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Enzi’s ‘Marketplace Fairness Act’ a Trojan Horse

Sen. Mike Enzi debates Marketplace Fairness Act

A Commentary by Bruce Edward Walker

Wyoming Liberty Group

Two admonitions hold true throughout history. The first is “Beware Greeks bearing gifts.” The other is any piece of legislation containing the word “fairness” in its title.

Such is the case with the so-called “Marketplace Fairness Act,” which is co-sponsored by Sen. Michael Enzi (R-WY). Under the guise of “fairness” this Trojan horse contains a multitude of harms to businesses, consumers and the fundamental right to avoid taxation without representation.

On its surface the MFA sounds reasonable enough: Force Internet retailers to collect a state sales tax for each transaction. After all, traditional brick-and-mortar sales are required to do so in the states and municipalities where they are located.

Digital retailers, the reasoning goes, have an unfair advantage over their physical counterparts. Perhaps more compelling for bureaucrats, however, is the real beast in the belly that has nothing whatsoever to do with “fairness” and, conversely, everything to do with the loss of state revenues on uncollected taxes from Internet sales.

If passed, the MFA will increase taxes as “multiple jurisdictions lay claim to the same transaction and demand payment,” according to Bartlett Cleland, policy counsel, The Institute for Policy Innovation, a Texas-based free-market think tank. The proposal “does away with any requirement that a business have a physical connection in a jurisdiction before it can be required to levy taxes on its sales,” he added, referring to the 1992 U.S. Supreme Court determination in Quill Corp. v. North Dakota that requires a company maintain a physical presence – or “nexus” – in a state before it is held responsible for collecting that state’s sales tax.

Unlike Internet retailers, traditional brick-and-mortar stores actually receive state and municipal services and infrastructure in return for the sales taxes they collect from consumers. Sales taxes derived from Internet sales return bupkis to retailers lacking astate nexus. How is this fair?

“Passage of this measure would be another step on the road toward government encroachment into everything we do, as well as a means for states to turn retailers into tax collectors, regardless of where the retailers are located,” asserted Steve Stanek, research fellow, Budget and Tax Policy at the free-market The Heartland Institute.

“Several states don’t even have sales taxes, but online retailers in their borders would have to start collecting sales tax for all the other states,” Stanek added.

The burden of collecting taxes for each of the more than 7,000 U.S. tax jurisdictions would place egregious costs on Internet retailers who, in turn, would be forced to pass those additional expenses on to their respective customers. According to Seth Cooper, Free State Foundation research fellow, MFA “would give state taxing authorities an easier path to saddle out-of-state retailers with sales tax collection burdens.”

Cooper added: ”The Marketplace Fairness Act would enable states to assert their own respective definitions of what goods and services sold by online remote retailers are taxable through state legislation, state tax administrative regulations, and state court rulings,” Cooper said. “Myriad local governments would be able to apply their own rates and idiosyncratic rules, as well.”

Cooper concluded: “Subjecting remote online retailers to potentially thousands of different tax rules creates complex and costly compliance burdens. And making it easier for state and local governments to tax out-of-state businesses with no physical presence in a state encourages revenue-hungry states to project their taxing powers beyond their boundaries in dubious ways. If adopted by Congress, the approach taken by The Marketplace Fairness Act could pose a real drag on interstate e-commerce.”

Additionally, traditional brick-and-mortar retailers have found the Internet a godsend for consumers unwilling or unable to visit their stores. For those customers who require immediate gratification for products they desire, the Internet also serves as a terrific marketing tool for retailers maintaining a physical presence in close proximity.

The Internet has grown to one-sixth of the U.S. economy over the past two decades. Since then, legislators and bureaucrats have grasped at every idea imaginable to stifle its growth by impeding the profitability of companies employing innovative ideas to service their customers by offering them real-world choices for their purchases.

The MFA is one such ploy wheeled in by politicos with the illusion of “fairness” when it’s nothing more than a bill seeking enhanced revenues for the government trough. It may appeal to brick-and-mortar special interests seeking government enforcement to guarantee competitiveness against technological innovations, but it would succeed only in hurting Internet retailers and their customers.

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