Will New Internet Sales Tax Laws Create Market Fairness?
Religion & Liberty Online

Will New Internet Sales Tax Laws Create Market Fairness?

It’s called the “Marketplace Fairness Act,” but how fair is it and who does it really benefit? The legislation, which is expected to pass the Senate, is heralded by supporters as instituting market equity to the brick and mortar retailers. Supporters also proclaim it will help to alleviate state budget shortfalls. The Marketplace Fairness Act gives new authority to states to directly collect sales taxes from online retailers. Jia Lynn Lang at The Washington Post explains:

Since before the dawn of Internet shopping, the basic rule was that as long as a retailer didn’t have a physical presence in the state where the consumer was shopping, the company wouldn’t have to collect a sales tax. Technically, shoppers are supposed to track these purchases and then pay the taxes owed in their annual tax filings. Few people, however, do this or are even aware of it.

The result: Online retailers have been able to undercut the prices of their non-Internet competitors for years. Over time, shoppers learned that they could browse products in the aisles of a Best Buy, only to click “purchase” on their smartphones for a tax-free deal from an Internet retailer.

Corporate retailers with physical stores and the states are naturally the biggest supporters of the legislation. They are lobbying hard for the change.

Proponents of the legislation warn that the new law will allow states sweeping taxing authority over businesses outside of their borders. Another example of taxation without representation. The Wall Street Journal points out that, “Small online sellers will therefore have to comply with tax laws created by distant governments in which they have no representation, and in places where they consume no local services.”

Furthermore, as Steve Stanek points out at the Heartland Institute, perhaps the bill is not so fair after all. “True marketplace fairness would require every brick-and-mortar store to verify the address of each and every one of its shoppers, determine what the sales tax is where each shopper lives, and then send that money to each shopper’s local taxing jurisdiction. Under this bill, only online and mail-order retailers will have to do that,” says Stanek.

According to NPR there is another important angle to consider. EBay opposes the law while Amazon supports it. NPR explains the reason for the seemingly surprising support from Amazon:

Collecting state and local sales tax all around the country would require a fair bit of effort on the part of online retailers, because sales tax rules vary from state to state. That’s not a huge deal for a giant company like Amazon, but it would be more of a burden for smaller online retailers. From Amazon’s point of view, that’s a good thing — it makes life harder for Amazon’s smaller competitors.

That’s why big businesses, despite what they may say, often like regulations. They make life harder for small, would-be competitors. But in the case of Amazon, this argument is less compelling: Amazon spent years doing everything it could to avoid charging sales tax.

Related to the topic of corporations lobbying for higher taxes and regulations, the next issue of Religion & Liberty features an interview with Peter Schweizer on cronyism. Schweizer gives examples and explains how many corporations collude with government to decrease market fairness.

It seems there are too few lawmakers talking about the governmental spending problem, instead favoring the “revenue shortfalls” meme and ways to expand taxing authority. Clearly, not enough lawmakers are sounding the alarm on corporations colluding with government. The real losers of this legislation are the taxpayers and those in lower income brackets. Sales tax is a regressive form of tax that disproportionately hurts the poor.

Americans are excessively overtaxed today. Who is making the case to scrap the sales tax altogether? What lawmakers will do the morally right thing and first take steps to reduce the overall tax burden for all Americans?

Ray Nothstine

Ray Nothstine is editor at the Civitas Institute in Raleigh, North Carolina. Previously, he was managing editor of Acton Institute's Religion & Liberty quarterly. In 2005 Ray graduated with a Master of Divinity (M.Div) degree from Asbury Theological Seminary in Wilmore, Ky. He also holds a B.A. in Political Science from The University of Mississippi in Oxford.