Internet Sales Tax Would Benefit Big Businesses, Not Mom-and-Pop Shops

May 19, 2013

Advocates of the so-called Marketplace Fairness Act (MFA), more commonly known as the Internet sales tax, claim that it would "level the playing field" for "mom-and-pop, brick-and-mortar stores." They claim that online retailers have an "unfair" advantage and state:

If Congress is serious about supporting small businesses and creating jobs on Main Street, they should pass the Marketplace Fairness Act without hesitation.

But it is not really the small brick-and-mortar businesses that would benefit from the Internet sales tax. In fact, as we have noted, one report indicates, "physical stores remain the centerpiece of the purchase journey for many categories." The report indicates that in 9 out of 11 categories, the "majority of consumers use physical stores for both researching and purchasing the products they want to buy."

The Motley Fool recently posted the video below in which contributor Travis Hoium explains that big businesses like Best Buy - that sells a lot of TVs or high-end electronics - are the ones that will really benefit from the Marketplace Fairness Act and the new tax scheme it would create. In fact, Hoium says Best Buy will be the biggest winner of the Internet sales tax.

The Internet sales tax would only benefit large corporations like Amazon and Best Buy who are poised to gain something from drowning out the competition of small online retailers offering the same online services they do.

This MFA is ultimately about big businesses - that have a physical presence most of the states in which they do business - drowning out the competition of small online businesses that do not have a physical presence in the 46 states and the District of Columbia where they would now be taxed (and potentially audited).

Andrew Moylan of R Street Institute also explains that the "MFA protects mom-and-pop stores" argument is bogus:

This makes for some terrific rhetoric, but it's laughable to say that Mom-and-Pop stores are the driving force here. I'm sure it's true that many such businesses want to see the bill passed (after all, wouldn't you like to be able to burden some of your competitors?), but the only reason this issue has gotten this far in Congress is because of the lobbying muscle of the retail industry. Fresh off of securing price controls on debit card interchange fees, the retail lobby has poured tens of millions of dollars into campaigns run by K Street consultants that claim to speak for "Main Street." It's a little ironic, really, given that the biggest threat to Main Street businesses in recent years has been (healthy, desirable) competition from big-box stores that offer lower prices and more selection. I'm sure that Mom and Pop care about the Mom-and-Pop stores, but the big businesses that are fronting the cash for the lobbying campaign sure don't. They care about their bottom line, and they see this expansion of state government power as a way to bolster it.

And contrary to some small retailers' belief that the MFA would help them, Russ Vought has explained that the "legislation will prove to be a Trojan horse to the competitive interests of small retailers." Why? If it is enacted into law, it will set a precedent that "all retailers should be required to collect the sales tax of any jurisdiction where a consumer resides."

The MFA is would be an immediate mistake that would only benefit big businesses and, down the road, it will prove to be harmful to some of the very people that supposedly supported its passage.