Marketplace_Fairness_Act

With the recent growth of online retail purchases, there has been considerable interest by the state governments in ending tax-free shopping on the internet. The newly proposed Marketplace Fairness Act is an Internet Sales Tax Bill that would force all online retailers to collect sales tax, and if approved, would place added burden on small businesses. In addition, this bill would be discouraging interstate commerce for small businesses due to the increased regulations that will be placed on them. Claims from supporters that this legislation will level the playing field for businesses are false because large corporations will be the only ones with the resources to thrive in such a marketplace change. Supporters of the Marketplace Fairness Act are too focused on the additional sales tax that would be collected, and neglecting the fact that the bill is unconstitutional by enforcing regulations on businesses that have no physical presence in certain states. If we allow this bill to pass, it will set future precedent for the courts to consider the non-physical presence of the internet a legitimate way for the long arm of the Government to reach into other states. The Commerce Clause of the Constitution was originally meant to be a check on state power across state lines, and not as a power for the Federal government to wield over the people. If we use the established “four-prong” test for the constitutionality of an out-of-state internet tax under the commerce clause, there is not a clear substantial nexus between the state and potential taxpayer, thus it would be unconstitutional to impose a tax. However, in the senate the discussion on constitutionality seems to have taken a back seat in favor of pushing this bill through. Only having the bill in their hands for a week, the motion to proceed was passed in the senate (74-20) to allow states to tax internet sales across state lines regardless of physical presence. In 1992 the U.S. Supreme Court ruled in Quill v. North Dakota that a taxpayer must have a physical presence in a state in order to collect owed sales tax. In addition, it stated that the existence of customers alone (i.e. economic presence), did not create sufficient nexus under the commerce clause for North Dakota to impose a sales tax collection burden on Quill Corp. However, senators are supporting the Marketplace Fairness Act because their eyes are on the additional state tax revenue that would be brought in by this legislation. Initial estimates put the cumulative tax amount to be collected by state governments at a substantial 23 billion dollars. This is clearly an effort by lawmakers to enact a cash grab, as well as state governments exercising power to bully consumers and businesses throughout the nation. If passed, small online retailers will effectively become less of a retailer and more of a tax collection agency. This does not show any direct benefit to interstate commerce and should be seen as an unconstitutional violation of the Commerce Clause. If the Marketplace Fairness Act is passed, it has the potential to create an organizational nightmare when all online retailers, big and small, will be required to comply with the new legislation. There are currently over 9000 sales-tax regimes nationwide, each with their own set of regulations. In particular, small online retailers may not have the bandwidth or support needed to decipher the overwhelming number of regimes they would have to follow correctly. Also, states that do not collect sales tax at all such as Delaware, will have to create a brand new system in order to conform to other states. The hope that this legislation will give state governments a push to streamline, consolidate, and simplify their online sales tax collection is a diversion to the fact that it has nothing to do with bolstering interstate commerce. If the Marketplace Fairness Act passes and regulations are put in place, supporters claim that the act benefits local brick and mortar businesses. However, this does not support the premise of the Commerce Clause since purchases would increase in-state and not interstate. In addition, considering that the trend of online purchases is experiencing explosive growth due to convenience and ease of use, it is not likely that consumers will be return to brick and mortal purchases in a significant way. Furthermore, the Marketplace Fairness Act could have an unintended effect of sending internet purchases to foreign online retailers, as they would potentially be considered the new tax-free online retailers. Ebay, one of the biggest opponents to the Marketplace Fairness Act, has legitimate concerns. That is because EBay, whose business model is one that caters to thousands of small online retailers who make a living through their platform, would suffer greatly. If the bill is passed, these EBay retailers would now be treated with the same restrictions as multi-billion dollar online corporations such as Amazon.com or Walmart. To no surprise, Amazon.com and Walmart are among the biggest backers of the Marketplace Fairness Act. With the additional regulation and burden placed on small retailers, Amazon.com would be in an advantageous position to squeeze out small retailers who cannot negotiate the additional regulations out of the market place. As the backers and opposition of the Marketplace Fairness Act both acknowledge that the retail world is rapidly evolving, the bill enters into a debated area of the Commerce Clause. The bill proposes to allow the long arm of state taxing authorities to grab out of state businesses with no physical presence. If state governments are granted this power, it would set precedent for future cases involving internet presence versus physical presence. The already broad power of the federal government to regulate commercial activities would become even broader. For small businesses to expand and engage in interstate commerce, the best way to achieve this would be to reduce, not increase, the number of regulations that would only serve to hinder online retailer’s primary function. The Marketplace Fairness act will in fact let large online retailers overtake small businesses, which was never the intended effect. Not only is the Marketplace Fairness Act unfair, it is unconstitutional and would be in violation of the Commerce Clause. Majority leader Harry Reid is pushing this bill through congress without consideration for the established “four-prong” test or important rulings such as the case of Quill Corp v. North Dakota. Instead, legislators are blinded by the condition of our state budgets and only focused on short-term benefits, namely the 23 million dollars in sales tax that would potentially be collected. If passed, the Marketplace Fairness Act would create a bureaucratic nightmare by imposing increased regulations. In addition, small businesses would be discouraged from doing interstate commerce, contrary to what most supporters believe. Small businesses want to focus on sales, and not regulations and tax-regimes. By distracting small businesses and overcomplicating the process, the state governments are not letting them spread their wings. 1. http://en.wikipedia.org/wiki/Commerce_Clause 2. http://taxfoundation.org/blog/important-tax-cases-quill-corp-v-north-dakota-and-physical-presence-rule-sales-tax-collection