the Senate 87-12, had 273 co-sponsors in the House, and the Administration bragged, “We have removed a requirement that would have been an undue barrier to small business growth.”

That was for annual 1099 filings to the IRS.  Considering that MFA gives thousands of tax jurisdictions a monthly shot at every American business, this bill will be more like 1099 times 10,000.

Adding all of these new regulatory burdens and audits will be devastating to an already struggling economy and stymie the growth of thousands of small and mid-size businesses.

While the Senate approved MFA without hearings or markups, the House has promised a full hearing process to consider the legislation.   And even if this legislation makes it to the House floor, there are still plenty in Congress who know a new tax when they see one.


After getting rammed through the Senate we hope the House gives this bill the proper consideration it demands.



“Internet Tax Measure Needlessly Threatens Consumers, Businesses”

“Senate Attaches Internet Sales Tax to Federal Budget Process”

“NetChoice Expresses Strong Concern Over Online Sales Tax Proposal”


Senate Commerce, “Marketplace Fairness: Leveling the Playing Field for Small Business”

House Judiciary, “Marketplace Equity Act of 2011”


‘Marketplace Fairness’ fools the Senate, but there are Skeptics in the House

Rollerblading in a Marathon

This new Internet Tax bill is like a box of bad chocolates on Valentine’s Day

Prediction for Cyber Monday: new Amazon taxes won’t help Main Street stores




Nightly Businesses Report

Bloomberg TV


NPR’s “On Point”

Small Business Advocate Radio


WSJ editorial – Backroom Internet Tax Ambush

CNet – Internet tax bill targets apps, music, movies, all downloads

The Hill – “Reid signals he’ll bring sales tax bill to Senate floor

CNet – “Internet sales tax, here we come?”

TechWorld – “US Senate moves toward Internet sales tax vote

PC World – “US Senate moves toward Internet sales tax vote

MultiChannel News – “Taxman Eyeing Cable Services

Christian Science Monitor – “Sales taxes for all online purchases? Resistance in House is strong.”

The Hill – “Reid signals he’ll bring sales tax bill to Senate floor”

CNet – “Looming Internet sales tax bills jolt consumers, retailers”

The iAWFUL reflects the editorial views of the Executive Director of NetChoice and does not necessarily reflect the views of all NetChoice members.

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