SPECIAL GUEST COLUMN
Marketplace Fleecing Act:
Republicans Preparing to Tax iTunes Downloads
By: Erick Erickson
March 20th, 2013 at 03:30 AM
Congressional Republicans led by Senator Mike Enzi of Wyoming and Democratic Senator Dick Durbin of Illinois, are about to raise Americans’ taxes and set in place the foundation for states to be able to tax downloads from the internet, including from places like iTunes. Senators Durbin and Enzi are inserting an internet tax as an amendment to the Senate budget bill.
The tax sounds innocuous enough. The tax is hiding under legislation called the Marketplace Fairness Act. The Act purportedly just harmonizes state laws so internet sales are also taxed. After all, it is not fair that Amazon does not charge all its customers sales taxes. It puts them at a competitive advantage over mom and pop shops. Sounds good until you realize what’s actually going on with this latest scheme to peddle “fairness.”
One day I will have a scorecard for conservatives. And those Republicans who vote for the Marketplace Fairness Act in any form will be blackballed from that scorecard. Until then, I hope groups like Club for Growth and Heritage Action will score against it. It is a damnable piece of legislation whose backers are a who’s who of major corporations.
The staggering irony of the Marketplace Fairness Act is that it is written by states craving more money and massive corporations like Wal-Mart who want to hurt small businesses that have become successfully competitive against big retailers online. And in selling the Marketplace Fairness Act, these big businesses and governments have hired lobbyists to claim the law actually benefits small businesses. But the backers are a whose who of major corporations who have a history of using their connections in government to hurt small businesses that have figured out how to successfully compete against big businesses.
Even more shameful, these big businesses and state governments have been pouring money into conservative outfits and right-of-center lobbying outfits to try to convince conservatives that tapping a massive new revenue stream for states to balance budgets is somehow a conservative milestone.
Some of those supporting the Marketplace Fairness Act are good people with good intentions who believe the law is noble in purpose and buy the spin. But many are bought and paid for by the major corporations who have for too long rigged the system to their advantage by shutting out entrepreneurial competitors through the tax code and other laws.
Republicans who vote for the Marketplace Fairness Act, including Mike Enzi, should be, metaphorically speaking because it’d otherwise be illegal, flogged.
I don’t shop online to avoid sales taxes. I do so for convenience and because I hate people and don’t want to interact with people in a store. (kind of kidding) I don’t really care if I have to pay sales taxes online. It just sounds so fair.
As we’ve learned from Barack Obama, beware politicians peddling fairness. Republicans doing this are about to open a pandoras box and, behind closed doors, they admit they know it. Are you ready for your downloads from iTunes to be taxed?
The nation has thus far successfully shielded the internet from Washington taxation and regulation for decades, and the Marketplace Fairness Act would break the floodgates open. Even more troubling, the Marketplace Fairness Act establishes a pretty solid precedent that the federal government can step in to regulate state tax policy. After all, this legislation attempts to exert federal regulatory power over state internet tax policy with state complicity.
Once Congress has opened the pandoras box of federally authorized internet sales taxes, it is only one step away from taxing internet downloads, not just goods purchased online.
But here’s the other troubling thing. The Marketplace Fairness Act, for the first time, establishes a national sales tax. It does so by hiding behind the states. They told us the individual mandate wasn’t a federal tax either.
Here’s the situation. As you may know, the Supreme Court has long held that a business has to have some physical nexus in a state to be subject to sales tax collections — an storefront, distribution center, etc. This is based on the fundamental principle of no taxation without representation.
States have tried to weasel their way around this, but each state taxes goods in different ways. Some states, for example, don’t tax baked goods, but do tax candies, even if made in a bakery. So your cake is not taxed, but if you buy fudge at the bakery it is. And it’s not just states, there are over 7,500 different local tax systems, many with special tax holidays or exemptions for different products. Trying to move these varied tax systems to the internet would drive up the burdens of businesses online by forcing compliance with the various taxing schemes of 50 states.
That actually puts a heavier burden on online vendors than brick & mortar local vendors, who only have to comply with the taxes of the state they reside in. Then there are the compliance costs. How does a candy company in Georgia that sells fudge to someone living in Iowa handle a tax dispute with Iowa tax authorities?
MFA would destroy the concept of states as laboratories of democracy that allow businesses to move between states based on better business environments. Today, a business located in New Hampshire charges no sales tax, but if MFA passes, overnight they could be forced to collect taxes for dozens of states with no escape.
Now, let me explain what is really going on here. States have grown huge and bureaucratic. Instead of downsizing and becoming more efficient, states have decided to just look for a new tax scheme to fund the leviathan. They see online sales as the way to go. iTunes downloads will be next. Congressional Republicans are helping.
But consider that there is a carve out for businesses that sell less than $500,000.00 a year online. As Senator Jim DeMint noted last year this is a pretty good admission that the law will be a burden on businesses.
Proponents of MFA also like to brag that Amazon now supports their internet tax bill after years of opposition. That’s true, but there is a simple reason why: Amazon’s future business model of same-day delivery requires them to have distribution centers in nearly every state in the nation. You see, MFA won’t affect Amazon, because like Target or Walmart expanding to every state, Amazon will be forced by current law to collect sales taxes. So of course Amazon now supports MFA, this is nothing more than a big corporation using Washington politicians to punish their competition, like the many small business sellers on Ebay.
Senator Enzi and the Republicans joining him should be ashamed that they are willing to open a new front in Congress’ quest to tax everything. The Marketplace Fairness Act should really be called the Marketplace Fleecing Act.