The Marketplace Fairness Act

Perhaps you have heard rumors-slash-news about taxing the internet, or applying sales tax to internet transactions.  Depending on whether you happen to be a small retailer or not, honest business people have agreed to disagree on this one.  The problem with this very slow-moving legislation is that there are entrenched interests on both sides putting out a lot of disinformation.  Really?  In Washington D.C.?  Go figure!

Here are the facts:

This is not a new tax.  In all states which currently have sales taxes, it is long-standing law that if a resident in that state orders something online and the merchant does not charge sales tax, then the customer must manually assess and pay the sales tax they owe to their home state.  It is no surprise that no one does this and it gets rarely enforced, thus we are all unwitting law-breakers.

Further, this condition creates a government-sanctioned subsidy for internet retailers which represents an instant discount on goods ordered and shipped across state lines whereas if the customer had purchased the item from a local retailer, the tax would have been collected and remitted at the register.

Detractors from the legislation (mostly eBay) claim that cleaning up the mess by mandating all online retailers collect and pay the various state sales taxes is an unfair burden on small retailers.  Since a lot of brick-and-mortar “small” retailers are very much in favor of removing this condition of government picking winners and losers, who is eBay speaking for?  It isn’t much of a leap to see eBay’s self-interest since it takes a cut for itself out of every transaction it processes for its member sellers.  eBay is afraid that a fairer playing field that does not give online sellers an unfair advantage will reduce the number of transactions on eBay and cut into its already multi-billion dollar annual net profits.  Yes, let the sympathy flow.

In fact, the software already exists, cheaply, to integrate state-specific sales tax collection into the point-of-sale hardware of any retailer including handling all the state returns and payments.

Most other large internet retailers have seen the writing on the wall.  With states and localities losing millions every year in uncollected sales taxes, further increasing the burden on brick-and-mortar business owners and homeowners to make these revenues up in higher income and property taxes, this legislation is going to pass eventually.  That is why most of them have begun quietly collecting the various state sales taxes anyway even as states are beginning to more aggressively go after these lost revenues that are already due to them.

As consumers, we need to acknowledge that it is time to pay the taxes we already owe.  I’m not a tax-and-spend guy (far from it), but I am for everyone paying their fair share of taxes we already have.

Jeff Koenig