February 14, 2012


David Mack





NetChoice Expresses Strong Concern Over Online Sales Tax Proposal

New Marketplace Fairness Act Fails to Require Tax Simplification


Washington, D.C. – NetChoice today announced its opposition to The Marketplace Fairness Act, which would impose new taxes on online businesses.


For over a decade states have attempted, and failed, to develop a tax system that would work for out-of-state sellers in an efficient and unified way. The legislation introduced today by Senator Durbin (D. IL) sweeps aside the effort to simplify the thousands of conflicting state and local tax systems, and creates a new tax regime that will be expensive and onerous for small online retailers.


“For years Congress told states to simplify their tax systems before federal legislation would be considered, but the Marketplace Fairness Act ignores that basic principle,” said Steve DelBianco, executive director of NetChoice. “Failing to require that states simplify their tax systems before enacting these new taxes is putting the cart before the horse.”


State tax collectors have demonstrated that they cannot agree among themselves on the right way to assess and collect online sales taxes. Granting this authority without specific guidance will create a compliance nightmare for businesses across the nation and create significant costs for any business that sells over the Internet or with a catalog.


Amazingly, the legislation would allow each of the 46 states with sales taxes to maintain these complexities:


  • Nearly 10,000 local tax jurisdictions get to keep their own tax rates.


  • 46 states can make their own definitions for taxable goods and services. So California can say a granola bar is food, while Kentucky says it’s candy.


  • 46 states get to create their own interpretations for key terms affecting sales tax. “Sales Price” is one prominent example where states have different definitions today.

  • 46 states get to keep their own a unique tax filing form and rules for electronic filing and funds transfer.


  • 46 states can impose separate audits on any remote seller across the country. So, New York’s tax collector will have new powers to audit any retailer in all 50 states.

  • Nearly 10,000 local tax jurisdictions can force remote sellers to honor unique sales tax holidays, which involve a myriad of items, dates, and complex rules for caps and thresholds.


Adding all of the regulatory burdens above will be devastating to small businesses that operate on razor thin margins.   The $1 million exemption level in this legislation isn’t even enough to cover a mom-and-pop retail operation.  In fact, the states’ own study showed that retailers under $1 million in sales already spend seventeen cents for every tax dollar they collect for states.


Moreover, the $1 million exemption in this bill is reduced to just one-fifth of what it was ten years ago, when many more simplifications were required.


The Marketplace Fairness Act will introduce additional costs, complexity and uncertainty for thousands of businesses across the country. States should not be allowed to dodge the hard work of simplifying their complex and contradictory tax systems.


NetChoice is an advocacy organization that fights threats to online commerce and promotes policies that protect Internet innovation and communication on a state, federal and international basis. The Washington, DC-based group protects Internet commerce-driven competition and battles rules that hinder consumer choice and hurt small businesses. For more information, see www.netchoice.org.