Bill Waltz, the Indiana Chamber's VP of taxation and public finance, penned the following column, which ran in The Journal-Gazette of Fort Wayne.
States have the right to tax activities that take place within their borders. States do not have the right to burden interstate commerce – unless Congress approves.
The Marketplace Fairness Act of 2013 involves both principles.
The act would require online sellers who have no physical presence in a state to collect sales tax from that state’s residents. It recognizes that Internet purchases take place within the buyer’s state but that compelling the seller to collect the sales tax affects interstate commerce.
The 69 U.S. senators who voted for the Marketplace Fairness Act concluded that states should be allowed to require remote sellers to collect the sales tax. But passage in the House is uncertain as opponents raise questions. The legislation should be evaluated on an objective basis.
Here are some of the statements and claims being made about the Marketplace Fairness Act :
•The Internet tax moratorium should not be lifted
•This is a “new” tax
•This will hurt small Internet businesses
•State tax administrators will abuse their power to tax out-of-state businesses
•It will be impossible for sellers to comply with the laws of 8,000 jurisdictions
•Internet businesses will move out of the United States
•Jobs will be lost
First, this has nothing to do with the 1998 federal moratorium prohibiting taxing Internet access or imposing a new tax on the conduct of business over the Internet. This is about applying existing state laws on the taxation of retail merchant transactions.
This is not a new tax. States’ sales tax is due on Internet purchases today and purchasers are legally obligated to pay. The problem is few people do so by self-reporting, shifting the burden to all those self-reporting taxpayers who do meet their legal obligations.
As for hurting small businesses, the act has a small seller exception for any business having less than $1 million in annual sales (and this threshold could be raised).
Many of the abuse objections are refuted by the text of the bill. It expressly prevents states from subjecting a seller to “any other type of taxes, other than sales and use taxes.” It further specifies that “This Act shall not be construed to create any nexus between a person and a state or locality.”
The text also addresses administrative compliance. It contains provisions on “minimum simplification requirements” to assure some uniformity in how each state identifies what is to be taxed and at what level. It calls for a single filing and single audits within any given state. The states are required to provide free software to calculate the tax. Additionally, remote sellers are shielded from liability for inadvertent noncompliance.
There will be complications with any major change in procedure, but the act is very friendly to remote sellers. Also, it is in the states’ interest to keep things as simple as possible in order to collect the tax.
As for businesses and jobs moving overseas, Internet businesses are not likely to relocate unless the costs of production motivate them to do so. Internet businesses will continue to grow and thrive in the U.S. – and create jobs – whether or not they must collect sales taxes.
The jobs focus should be on those lost today as in-state brick-and-mortar retailers have cut back due to the unfair price advantage enjoyed by online sellers.
Opponents can suggest problems where there are none, foster doubt and cater to viewpoints that have no basis in reality. But once these questions are answered fairly and objectively, there is no good reason not to support the Marketplace Fairness Act.