PublishedSeptember 26, 2014

Online Retailers Could Be Hobbled in Lame Duck

In July, we warned against the short-sighted folly of conflating the issues of the Internet access tax moratorium and online sales tax collection, characterizing the then newly introduced Marketplace and Internet Tax Fairness Act (S. 2609) as an exercise in legislative hostage taking. Unfortunately last week, Senate Majority Leader Harry Reid (D-NV) expressed (in both action and words) his clear intention to do exactly that. The hostage has been abducted and the ransom note has been written. Senator Reid and his allies on this issue will attempt to use the post-election lame duck session to deal a crippling blow to small online retailers and the innovative spirit they stand for.

Last week, right before adjourning until after the midterm elections, Congress passed a stopgap spending bill that included an extension of the Internet access tax moratorium until December 11. This 40-day extension was dictated by the Senate leadership’s intention to bring up the Marketplace and Internet Tax Fairness Act during the lame duck session. By leveraging the threat of the Internet Tax Freedom Act (ITFA) access tax moratorium expiring, supporters of the Marketplace Fairness Act (MFA) will seek to coerce members of the House into passing a much more controversial bill that has very little to do with the issue of the moratorium. The unwieldy title of the combined bill, “Marketplace and Internet Tax Fairness Act,” shows how much of a stretch this conflation is. The “Freedom” of ITFA has disappeared, replaced by the MFA’s “Fairness.” As pointed out previously, the MFA itself has little to do with fairness, so it is not surprising that its supporters continue to show a less than robust commitment to accuracy in titles.

On substance, the two issues are at polar opposites in their approaches to innovation and the Internet. While the moratorium is designed to promote utilization of the Internet, the MFA would undermine it by forcing online retailers to bear the huge compliance burden of collecting sales taxes for over 9,600 different tax jurisdictions. In fact, Senate Finance Committee Chairman Ron Wyden (D-OR) declared that, “There is absolutely no way to reconcile the current MFA and ITFA,” and stated, “Anyone who votes for passing MFA alongside ITFA is voting to repeal ITFA.”

Due to their interregnum-like nature, lame duck sessions are irregular things with a diminished sense of accountability. As such, a Hippocratic approach of “first do no harm” should be taken. Passage of MFA would do great harm to small online retailers and their innovative business model. It would be unconscionable for a lame duck to reach out and hobble a key component of the Internet economy.

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