Low Quality Equality

As Congress continues to wrestle with the idea of unleashing sales tax collectors across state borders, a lot of buzzwords are recycled. All of them attempt to make a huge and complex tax system look as if it’s benign and beneficial.

“Equity”

 “Fairness”

 “Main Street”

But nothing could be further from the truth.  In my testimony today before the House Judiciary Committee, I described why proposals like the Marketplace  Equity Act will do far more harm than good and act as a drag on online commerce.

“Equity” is when everyone plays by the same rules.  Which is exactly how it works now: just like the local store, every online and catalog company pays sales tax to every state where it has a facility or physical presence.

 

If this bill were really about equity, it would force all stores to bear the same tax burdens.  For instance, think about those outlet malls on I-95, or the souvenir shops here in Washington, where nearly all the customers live out-of-state.

 

“Equity” would require customers to show an ID when buying anything, so the clerk could calculate and file taxes for your “home” tax jurisdiction.  Sure, that’s ridiculous — but that’s the unfair burden H.R. 3179 imposes on online and catalog sellers in other states.

 

In its Quill decision, the Supreme Court was concerned not so much by fairness as by, “concerns about the effects of state regulation on the national economy.”  The justices understood that having to comply with nearly 10,000 jurisdictions in 46 states is a burden that could severely impact business growth and innovation.

 

And “Mainstreet” businesses could fare worse under the proposed tax scheme, since many stores use the web to reach customers around the country.   The bill has a $1 million small business exception, a clear acknowledgement that the system is expected to be costly and complex.  But the exemption is not nearly high enough, since a million in gross retail sales is just a mom-and-pop operation at most.

 

Last week, we showed how the top 500 e-retailers account for over 90% of uncollected sales tax on e-commerce.  #1 is Amazon, at $48 billion, and #500 is just $15 million.  States could exempt businesses under $15 M and still collect 90% of the sales tax.

 

And for businesses that rise above the small business exception, Congress must deliver radical simplification and reduced administrative burdens as part of any legislation.

 

This most recent attempt to legislate fairness for Mainstreet via new internet taxes will neither be simple nor easy to administer. At the same time, it won’t even bail-out state budgets, since new taxes would add less then one half of one percent of existing state and local tax revenues.

 

My question for members of the House Judiciary Committee stands:  If we know this new tax system will be complex to administer, and we know that it will deliver only a small injection to state budgets, is the juice really worth the squeeze?

3 replies
  1. Small Business Owner
    Small Business Owner says:

    Why do you keep referring to these taxes as new taxes? The states used to collect retail sales tax before the local retailers went out-of-business. These are not new taxes, they are old taxes being recovered. These are taxes that kept Police and Fire in properly maintained vehicles.

    “Drag on online commerce” – really? You must not live in a community with a Main Street. Get out to Middle America and have a look around. There are many empty strip malls and shops that used to thrive because they had goods to sell… all of which were priced competitively with “the guy down the street”.

    The Internet has removed the middle man from the sales channel. The middle man IS Middle America. Nobody can make a living selling products anymore… they have to have skills in order to survive. That’s why the high unemployment, that’s why the empty stores. It all boils down to an Unfair Tax Advantage.

    Reply
  2. J.
    J. says:

    Give me a break. If you went out of business, it’s not because of a small perceived tax advantage. It’s because you failed to adapt. How did you make yourself different? What did you do to add value?

    Even if they do impose this unfair tax burden, people will still prefer to shop online because its more convenient. No driving. No having to lift anything heavy. You can shop from multiple stores with ease. No waiting in line. No dealing with clueless clerks.

    (Most) people don’t shop online to avoid sales taxes. They shop online because it’s more convenient-period. Even without paying sales tax (IF the company is not in your state), you still have to pay for shipping and wait for the item to arrive. So stop using this crutch to whine about why small businesses are closing. They are closing because they do not know how to adapt, add value, and stay competitive price wise.

    Get some business skills, and you’ll stay in business. Just putting up shop isn’t going to cut it.

    Reply

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply