PublishedMay 7, 2013

Simplified Sales Tax Systems are Needed More than Oversimplified Argument

The Senate voted to pass S. 743, the Marketplace Fairness Act yesterday.  CCIA has long opposed this bill, which would impose burdensome tax collecting requirements on online retailers regardless of physical presence.  Especially disappointing about the vote was the fact that the Senate decided to eschew substantive discussion about the consequences of this action on the economy in favor of a simplistic declaration of fairness.  While state and local tax jurisdictions continue to shy away from the necessary task of simplifying their sales tax systems, proponents of the bill certainly have no such qualms about oversimplifying the debate.

Even leading up to the vote last night, sponsors of the bill continued to argue for “fairness” and “states rights.”  These may seem like easy things to support, but they are highly subjective and depend greatly on whose fairness and rights are being considered.  The bill unquestioningly accepts the premise that online retailers and physical retailers are equal in all ways except sales tax collection, and that forcing online retailers to collect sales tax would complete the equation.  This is inaccurate in that not only are the two business models distinct in a host of different ways but the burden of sales tax collection also differs between collecting for one location and collecting across thousands of jurisdictions.  Wishing away these differences in order to achieve a tidy equation of “fairness” oversimplifies the treatment of e-commerce as a new business model, and does not lead to a policy that works in the real world.

The same can be said for the “states’ rights” argument.  Proponents of the bill characterize it as freeing states from having to ask, “Mother, may I?” to the federal government in order to collect taxes for their own states.  This is an oversimplification portraying a conflict between all states on one hand and the federal government on the other.  In reality, “states’ rights” is not just about rights against the federal government but also rights vis-à-vis other states.  Issues such as forcing online retailers in states with no sales taxes to collect for other states, or enforcement and auditing action against online retailers beyond a state’s borders have not been addressed.

Proponents also repeated the claim that the bill creates no new taxes; that the taxes are already owed by online buyers.  Yes, but the collection burden falls on the shoulders of small online retailers.  The issue is not about tax burdens but about tax COLLECTION burdens.  Why must online retailers be impressed into service as tax collectors for no better reason than that it would be convenient for state and local tax authorities?  Unable or unwilling to simplify their tax systems to a manageable degree, they have decided to dump the unholy mess onto the very innovative small businesses whose growth should be encouraged, not undermined.

During floor debate, Sen. Wyden (D-Ore.) declared that the bill “steers the Internet toward a dangerous path,” comparing it to demands by certain foreign governments that the Internet should accede to their control.  This bill’s view of technology and innovation as just another asset that can be commandeered for government use is a disturbing one, and one hopes that it is merely a case of not adequately taking into account its consequences.

While we are disappointed that the world’s greatest deliberative body saw fit to rush passage of the Marketplace Fairness Act through, we hope that the House of Representatives will take the time and care that such a fundamental rethinking of taxation deserves rather than perfunctorily accepting an oversimplified argument.

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