Fortune magazine predicts that Cyber Monday sales this year will rise by 15 percent, to $2.6 billion. And that’s on top of a predicted $1.35 billion in online sales on Thanksgiving Day, an increase of 27 percent. But would customers buy as much if retailers were imposing state sales taxes on all those purchases?
Well, that could happen—soon.
When Congress returns to Washington for the lame duck session, it is expected to take up the Internet Tax Freedom Act (ITFA), legislation it has reauthorized many times, which prohibits states from imposing multiple and discriminatory taxes on Internet access. To put it simply, states cannot tax their citizens for access to the Internet (although some states already had such taxes when ITFA was first passed and were grandfathered in).
Everyone seems to agree on reauthorizing ITFA. But that widespread agreement also opens the door for congressional mischief.
Enter the Marketplace Fairness Act (MFA), which would allow states to require retailers to collect sales taxes on online sales.
The Supreme Court has ruled that if you live in one state and buy something online or through the mail from a retailer in another state, you do not have to pay state sales taxes—unless that retailer has some type of physical presence in your state. The Marketplace Fairness Act would change all of that.
Most retailers would be required to collect the sales tax imposed by the state where the buyer lives and remit that money to the buyer’s state. Small businesses with less than $1 million in out-of-state sales would be exempted.
Large retailers, such as Barns and Noble, with a physical presence most sates already have to do that. But with more than 7,000 tax jurisdictions in the country, collecting and remitting sales taxes to every state, county and city could be an administrative nightmare for smaller companies with limited sales.
Worse yet, if a state thinks an out-of-state retailer isn’t adequately collecting its sales taxes—or if a state just wants to show companies who’s boss—the state could audit that business.
In other words, the MFA empowers politicians in any state to audit almost any business in every other state. And those being audited would have no political recourse because they cannot vote in those out-of-state elections. It’s taxation without representation, which is one of the reasons why the Supreme Court’s rule has prohibited states arbitrarily trying to tax interstate sales.
Defenders of MFA, mostly large retailers and states desperate to get more revenue, claim it’s only a matter of fairness. But why does the government always seem to think that “fairness” means making some people pay more rather than others pay less?
The Marketplace Fairness Act has bipartisan support, but it has even more bipartisan opposition. Enter the ITFA.
MFA supporters, which include Senate Majority Leader Harry Reid and President Obama, want to attach the MFA to the ITFA. The message: If you want the ITFA you must also approve the MFA.
House Speaker John Boehner has said emphatically that the MFA will not pass this year. But if that is Obama’s price for signing legislation that funds the government, which runs out on Dec. 11, the speaker and his Republican colleagues could falter.
The Internet has thrived as a place of freedom, where the long hand of government regulation and taxes have been kept to a minimum. The Marketplace Fairness Act seeks to end that era—and with it your ability to get most of your Cyber Monday purchases tax free.