Internet Sales Tax: Another Terrible Bill Congress is Set to Pass

There’s a lot of things I don’t understand about Congress. Their inability to understand science, the Internet, how passing a bill actually works ... to name a few. Perhaps the most perplexing has been the recent discussion of the bill called the Marketplace Fairness Act. Uh oh, the name alone should give you a little hint at what is to follow. 

What the bill seeks to do is make Internet retailers charge state sales tax. On-line retailers and goods providers can skirt charging sales tax due to a 1992 Supreme Court decision. The decision Quill v. North Dakota said that states cannot force merchant to collect sales tax unless an individual is physically present. Consequentially, this also means that many businesses already charge a sales tax online. Despite what the name of the bill might tell you, it’s not about equity so much as it is about revenue. 

The New York Times reports that there is around $22 billion to $24 billion that goes uncollected each year in sales tax. That money could go to helping ailing states fighting growing budget deficits. The goal is a notable one. We all know that states infrastructure, health care, and education systems lack the funding they need. State governors also have been looking for a way to get back into black and this bill might give them that. Which is why it's support has increased in recent weeks.

States already collect tax from on-line purchases when that company retains a physical presence in that state. One of the other reasons lauded by those in support of the bill is that the tax will help local retailers and shops stay competitive. Michael Mazerov writes that not having an Internet sales tax slows local economies and costs jobs, because it puts brick-and-motor-retailers at a disadvantage. That’s where my real issue with the bill comes in. Are they really assuming that people don’t shop at retail stores because they have to pay a sales tax? 

Wrong. People shop on-line because it’s fast, convenient, and easier to shop for deals. I personally shop on-line that I can buy a package of fifteen seaweed snacks at a discounted price and get them shipped to me via two-day air. I do this because one, it’s easier and two I avoid judgement of those around me. I’m not alone in this, 45 percent of shoppers buy items online that they wouldn’t normally purchase in person. A survey conducted in 2012 showed that 66 percent of consumers prefer web retailers and 73 percent of the survey’s participants completed almost half of their shopping entirely online. People that shop on-line aren’t going back into brick-and-mortar stores once this bill is passed. These stores will still be fighting against the Internet behemoths of Amazon and Walmart just like they do today. 

The problem with Congress is that they are making any differentiation between traditional retailers and on-line retailers at all with this bill. Republican Steve Womack of Arkansas said, “I’m just just hopeful we can send a life vest to our traditional retailers.” Well Steve, you’re about twenty-years too late on that one. People don’t shop in the “traditional” fashion anymore.

How exactly will this bill be enacted? There are 9,000 sales-tax regimes and what about those states with no sales tax at all? Businesses who make under $1 million a year in revenue would be exempt. CNET’s Declan McCullagh points out the problem with this:

It also includes an exception for business that make under $1 million a year in revenue. But many small businesses can exceed that. If an eBay seller has over $1 million in revenue and a typical profit margin of perhaps 8.3 percent, he or she will make as little as $83,000 a year -- but could still be required to collect taxes on Internet sales, and be subjected to audits, in nearly 50 states. 

As the bill stands, state governments would have to supply their state-tax software packages to businesses. Those businesses would then have to integrate those schemes into their web ordering systems. The real issue with MFA is that it lacks the necessary protections, it’s being rushed through Congress and it's extremely complex and burdensome on both businesses and individuals. Though the goal of the bill is laudable, in its current form it just does more harm then good.