"The Marketplace Fairness Act recently
introduced in the Senate would require online
retailers to collect and pay sales taxes to states
where they have no physical presence or democratic
recourse. Overstock.com, eBay and the like could have
to pay sales taxes to any state from which an
Internet user placed an order."
"Pay" is misleading; the retailer simply remits
taxes collected from the
"Such online sales tax proposals are taxation
False. The tax is imposed by the state to which
the goods are shipped. The consumer in that state
pays the tax and ordinarily has a vote in that state
(except for felons, tourists, etc.).
"The Supreme Court ruled (in Quill Corp. v.
North Dakota, 1992) that retailers can be required to
collect sales taxes only in states where they have a
The Court further said "…that the underlying
issue is not only one that Congress may be better
qualified to resolve, but also one that Congress has
the ultimate power to resolve."
"Consider the absurdity of such a law. When a
customer buys a product in a store, does the cashier
ask for the customer's home address? Of course
not. The store simply charges the state and local
sales taxes applicable for its physical location, no
"The proposed law would hold online sellers to
an entirely different standard. Websites would have
to add taxes to a sale based on the shipping
destination of the product, which may be a state in
which neither the seller nor the buyer resides. We
would never ask mom-and-pop store owners to do such a
For over the counter sales, the point of
delivery is the counter. For other sales - whether
online or not, whether large retailers or "mom and
pop" stores - it is the destination to which the
goods are shipped. All sellers are treated the same
for tax collection purposes, except that remote
sellers currently enjoy a federal exemption from
"Politicians want this bill passed to raise new
tax revenue for broken state governments facing
budget shortfalls. But legislators in state capitals
don't want to make the hard decisions to cut
spending or raise taxes on their constituents-they
fear the voter backlash."
States across the political spectrum continue
to act far more fiscally prudent than the federal
government. They have made hard decisions to cut
spending; during the current recession, state and
local government employment has dropped
significantly, but federal government employment has
continued to increase. State lawmakers have made and
will continue to make tough choices. With regard to
sales tax collection, state legislators have no
choice but to turn to Congress. As the Court has
said, Congress has the ultimate authority in this
"So they'd like their allies in Washington
to make it legal for them to tax people who can't
vote against them."
False. Those paying the taxes - who are legally
required to pay them now but frequently don't - are
constituents in the states in which the taxes are
"At its core, this is a nationally mandated
Internet sales tax on businesses."
False. Each state would maintain its own sales
tax system, or continue to choose to impose no sales
tax at all. Residents in states without a sales tax
would continue to shop "tax free" on the internet and
on main street. Residents in states with a sales tax
would pay exactly what they owe today, not a penny
"The burden on Internet entrepreneurs could be
staggering. There are already nearly 10,000 state,
local and municipal tax jurisdictions to navigate
Congress has the authority to determine under
what circumstances remote sellers can be required to
collect. The pending bills require significant tax
"2006 PricewaterhouseCoopers study found that
tax-compliance costs for small businesses (those
having $1 million to $10 million in annual sales) are
nearly 2.5 times greater than those of larger firms.
For businesses under $1 million in sales, those costs
explode to 16 cents on every dollar of
The data for the study, and the initial drafts
of it, are far older than 2006. By design, the study
did not take into account the significant tax
simplification already adopted by half of the sales
tax states or the simplification required in the
federal bills. Those simplifications radically reduce
the cost of sales tax compliance.
"And woe to online sellers if they have a
dispute with one of the many states that will be
unleashed to tax them. A small business owner in
South Carolina could face simultaneous audits from
California, New Jersey and Hawaii, with no political
Small sellers are highly unlikely to face any
audits, let alone simultaneous audits. States perform
sales tax audits on fewer than 1% or retailers
annually, on average.
"...they included an exemption for companies
with less than $500,000 in annual sales. But that is
a very low threshold to cross."
The threshold is $500,000 in annual online
sales. If that is too low, then what is the correct
"Businesses will be...encouraged to locate
False. States currently collect income taxes
from foreign companies, even when those companies are
exempt from federal taxation. States would be able to
require that foreign companies collect sales tax,
just as domestic companies would be required to
"Nor would these new Internet taxes satisfy
tax-hungry politicians. Already Maryland Gov. Martin
O'Malley, a Democrat, has called for a 6% tax on
all downloads-music, movies, e-books and more-from
vendors like iTunes."
Maryland voters can vote out Governor O'Malley.
Furthermore, these federal bills wouldn't materially
affect Maryland to tax downloads; iTunes (Apple)
already collects sales tax in every state that
imposes a tax on digital goods.
"It probably wouldn't be long before the
burdens of complying with myriad state sales tax laws
led to talk of a streamlined national sales tax to
replace it, with Washington taking a cut and
destroying our nation's healthy tradition of
state tax competition."
Is Congress powerless to resist a national
sales tax, with "Washington taking a
"Today's origin-based sales tax system,
which allows states to tax purchases made at any
business within their borders, is fair."
Sales taxes are not origin based in most
states, and no state uses an origin basis for
interstate sales. Consumers in sales tax states are
required to pay tax on all taxable purchases,
regardless of where the seller is located. The fact
that some consumers evade those taxes, intentionally
or not, is not an excuse to exempt online sellers
"If states want to raise taxes they have the
power to do so-yet only on citizens and businesses
within their political jurisdiction."
To reiterate, it is only the citizens and
businesses in their political jurisdictions that
actually pay the tax; remote sellers would merely
collect the tax.
"The nexus among Americans, their taxes, and
their votes must remain as tight as possible. It is
the essence of our democracy."
This is exactly why an origin based system for
interstate sales is such a poor idea: it would impose
the sales tax regimes of all the other states on
South Carolina residents when they shop online. The
federal bills would ensure that South Carolina
residents pay sales tax only to South Carolina, and
that the act of paying those taxes imposes the least