Right now, sales over the internet are usually only taxed when the buyer and seller are physically located in the same state. This bill from Senator Jack Reed (D-RI) would lift the usual federal protections on interstate commerce and authorize state governments to tax sales which cross state lines, and put the burden of collecting that tax on the online business making the sales, regardless of where it is located. This addresses a claim from huge retailers that they are at a competitive disadvantage because they have retail outlets in every state and therefore charge tax on all of their sales in person or online.
| Erick Erickson who seems to be increasingly moving into the anti-establishment camp of the GOP reveals that the same cabal of big government interests (and Karl Rove) which supported the Romney campaign are behind the Marketplace Fairness Act which would produce a gigantic tax increase for online consumers and drive small internet entrepreneurs out of business. He also touches on some of the deceptive tactics they are using to push this bill. See his article on RedState. |
How online businesses operate is basically the same as mailorder businesses have for over a hundred years, but now that there are more of them with a little more access to consumers suddenly the big chain stores think they are unfair.
Store chains with physical locations have their own advantages. They can attract casual buyers and allow them to examine their products with access which is impossible online. Plus their size and the bulk in which they buy products wholesale give them an edge through economy of scale which allows them to sell products through their stores at lower prices. They can undercut online retailers because they do not have to pay shipping to deliver each product.
| To get all the real facts on this issue, see Bryan Daugherty’s article on internet tax Myths and Facts. |
Most online businesses are entrepreneurial micro businesses which operate in very specialized areas and have to do everything they can to cut overhead. They are one of the strongest and most dynamic areas of growth in our troubled economy. They have also become a second chance for many of the unemployed, who have taken their savings and invested them in internet businesses and found a new way to earn a living and become a new middle class. This proposed tax policy will take all of that away and bankrupt them, leaving them without even unemployment to fall back on.
Raising the effective price of goods sold by online retailers may drive them out of business. But the more serious threat is the incredible paperwork burden which compliance with this law will place on these vulnerable businesses. Online businesses will have to charge taxes to satisfy the rules of 50 states and hundreds of thousands of other smaller taxing jurisdictions. There is no way they can track all those taxes, charge them accurately and deliver the money to all of the taxing authorities without a huge cost in man hours or money. When you have thousands of employees, hiring a department of tax accountants is a manageable expense. When you’re one guy working out of his garage with a couple of part time employees it’s instant bankruptcy.
This bill would stifle the freedom which the internet has given to consumers and small businesses and sacrifice the welfare of hundreds of thousands of entrepreneurs for the benefit of some of our largest and most powerful corporations. This is not just a way to raise revenue for spendthrift states and make commerce more “fair” – it is a death sentence for most online businesses.
The bill is backed by the powerful lobbying machines of companies like Best Buy, Target, WalMart, PetSmart, Lowe’s and PetCo as well as by state and local governments eager to get their hands on a few more consumer dollars. It is largely opposed by consumer advocacy groups who see that it is monopolistic and realize that competition makes the marketplace stronger and prices lower for everyone.
The giant retailers have already forced most local businesses which try to compete with them out of business and now they want to do t