Marketplace Fairness in the 113th Congress

February 14, 2012

Dear Senators & Congressmen:

In light of today’s introduced legislation, I write to you on behalf of Americans for Tax Reform in opposition to enacting Intent and remote sales tax collection legislation. While achieving "fairness" may be a laudable goal, it cannot be an excuse for increasing the burden on taxpayers. We believe that there are a number of problems with the Marketplace Fairness Act - most importantly, the bills would force customers to pay more in taxes.

At the end of each year businesses are responsible for sales tax. They can choose to tax their customers at the point of sale or pay out what they owe in sales tax at the end of the year. Businesses, therefore, are the immediate taxpayer, or act as a tax collection arm for the state in which they are located. Remote sales tax would force businesses to become sales tax collectors for all states. For example, if a customer in New York State made a purchase from a company based in Virginia, the Virginia business would have to collect New York sales tax from the customer and then send the collected tax back to New York. At the end of the year if there are any disputes over sales tax collection, the Virginia business would be subject to the New York Department of Revenue and New York Courts.

In order to collect the proposed remote sales tax, businesses would be forced to send personal information about their customers to a host of state revenue departments. This opens consumers up to the very real potential of losing personal information. In South Carolina, for example, hackers gained access to tax return data, including social security numbers, of 5.7 million people and 700,000 businesses. Hackers have consistently proven they possess the capabilities to overcome many security measures. Government agencies lack the expertise and resources to properly protect the personal information they already gather. A law that mandates they collect more information only makes more individuals and businesses vulnerable to the dangers associated with the loss of personal data.

Of even greater concern is that a remote sales tax will create competition among states for higher taxes, rather than lower taxes. Currently, states can only tax those consumers who reside within their borders. This “physical presence standard” ensures that the businesses taxed by states have the ability to express
their approval or displeasure with state tax code through elections, referendums, etc. This legislation encourages states to collect taxes across their borders from businesses with no recourse. Thus states will compete for revenue by increasing cross-border taxes, rather than lowering taxes. An incentive to raise taxes can never prove beneficial.

Finally, this legislation grants states new tax collection authority without removing equivalent taxing authority elsewhere. Therefore, this legislation can only be viewed as a tax increase. We are open to speaking with members about addressing these issues. Please contact Katie McAuliffe by email, kmcauliffe@atr.org, or phone, 202-785-0266, with any questions or comments.

Onward,

Grover G. Norquist