Stop the Internet Tax

David Williams

December 11, 2012

Even though shopping online for Cyber Monday’s (the Monday after Black Friday) deep discounts is popular, people have become accustomed to purchasing all sorts of goodies online throughout the year.  On-line sales have become an integral part of the country’s day-to-day commerce as people have less time to visit malls or “brick and mortar” stores.  Now, Congress wants to impose an additional fiscal burden on those consumers purchasing goods online with the Marketplace Fairness Act (MFA).  Once you get past the misleading name of the bill, it is clear that the legislation is far from fair as the bill seeks to impose even more taxes on top of the ones online shoppers are already paying.  As the Huffington Post described, the bill was created “in order to provide states with the ability to collect a sales tax on online purchases made by state residents.”  Major problems plague this legislation.  Senator Jim DeMint (R-SC) summed up a few of its shortcomings succinctly in a blog on his website.  As the Senator wrote:

“These problems include that:

  • MFA is taxation without representation;
  • MFA is a NEW tax;
  • MFA will RAISE taxes;
  • MFA isn’t fair;
  • MFA won’t simplify state sales taxes, it will increase tax complexity;
  • and MFA could lead to double-taxation.”

Many state legislators were in Washington last week in part to lobby for passage of the MFA as an amendment to the National Defense Authorization Act (NDAA).  Fortunately, debate closed on the NDAA before the Senate could consider the MFA. While in DC last week, Utah state senator Curt Bramble (R) offered a telling revelation about the motive his state and others had to back this legislation.  Bramble stated, “The Marketplace Fairness Act permits Congress to provide funds for the states without funds coming from the states.”  It’s no wonder why states are pushing so hard to see the MFA pass, especially since so many states face such devastating financial plights.  By their measure, they really couldn’t ask for a better way to raise revenues.  The MFA literally would be no skin off their noses, but bring in large sums.

The cable network, MSNBC, may be left leaning, but at least one of the journalists sees the danger of this new tax for what it is.  As Bob Sullivan explained, “To boil it down, Forrester Research says the average U.S. online shopper will soon spend $1,700 annually — so the changes will cost each one about $125 every year. That’s $125 in new taxes you’ll be paying. It’s $23 billion our state governments will have to spend that they currently don’t have. Of course, very few are willing to say the “T” word out loud.”

In addition to burdening American families who already struggle to make ends meet, this legislation would also harm small businesses that sell their products online.  With the MFA proposal plus the tax rates that may be severely hiked in deals to avert the fiscal cliff plus the increased taxes Obamacare imposes, small businesses will really be getting the short end of the stick from Washington.  Small business is the engine that fuels are economy.  By harming this sector, this tax will impose greater hardships on all Americans.

Not to mention, the Marketplace Fairness Act as proposed, would overturn a 1992 Supreme Court decision, Quill v. North Dakota, which established that it is a violation of the Commerce Clause for a state to require online retailers, who are without a physical presence in the state, to be forced to collect and pay the sales tax.  No need to get into the nitty-gritty legal justification to see why this ruling makes sense.  Bottom line is that the government should not coerce a company – and ultimately the consumers – to pay taxes to a state where it does not have a physical location or a representative in the state government.

It’s not “fair” to ask a business operating outside of a state to pay a sales tax, in part because the company will receive no benefits from the services the state will supposedly provide from a new stream of revenue.  Unlike the hometown brick-and-mortar stores, the online companies do not benefit in any way from state services.  Such remote businesses have nothing to gain from services of the police, maintenance of roads, sanitation services, things right down to street lamps.  So why would Congress insist that online retailers pay taxes to a state government that not only does not have (and should not have) jurisdiction over them.

This modern example of taxation without representation is akin to the grievance our forefathers had with England.  But there’s a simple way to avoid this brewing problem, for once it’s a good idea for Congress to sit on its hands and do nothing.