Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

Senate about to pass Marketplace Unfairness

Jerry Stratton, April 23, 2013

Whirlpool Galaxy

Sinking further into the Bureaucracy Event Horizon.

A long time ago, I wrote that I expected Amazon to come around in favor of forced collection of state and county sales taxes pretty much as soon as they realized they were big enough to handle the added expense and time—because it would help block competitors from starting up.

And that politicians like the proposal because it “levels the playing field” for high-tax, high-red-tape states, who would no longer have to compete as hard for businesses with no-tax states or states that enact simpler tax codes.

The Senate has just begun debate on The Marketplace Fairness Act, which is anything but fair. It’s most likely to pass now that it’s entered debate, because Democrats control the Senate and the one thing they don’t like is the ability of businesses and consumers to choose what tax system they’re burdened with.

We know that’s the case, because, unlike previous versions of this bill, the so-called “fairness” act specifically removed any requirement that states simplify their taxes:

Eight years ago, Sens. Mike Enzi, R-Wyo., and Byron Dorgan, D-N.D., introduced legislation that would have allowed Internet sales taxes to be collected—but only after states simplified and standardized their tax systems…

The current version of S.743, however, lacks those protections. Small sellers with no profits could be subject to audits in dozens of states. Each of the nearly 10,000 local tax jurisdictions could specify a different tax rate. Businesses would also have to figure out how to handle the complexity of integrating as many as 46 state government-supplied software packages into Web ordering systems.

Of course, mandating such a complex scheme also means mandating that every seller in every state that does any business on the Internet purchase software and legal advice to help them navigate this bureaucracy event horizon. It’s a bureaucratic win-win-win: the federal government gets everyone’s purchases tracked because the tax categories vary from state to state; large retailers like Amazon don’t have to compete as hard because they don’t have to worry about a new startup eating their lunch; and the bureaucracy navigation industry wins thousands of new customers.

There is a solution, however, that is both fair and adds very little overhead. I would actually have no problem with requiring sales tax collection—as long as the location used for determining taxes is the location of the seller, rather than the location of the buyer.

That, of course, would encourage states to lower their sales taxes so as to attract businesses, instead of negating the advantage that no-sales-tax states have in the age of the Internet. It would encourage simpler, more understandable tax regimes rather than the messes of red tape some states seem unable to shed today.

When politicians talk about fairness, it’s not about some businesses having to charge sales tax and others not. It’s about sales-tax states having to compete for business with states that choose not to burden businesses with sales tax regulations. That’s the “unfairness” that they care about.

In response to Punishing low-tax states: An Internet sales tax that looks at the customer’s state instead of the seller’s state punishes states with low sales taxes and inhibits competition.

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