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.
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?