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

It’s Valentines Day, so Senator Durbin (D-IL) presented a box of chocolates to his colleagues in Congress – in the form of his latest iteration of the Marketplace Fairness Act. But bite into any of the chocolates in this legislation, and you’ll taste only stale rhetoric that fails to deliver on promised simplifications.

The main thing you need to know about the new Marketplace Fairness Act is that it is the same as the old Marketplace Fairness Act — including the same false promises and flaws. In the few weeks since the last Congress wisely declined to enact new Internet sales taxes, supporters have done nothing to make their scheme more appealing to businesses and consumers who’ll have to pay the taxes.

The legislation introduced today sweeps aside the decade-long “Streamlined Sales Tax” project that sought to simplify thousands of conflicting state and local tax systems. Instead, this bill would create an expensive and onerous new tax regime for any business that uses the Internet or catalogs to reach customers around the country.

Bite into any of the promised simplifications in this bill, and you’ll be awfully disappointed.

For years, the principle has been that states should simplify their tax systems before asking Congress to broadly expand their taxing authority. But this bill abandons that principle, authorizing new tax and audit powers without requiring real simplifications or protecting small businesses.

Just like a box of chocolates, you open to see tempting morsels that promise something special inside. But bite into any of the promised simplifications in this bill, and you’ll be awfully disappointed. Just take these examples of how complexities of state taxes are allowed to remain under the chocolate coating called “simplification”:

2013-02-14 05.06.15 pm Nearly 10,000 local tax jurisdictions get to keep their own tax rates.

2013-02-14 05.06.37 pm 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.

2013-02-14 05.05.53 pm 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.

2013-02-14 05.06.29 pm 46 states get to keep their own a unique tax filing form and rules for electronic filing and funds transfer.

2013-02-14 05.06.23 pm 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.

2013-02-14 05.06.37 pm 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.

If Senator Durbin thought his Valentines Day legislation would surprise and delight, he’s got another thing coming. Because this bill is a box of bad chocolates that will be awfully hard to swallow for his Congressional colleagues, businesses, and taxpayers.

6 replies
    • Kurt P
      Kurt P says:

      If this legislation passes one, two and three million dollar a year Mom and Pop’s are toast.
      So are thousands of recent college graduates who can’t find jobs and think they are going to start internet businesses. Surprise! The barrier to market entry just got a lot higher…better fill out that application for a job at Walmart instead.

  1. David Davis
    David Davis says:

    Yes, but government compliance is the cost of doing business. The exemption should either apply to all businesses or no businesses.

    Why should local businesses be at a disadvantage to some remote company who does not contribute to the state/local economy.

    The law is assbackwards. Local businesses should be exempt from collecting sales tax and internet companies should have to pay.

  2. Len White
    Len White says:

    I sent the letter below to may local newspaper. Apparently they will not publish it. This is not the first time my attempts to get published on this topic have failed. Any Ideas on how to get published on this topic are appreciated. I have more arguments to make.

    To the Editor:
    During the 1930’s technology changed sufficiently so that mass marketing became possible. Local merchants fearing competition from chain stores lobbied for protection. Many states including Arkansas passed what were called “Fair Trade” Laws. Note the use of the word “fair”. Now, technology has again shifted and local retailers are once again lobbying for protection. This time it is from the internet sellers. But once again “fairness” is the appeal. The new bill is called “The Marketplace Fairness Act”.
    Normally, state sales taxes are used to support local and regional infrastructures which benefit local retailers much more than internet sellers who do not use the local infrastructure. Internet businesses depend on local taxes at their physical location for their infrastructure support. By paying more in local tax, consumers would be in fact subsidizing local retailers. Internet sellers, in addition to the price of the product, often charge shipping and handling which at least partially offsets any advantage from sales taxes not collected. In addition, buyers on the internet face problems of returning unwanted merchandise. In the interest of “fairness”, should local retailer be required to aid in the return of unwanted merchandise to internet sellers?
    Supporters of “fairness” legislation such as The Marketplace Fairness Act are trying to pick winners instead of letting the market work.


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