“NO” on the Marketplace “Fairness” Act

Next week, the Senate may vote on the so-called Marketplace Fairness Act of 2013.  While often referred to as an “Internet sales tax” bill, the legislation has far broader and more complex implications, especially with regard to states’ rights.

There is no Internet exemption from sales taxes; in fact, sales taxes are already collected for the vast majority of online sales.  Instead, the proposal concerns the power of states over businesses outside of their borders.  Specifically, the proposal would overturn a Supreme Court decision setting limits on a state’s ability to require out-of-state retailers to collect sales taxes for them, turning every out-of-state retailer into a sales tax collector for nearly 10,000 separate state, local and municipal tax jurisdictions.  The bill will likely face Due Process challenges should it become law.

This would be a dangerous extension of state power into other states.  Not only would it place costly burdens on retailers, but it would allow states to impose taxes in a way that favors their local businesses over out-of-state firms, who have no representation in the taxing state.  As Heritage Action has explained, the bill would likely force many online businesses to set up outside of America, be it in Canada, Mexico, China or elsewhere, to avoid the costly compliance burden.

As the Heritage Foundation explains:

They seek enactment of [the Marketplace Fairness Act] so that states can prefer in-state businesses over out-of-state businesses in the kind of anti-competitive economic discrimination the U.S. Constitution was in part adopted to prevent. As the U.S. Supreme Court has stated, “[p]reservation of local industry by protecting it from the rigors of interstate competition is the hallmark of the economic protectionism that the Commerce Clause prohibits.”  

The impact of the so-called Marketplace Fairness Act is more complex than many stakeholders realize. But rather than sending the bill through regular order, Senate Majority Leader Harry Reid (D-NV) has again bypassed the Finance Committee to bring the bill directly to the Senate floor.

Heritage Action opposes the so-called Marketplace Fairness Act and will include it as a key vote on our legislative scorecard. 

Related:
Heritage Action’s Legislative Scorecard
Heritage: Congress Should Not Authorize States to Expand Collection of Taxes on Internet and Mail Order Sales