Online Sales Tax Would Create an 'Unlevel' Playing Field
Online sales tax could open a Pandora's box of overzealous collection efforts
August 8, 2012
States should only be allowed to tax businesses within their borders and businesses should only have to answer to tax authorities in states where they're physically located. This time-tested principle ought to be uncontroversial on its face, yet federal legislation like the Marketplace Fairness Act would turn it on its head by enabling states to compel compliance with their tax laws on out-of-state sellers.
Current law prevents a government from forcing a retailer to collect sales tax unless it has a tangible physical presence in the state. Far from being some accidental "loophole," this fundamental safeguard protects taxpayers from overzealous collection efforts and is reflected in virtually every facet of modern tax policy. Dispensing with that constitutional standard could threaten to open a Pandora's box. After all, this sort of foolish course helped bring about the collapse of the Articles of Confederation as states aggressively extended their tax authority beyond their borders to the detriment of interstate commerce.
Despite supporters' claims, the Marketplace Fairness Act would create a distinctly "unlevel" tax playing field. When you shop in a brick and mortar store, the owner isn't forced to interrogate you about your residence, consult your hometown's myriad rules and regulations to determine the correct rate, and then send the tax proceeds to a distant bureaucracy. You're simply charged the one rate in effect for where the store resides, regardless of your eventual destination. Yet the Marketplace Fairness Act would require online retailers to jump through ridiculous tax collection hoops for more than 9,600 different jurisdictions, denying them the method used for traditional in-store sales. Why can't E-tailers be allowed to use the same system?
But hasn't technology made it easy to accurately process sales taxes across the nation? Not at all. The Senate Commerce Committee held a hearing on this issue last week where it was revealed that a cheerleader for the Marketplace Fairness Act was improperly (and probably illegally) charging the wrong sales tax rate to "remote" customers, despite bragging that its tax calculation software was a snap.
Online sellers who manage to gain a toehold in the marketplace haven't done so because they're not collecting sales taxes (especially considering they have the added cost of shipping to customers). They're succeeding because of the convenience and selection that appeal to some shoppers. Governments shouldn't tear down taxpayer protections just to appease some old-school retail competitors, who can still deploy advantages of their own.