The Coming (Quiet) Push For A National Internet Sales Tax

by Matt Collins

There is a very quiet push to implement what is effectively a national sales tax scheme on all Internet purchases. They have already tried to sneak it into bill previously, and they will likely attempt to sneak it through again in the near future POTENTIALLY EVEN THIS WEEK. It is called the Marketplace Fairness / Main Street Fairness Act.

The legislation would seek to overturn a 1992 Supreme Court decision called Quill vs North Dakota which ruled that businesses who do not have a physical presence in a state cannot be forced to collect sales tax for that specific state government. Not only does the Quill decision protect online businesses from having to collect tax for all 50 states, it also prevents taxation without representation by prohibiting state governments from forcing their laws on business outside of its borders.

The Marketplace / Main Street Fairness Act would force each online retailer to create different pricing structures for every individual customer, a massive burden and significant increase in cost to doing business. These costs would of course be passed on to the customer, causing the price of all online purchases to increase in addition to the new taxes imposed as a result of this Act. These types of regulation would be stifling to online commerce and detrimental to the economy overall.

Mandating a national Internet sales tax collection scheme is focusing on the symptom instead of the actual problem. Politicians are attempting to raise revenue when they should be cutting spending since state tax revenues are back to pre-recession levels. The concept of a “revenue problem” is pure mythology. This mandate would be a “tax-and-spend” solution for many state governments that find themselves in fiscal hot water due to spending overruns.

The uglier and darker side to this issue is that larger businesses are lobbying the government to pass this scheme which would severely hurt their smaller competition. Barriers to entry on the Internet are miniscule and practically anyone can start an Internet retail presence for their home based business within a matter of minutes. However attempting to keep up with regulatory and taxation jurisdictions for 50 states is not easy, nor would it be functional for the vast majority of small Internet retailers.

More broadly, this issue is reflective of a bigger question, that of how much authority will the government hold during the Internet Age? Will states get to exercise power outside of their borders, or will there be an unlimited reach available to every government? Taxation without representation is always appealing to the politicians because they cannot be held accountable by the people they are taxing. We are at a fork in the road and can move forward with either more freedom, or move backwards with more government; Internet taxation is one of the first steps in deciding which direction we’ll take.

It should be noted that free market groups like Cato Institute, Competitive Enterprise Institute, Americans for Tax Reform, Nat’l Taxpayers Union, Heartland Institute, Heritage Foundation, Reason, and even eBay and the Direct Marketing Association are opposing this measure.

Republican elected officials who are joining Dick Durbin, Dianne Feinstein, and Al Franken to support this measure should know that recent polling shows almost half of Americans do not want an expansion of sales taxes on the Internet and 63% of conservatives are opposed to it. When the question is framed about states pushing their laws outside of their borders 61% of Americans oppose it and 77% of conservatives do too. In fact 84% of Republicans oppose any sort of expansion of governmental power over the Internet, especially taxation or regulation. It is likely that any Republican who supports this massive expanse of government power will see a primary challenge because of it.

Matt Collins is a Republican activist in Nashville.

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