Senate to Push Online Sales Tax This Week

online retailer

Not only will the budget being pushed by Senate Democrats raise taxes by nearly $1 trillion, they want to make it easier for states to go after tax dollars from online sales.

The budget proposed is in the Senate is bad enough. As noted, it’ll raise taxes by $1 trillion, it doesn’t balance the budget or set a path to pay down the national debt, and many of the savings in the proposal are double-counted. How could they possibly make it worse? By adding the Marketplace Fairness Act, which will apparently be presented as an amendment to the budget as early as this week.

While the bill has nice name, it’s protectionist in nature. It’s being pushed by traditional, brick-and-mortar retailers who have seen their business slide due to the popularity and convenience of online retailers. Many governors — including some Republicans — also like it because it would give them a new revenue stream.

Jim DeMint, then a Senator from South Carolina, wrote last year that the Marketplace Fairness Act was tantamount to “taxation without representation” because it “would require online retailers to collect and pay sales taxes to states where they have no physical presence or democratic recourse.” Those same issues were recently reiterated by Daniel Horowitz at Red State, the popular conservative blog. Horowitz contends that there are other ways to make traditional retailers more competitive without hurting online commerce, such as “lowering the tax burden” on brick-and-mortar retailers.

But there are political reasons why the Senate should reject the Marketplace Fairness Act, as Andrew Moylan of the R Street Institute recently explained.

“Simply stated, the next Republican Senator to get in electoral trouble for being insufficiently supportive of expanding tax collection on businesses across state borders for internet sales will be the first,” noted Moylan. “It’s true that there’s a lot of noise about this bill; that much is undeniable. Big box retailers have poured tens of millions of dollars into a high-powered lobbying and PR blitz to support the Marketplace Fairness Act because it would advantage them against their competition.”

“But I haven’t heard much from what you could call ‘regular’ folks without a business or lobbying interest in the bill saying, ‘Yes, please. Let’s give state revenue collectors the authority to target businesses outside their borders and levy their complicated taxes on my internet purchases,’” he added. “In fact, polling on the matter pretty consistently shows that the public opposes the concept behind the bill, including upwards of 75% of conservatives.”

Moylan surmises that K Street may not be happy with Senators who object to the Marketplace Fairness Act, but that they ultimately answer to those who will be paying the tax back home.

There is one other factor at play — it’s unconstitutional. This was a point Horowitz brought up in his lengthy post at Red State. “The Supreme Court has already ruled in Quill v. North Dakota that an individual state has no power to directly tax or compel tax collection of citizens of other states,” wrote Horowitz.  ”A business must be physically located in a state in order for that state to require it to collect sales taxes on the state’s behalf.  This 1992 decision took place long before e-commerce became a factor in the economy.”

The budget gridlock we’ve seen in Washington may be the only that prevents the Marketplace Fairness Act from becoming law. There are other ways to deal with the issue rather than giving states more money to fund their spending binges and turn online retailers into tax collectors.

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