As the “Marketplace Fairness Act” has gained steam in the Senate, questions about the bill have been voiced in conservative and libertarian circles. Governors, legislators and activists have attempted to get a handle on the complex and arcane rules currently governing states’ ability to require out-of-state, online-only retailers to collect and remit sales taxes on purchases made by residents.
Republicans, and conservatives especially, are dead set against pursuing tax increases or new taxes as the economy remains in the doldrums.
States are simultaneously dealing with the reality that spending remains too high. With many Americans still unemployed and an ever larger proportion of Americans’ income being spent on services as opposed to goods, and with money spent on goods increasingly being spent online, their taxing and spending systems appear built for the world of 30 years ago instead of today.
Advocates say the Marketplace Fairness Act presents a method for dealing with both concerns in a way that advances states’ rights and helps avoid solutions that many liberals and Democrats would no doubt favor. By allowing states to require out-of-state, online-only retailers to collect and remit sales taxes already owed but rarely paid on purchases by state residents, Congress would ensure that states have far less rationale for pursuing new taxes, such as a value-added-tax (VAT) or income taxes in states that currently lack them, or increases in income tax and sales tax rates. Doing so is currently barred in the absence of congressional action under the Supreme Court’s Quill v North Dakota decision.
“If Congress fails to authorize states to collect tax on remote sales, and electronic commerce continues to grow, we are implicitly blessing a situation where states will be forced to raise other taxes– such as income or property taxes– to offset the growing loss of sales tax revenue. We do not want this to happen,” said bill sponsor Sen. Mike Enzi (R-Wyo.) in a recent statement on the Senate floor. “The Marketplace Fairness Act empowers states to make the decision themselves. If they choose to collect already existing sales taxes on all purchases regardless of where the sale was whether it was inline (sic) or in a store, they can. If they want to keep the things the way they are, the states can do that.”
Sen. Lamar Alexander (R-TN) (R-Tenn.) also says that Marketplace Fairness is about states’ rights. “The reason why this bill is inevitable and why I hope it will pass… is because it is a simple 11-page bill about a 2-word issue: States rights,” Alexander said in recent floor remarks. “That is why Governor Christie and Governor Daniels and Governor Bush and Congressman Pence and many Republicans and many conservatives are saying let’s pass it. Let’s get out of the way and let States make their own decisions, and then the States can decide from whom they want to collect their sales taxes.”
While much of the rhetoric from advocates of Marketplace Fairness has focused on the second word in the title and the allegation that companies like Amazon (which also supports the bill) are destroying their bricks-and-mortar competition because they can avoid charging sales taxes (which nonetheless remain owed on purchases), the arguments made by Enzi and Alexander seem to be those holding most sway with Republicans and conservatives.
Thus far, some of the bigger names reportedly backing the bill include Governors Bentley (R-Ala.), Branstad (R-Iowa), Christie (R-N.J.), Daniels (R-Ind.), Haley (R- S.C.), Haslam (R-Tenn.), LePage (R-Maine), Sandoval (R-Nev.) and Snyder (R-Mich.), former Governors Haley Barbour (R-Miss.) and Jeb Bush (R-Fla.), Senators Alexander, Enzi, Blunt (R-Mo.), Boozman (R-Ark.) and Corker (R-Tenn.), and Representative Rep. Renee Ellmers (R-NC) (R-N.C.). Representative Mike Pence (R-Ind.) has also made positive comments about action to deal with the online sales tax issue.
Of note is the fact that states represented or formerly represented by supporters of the bill such as Florida, Nevada, Tennessee and Wyoming are among those with no income tax, where there is a strong argument against emboldening income tax introduction proponents.
If the Marketplace Fairness Act passes, will you be paying more on your online purchases? That depends.
First, residents of Kansas, Kentucky, New York, North Dakota, Texas and Washington already pay tax on Amazon purchases (and that list is set to increase because of agreements reached between Amazon and some other states), while customers of Overstock.com who live in Utah already pay sales tax on goods they buy through the retailer.
Meanwhile, in California, some business owners have already been required by state officials to report and pay sales tax on online purchases made through the likes of Amazon.
Given the Golden State’s overall approach to taxes and regulation, it seems plausible that when taxes are required to be collected and remitted by the retailer directly, other taxes will not be reduced commensurately– and so for those in very blue, very liberal states, skeptics say, an effective tax hike could apply.
Leaders like Jeb Bush, however, have argued that Marketplace Fairness should, in fact, be used as a method of providing a more stable, predictable revenue base that enables other taxes to be cut. As Bush wrote in a letter to Florida Gov. Rick Scott, “It seems to me there has to be a way to tax sales done online in the same way that sales are taxed in brick and mortar establishments. My guess is that there would be hundreds of millions of dollars that then could be used to reduce taxes to fulfill campaign promises.”
The clock is ticking for this and all other legislative efforts as November nears, but even if Marketplace Fairness does not pass this year, the topic is expected to remain a high priority for members of both parties moving forward.