Hide Your Wallet: Here Comes the Internet Tax

Just when we think the government can’t find another way to steal our money, they bring out the Marketplace Fairness Act, or the Internet tax. Supporters of the bill say it’s about fairness for businesses and lost revenue for states. Opponents fear it will impose complicated regulations on retailers, and say it doesn’t protect small businesses. The whole thing is just another sneak attack against the Constitution and the American consumer.

Lobbyist for the National Retail Federation, a group supporting the proposed legislation, dismissed the United States Constitution as an “18th-century document.”

“’The industry is evolving very rapidly, and the law today is a 20th-century interpretation of an 18th-century document that is holding back the entire retail industry as it adapts to 21st-century consumer preferences and demand,” David French, senior vice president for government affairs at the NRF, said in a statement provided to the Wall Street Journal.

The constitutional context of the online sales tax surrounds the “commerce clause” in Section 8 of Article I, which gives Congress the authority “to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” This power has traditionally been interpreted to mean that states cannot tax outside their borders. The (1992), Quill Corp. v. North Dakota, Supreme Court ruling determined that a business was required to have a physical presence in a state in order for the state to collect sales tax.”

The current standard used throughout the United States, based on this 1992 Supreme Court decision, addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales; they decided to extend it to include online retailers. In general, a physical presence means such things as having a warehouse, a store, an office or even a sales representative in the state.

The pending legislation would reverse this and allow states the authority to require businesses to collect and remit sales tax at the time of purchase if the buyer is in the state. Taxes would be collected at the customer’s side, according to his state tax codes.

Americans for Prosperity, the lobby group for limited government and lower taxes, is asking members of the House to oppose this legislation.  In an interview with Newsmax TV, Tim Phillips, president of Americans for Prosperity, called the Marketplace Fairness Act a “regulatory nightmare,” saying that taxes on Internet transactions are bad for customers who would face higher prices on products across the board.

“It’s just a big, fat, new revenue stream to build bigger government which is not a good idea,” Phillips said.  “Whenever you give government bureaucrats another opportunity to extract money from the private sector, they start coming up with devious ways to expand it, to make it more encroaching on people’s dollars, and it’s not a good thing.”

Online purchases have increased from 1.6% in 2003 to 5.2% in 2012 bringing in $225.5 billion.  This new tax is estimated to bring in between $12 and $23 billion more.

Under the bill, sales taxes would be charged for every purchase made over the Internet and sent to the states where the consumer lives. Republican Governor Dennis Daugaard of South Dakota calls it a “matter of equity and fairness.” He says, “The same people who are selling the products should be paying the same taxes.” Obviously, nobody told Governor Daugaard that those businesses wouldn’t pay taxes without getting the money from the people.

Democrats and Republicans are strongly divided over whether this is actually a tax increase or not. Republicans say it is, and Democrats say it is not. They reason the bill simply gives the states a way to enforce current tax laws. Opponents to the bill are encouraging the public to contact their Senators between now and the May 6th vote.

Oregon, Montana, New Hampshire and Delaware have no sales taxes, although the two senators from Delaware support the bill. Democratic Senator, Ron Wyden from Oregon said, “I think it’s going to be interesting for senators to get a response from constituents over this upcoming week. I’m not sure that the country knows that something like this coerces business all around America to collect other people’s sales taxes.”

The Heritage Foundation says “real conservatives” oppose the bill and that it would hurt online commerce, force small businesses to jump through new bureaucratic hoops and erode state sovereignty. Opponents of the bill point to the nearly 9,600 tax jurisdictions retailers would have to comply with under the new law. This does not even address the bureaucracy the federal government will create to oversee this interstate taxing system, or the new Czar who Obama will appoint.

Senator Harry Reid, D-NV, wants to pass the bill as soon as possible. On Thursday, the Senate voted 63-30 to end debate, and delayed a final vote until May 6th after they return from vacation. While they acknowledged they have a steep hill to climb to defeat the measure in the Senate, opponents hope senators hear from angry constituents over the next week. We still have time to make it a much steeper climb. We can let our Senators know how we feel about this new sneak attack on Americans, and show them Americans are paying attention now.