Chairman Goodlatte released a set of principles that any remote sales tax should be predicated upon.
The Marketplace Fairness Act directly violates each of these principles through its unfair compliance costs, lack of respect for the physical nexus requirement, overcomplicated jurisdictions, disregard for state sovereignty, and threats to privacy.
1. Tax Relief–“Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States.”
The MFA allows states to levy sales taxes on individuals from other states. If passed, the MFA will set a dangerous precedent, paving the way for states to regulate and tax other areas of interstate commerce.
2. Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.
If the MFA passes, Brick & Mortar stores will still only be required to comply with tax laws where they have a physical presence, while online retailers will have to comply with regulations in up to 46 states and/or 9,000 tax jurisdictions. That is a much higher bar for online businesses to meet.
3. No Regulation Without Representation– Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement.
Under the MFA, retailers will be subject to audits and legal action by each state they do business in. This creates a serious representation problem. Because online businesses don’t have a physical presence in all the states they do business with, they will suffer regulation without representation. If states’ auditors and courts can reach across state boundaries to citizens of other states, the principles of state sovereignty will be violated.
4. Simplicity – Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.
The MFA’s onerous compliance requirements are anything but simple, and they will stifle business growth. Mere inclusion of a small business exemption under the MFA indicates that the law will in fact cause harm. The small business threshold is set at $1 million, creating a growth ceiling. Businesses will choose to remain small rather than deal with the compliance burden. Additionally, any business nearing the $1 million mark will be subject to audits to prove they have not actually breached the threshold.
5. Tax Competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors.
The MFA does just the opposite. By allowing states to impose their sales taxes on out-of-state individuals, the MFA destroys the barrier to competition among the states. Instead of putting downward pressure on sales taxes through competition, the MFA will put upward pressure on sales taxes.
6. States’ Rights – States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens.
The MFA allows a state’s department of revenue,auditors, and courts to reach across their home boundaries to tax and audit citizens of other states. If citizens are subject to the governments outside their own state, the principle of being sovereign with in a state’s own borders has been violated.
7. Privacy Rights –Sensitive customer data must be protected.
The MFA is a serious threat to privacy rights. Giving state governments more control over consumer information creates more avenues for sensitive material to change hands. Consumers’ personal information will be stored by more state bureaucracies, ultimately increasing the vulnerability of its misuse.
The Marketplace Fairness Act doesn’t align with the principles Chairman Goodlatte established and it is no friend of tax reform. To keep our tax system simple, competitive, and fair, and to guarantee sovereignty to states and privacy to citizens, the Marketplace Fairness Act must be stopped.