In 1998 when President Clinton signed the bipartisan Internet Tax Freedom Act, which prohibited state and local taxation of internet access and internet-only services, the purpose was to promote the commercial potential of the internet, especially for start-ups and small businesses. Congress extended the bill three times, the latest until 2014.
Now there’s the Marketplace Fairness Act, which, writes the Washington Post, “would allow states and local governments to require large internet retailers and other ‘remote sellers’ with sales over $1 million annually to collect sales taxes and send the revenue to the appropriate location.” This bill, which the Senate voted 69-27 to approve, would undo the protections Republicans and Democrats once felt necessary to promote e-commerce.
The debate over taxing internet sales isn’t about “fairness,” as the cleverly worded title of the bill suggests, it is, or ought to be, about spending, which is where the real problem lies. Government never seems to have enough of our money and doesn’t appear to care whether we have enough.
More tax revenue only leads to more binge spending.
The reasons for promoting e-commerce and small businesses in a tax-free environment have not changed. Retailers have complained for some time about people who “shop” in their stores without buying and then go on the internet to purchase the same product at cheaper prices because it’s tax-free. Real fairness would cut the taxes retail stores must charge, as some states sometimes do at back-to-school time. If cutting those taxes in order to promote commerce is a good idea, why not make it permanent? Just try convincing Congress. You’d have a better shot at getting Dracula to go vegan.
Sen. Mike Enzi (R-Wyo.), whose party supposedly favors lower taxes, authored the bill, but a recent Wall Street Journal editorial noted that even he is unsure of some of its specifics. For example, under the definition of what constitutes a “state” for taxing purposes, myriad entities, including the 50 states, the District of Columbia, Puerto Rico, Guam, American Samoa, the Virgin and Marianas Islands, “and any other territory or possession of the United States” could also force distant e-sellers to collect taxes.
And get this: Tribal organizations could also qualify as taxing entities. According to Steve DelBianco of the e-commerce trade association NetChoice, there are 566 “federally recognized tribes and Alaska Native Corporations.” The Journal contacted Enzi’s office to ask if the senator knew how many of these would be able to tax internet sales. It reports that as of Monday, an Enzi spokesman was still “seeking an answer.”
The Journal says Senate Majority Leader Harry Reid has been working his dark magic on the bill behind closed doors in order to rewrite the definition of “state.” If his definition is broadened, notes the editorial, “The new bureaucratic headaches could number in the hundreds of thousands.”
Supporters of the bill claim there would be just one auditing authority in each state, not a potential claim from each of the 9,600 state and local tax collectors. But as another Journal editorial notes, “What matters is not what the bill’s supporters ‘have explicitly stated,’ but what’s in the bill.” And what’s in the bill gives no assurance that supporters’ claims will come to pass. Any way you slice it, it’s going to be a lot more bureaucracy and a burden on small businesses to collect what will amount to a paltry 1 percent increase in tax revenue for state and local governments. Better they should cut spending by that amount.
Calvin Coolidge noted, “Collecting more taxes than is absolutely necessary is legalized robbery.” Too bad the Senate sergeant at arms can’t arrest the “robbers.”