Is the "Marketplace Fairness Act" Really in the Best Interest of Brick-and-Mortar Retailers?

May 01, 2013

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices," Adam Smith, Wealth of Nations

One of the main justifications made by the proponents of the so-called Marketplace Fairness Act (S. 743) is that it remedies an unfair tax advantage that online businesses enjoy over their brick-and-mortar counterparts under current law. As a result, S. 743 has enjoyed strong support from many small retailers across the country. However, the legislation will prove to be a Trojan horse to the competitive interests of small retailers. Here is why:

  • Boon to Big Business: Amazon is a key supporter of S. 743. As an online behemoth, why would Amazon support a bill that is designed to ensure that more taxes are collected for online purchases? Perhaps for the same reason Big Pharma supported Obamacare despite its inclusion of a tax on brand-name pharmaceuticals: because it means more business for them. Amazon now has a physical presence (a "nexus") in most states, as a result of their distribution system, and is thus required to collect the sales taxes on transactions within those jurisdictions. Amazon is seeking to displace brick-and-mortar retailers by offering same day delivery, but this requires them to have a nexus in each state, meaning they will eventually have to collect sales taxes on almost all transactions. So to keep up with or eliminate their smaller online competitors who do not have a nexus in each state and therefore do not have to collect taxes on most transactions, Amazon has reversed course and thrown its support towards S. 743. Like any reasonably competitive business, Amazon's support for S. 743 is rooted in its desires to drive out its competition (online and brick-and-mortar alike), rather than to lift them up.
  • Discrimination Cuts Both Ways: If S. 743 is enacted, the precedent will be established that all retailers should be required to collect the sales tax of any jurisdiction where a consumer resides. For example, what happens if a Kansas resident drives across the border to Missouri to purchase a television to benefit from the lower sales tax? Currently, the MO retailer collects a sales tax on the purchase, and KS levies an unenforceable use tax on the purchase that is rarely paid by the consumer on their state tax returns. It is the exact same "unfairness" that is claimed to exist with on-line businesses. Are brick-and-mortar retailers prepared to subject themselves to the same treatment they desire for their online competitors if they have to collect the sales tax for over 10,000 other tax jurisdictions-each with its own tax rates, holidays, thresholds, and caps?

The appearance of unfairness comes because states and local governments do not properly enforce their current use taxes, most likely because it would be overly burdensome for them and their taxpayers. S. 743 shifts a burden states and localities do not want to take on themselves to out-of-state online retailers.

The so-called Marketplace Fairness Act (S. 743) is not in the best interest of today's brick-and-mortar businesses across the country and should be opposed.