RECESS WATCH: Marketplace Fairness Act, aka the Internet Sales Tax

August is more than halfway over, but Congress remains on vacation as the Taxpayers Protection Alliance (TPA) continues our “Recess Watch” series. This week the focus is the Marketplace Fairness Act. This is a deceptive name because it should be called the Internet Sales Tax, which will harm the marketplace and is anything but fair. The bad news is that the Senate passed the bill by a vote of 69-27. The good news is that the House of Representatives still hasn’t voted on it and there appears to be sufficient opposition to stop it. The three core problems with the Marketplace Fairness Act are the additional taxes, the burden on businesses, and privacy.

The first problem with MFA is that it is a tax increase, plain and simple. As Americans for Tax Reform President Grover Norquist told Stuart Varney of Fox Business Network last spring:

“This is all about raising money to pay unionized state and local government workers more money and more pensions because they don’t think making $20,000 more than people in the private sector is enough, having gold-plated pensions is not enough.  They want more. They think this is the only way they can get certain states to raise money for them.”

There are massive amounts of money to be had and it is clear that politicians at the state and local level see MFA as a major opening to have free-reign to start taxing individuals throughout the 49 other states.

The second problem that is inherit with the Marketplace Fairness Act is that in the actual marketplace, there will be consequences for some businesses and not others and would be anything but fair. R Street’s Andrew Moylan noted the organizational disaster and bureaucratic nightmare that many online retailers would face should such demands be placed on their business transactions:

“Brick-and-mortar sales would be governed by a rule that allows the business to collect sales tax based on its physical location, not the destination of their buyer. Meanwhile, online retailers would be denied that convenient standard and would be forced to interrogate their customers about their eventual destination, look up the appropriate rules and regulations in more than 9,600 taxing jurisdictions across the country, and then collect and remit sales tax for that distant authority.”

The disadvantages that MFA would force upon online retailers is clear and there are efforts in the private sector to oppose the legislation as many businesses recognize the harmful results it would have on their profitability. The online retailers aren’t the only ones who will be adversely impacted should MFA become law. Rick Smith of Synergy Computing points out that vendors, manufacturers, and distributors who sell to online sellers will also be paying, regardless if they sell direct to consumers. The fact is that these problems will in all likelihood hurt the consumer as businesses struggle to find ways to make up for the lost revenue by a new tax and a new system sure to cost more than anyone can predict at this moment.

The final problem that can be attributed to the Marketplace Fairness Act is the risk of privacy that may result should the law end up signed by the President. Earlier this year at Digital Liberty, Katie McAuliffe wrote about what would be required from businesses in order to collect these revenues stating that, “in order to collect the proposed remote sales tax, businesses would be forced to send personal information about their customers to a host of state revenue departments. This opens consumers up to the very real potential of losing personal information.”

TPA is strongly opposed to the Marketplace Fairness Act and hopeful that such legislation will not see a path forward in the House of Representatives. The Marketplace Fairness Act will enhance the power of tax collecting agencies at a time when their powers should be diminished.