Raising Your Taxes is Easier Than Checking the Weather!
Today on the Senate floor, Sen. Lamar Alexander (R-TN) claimed that taxing consumers for online purchases is as easy as finding out the weather. He made those comments in a defense of the so-called Marketplace Fairness Act of 2013, which Heritage Action opposes. He states that an internet company can find out the tax for any jurisdiction as easily as they could find out the weather just by knowing someone’s zip code.
We won’t broach the whole subject of how difficult it will be for internet businesses to comply with this new tax scheme. However, there are studies that demonstrate that compliance would pose a significant burden on small businesses. A study by Jeffrey Eisenach and Robert Litan explains what compliance with this new law would entail:
Increased costs for businesses, increased administrative costs for tax collection agencies, higher vendor compensation payments, and, of course, higher taxes for price-sensitive consumers who rely on online shopping.
Let’s move from an abstract to concrete, though.
In 2008, the New York State Department of Taxation and Finance issued an advisory opinion that stores should collect sales tax for Yoo-Hoo brand chocolate drinks but not Starbucks Frappuccino coffee drinks. The opinion states, in part:
Yoo-Hoo chocolate drink, although it contains some cocoa, is considered for sales tax purposes to be a noncarbonated, flavored soft drink.
Starbucks Frappuccino® coffee drink is, essentially, a flavored, cold coffee. Coffee is exempt from sales tax pursuant to section 1115(a)(1) of the Tax Law. Accordingly, sales of Starbucks Frappuccino® coffee drink as described in this Opinion are exempt from sales tax, as coffee qualifies as an exempt beverage.
If your standard weather app were that complicated, we’d still be tuned into local news for weather forecasts.
Politicians want to make this look easy. Alexander also wanted to emphasize the “freedom” internet companies would still have:
If the out of state seller doesn’t want to do it, doesn’t have to. I mean nobody’s requiring people to sell their stuff in Tennessee. It’s a free country! It’s a big country! It’s a big market!
Without the Marketplace Fairness Act, internet companies don’t have to charge consumers more to cover the added cost of the Tennessee state tax (or other states’ taxes). If this liberal bill becomes law, internet businesses would have to charge their consumers more.
And if it’s as easy for you to collect the tax as it is for you to find out the weather in your home town, we don’t know why you wouldn’t. We don’t know why you would even expect that you’d be treated better than somebody who lives in Tennessee.
Out of state internet business owners and consumers don’t have a vote in Tennessee. And out of state internet business owners are not going to benefit at all from the money collected by Tennessee.
Heritage explains who truly benefits from this bill:
State politicians, who find it politically easy to impose tax collection duties on out-of-state businesses that have no say on taxes or tax procedures in that state.
States collecting new tax revenue to grow their governments.
The bottom line is the so-called Marketplace Fairness Act of 2013 would harm consumers who would be hit with higher prices, and it would harm internet companies, which would be forced to collect taxes for thousands of jurisdictions.