Marketplace Fairness Act Targets Domestic Tax Competition

Like so many bad ideas in Washington, the recently introduced “Marketplace Fairness Act” has bipartisan support. But there’s nothing fair about allowing states to reach outside their borders to tax businesses headquartered elsewhere. In fact, the bill’s broad expansion of state taxing authority is a direct assault on tax competition, federalism and, indeed, basic fairness.

The response from taxpayer and free-market organizations has been swift. National Taxpayers Union Executive Vice President Pete Sepp notes that the bill will, “undermine tax competition among the states, tilt the commercial playing field in favor of big-box stores, and upend the constitutionally based doctrine of physical presence that has shielded sellers and buyers from out-of-state tax collectors reaching into their pockets.” R Street’s Andrew Moylan says, “it would tear down the walls that keep state tax collectors from wandering outside their borders while causing serious damage to electronic and interstate commerce.” And internet taxation expert Steve DelBianco of NetChoice reports that, “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.”

NTU has also released an “Internet Sales Tax Myths and Facts” one-pager to refute arguments used in favor of the new taxing powers, and Brandon Arnold further explains how the bill’s grant of unprecedented authority to state tax collectors runs counter to the true purpose of the Constitution’s much-abused Commerce Clause.

Jessica Melugin of CEI highlights the perversity behind claims that the bill promotes fairness: “There’s nothing fair about allowing brick-and-mortar stores to continue to tax at the point of sale while forcing online retailers to calculate and remit to more than 9,600 distinct taxing jurisdictions. There are plenty of online retailers who won’t survive those compliance costs.” Numerous experts from the Heartland Institute also weighed in.

Americans for Tax Reform, in a letter to members of Congress, uses the example of the New York Department of Revenue being able to enforce New York tax laws, and through the New York Courts, against a business based in Virginia, as a warning for the kind of environment this bill would create. While businesses are fleeing places like California in search of less confiscatory tax policies, allowing tax collectors to then follow and harass these businesses even in their new homes would be a recipe for disaster and limit the benefits of state competition.

The ATR letter also notes significant privacy concerns introduced by the bill, as does Jim Harper of the Cato Institute. He examines the risk for breaches of privacy when, “sellers all over the country would have to turn the addresses of the people they sell to over to state tax authorities.” Specifically, “state tax authorities would get troves of data about online purchases delivered into their state. The standard misuses apply. It might be transferred to other organs of government, legally or not, for investigation and examination. Curious state bureaucrats might look up the purchasing habits of ex-spouses, famous names, and political figures. The list goes on and on.”

CF&P has long worked to prevent international efforts to undermine tax competition and establish a global tax cartel of high tax nations, namely through the OECD. We have found it to be universally true that politicians and tax collectors will seek any opportunity to expand their power and authority at the expense of taxpayers. It is no surprise that American politicians and state-level tax collectors are no different. For all the reasons mentioned above, and many more, we oppose this effort.

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