The U.S. Senate in 2013 passed a rare bipartisan measure that would extend sales tax collection to sales made via online merchants. As is typical of the gridlock in Congress, though, the measure did not advance in the House prior to Election Day. Marketplace Fairness Act proponents had hoped that the lame-duck session now under way would move the measure to enactment, but House Speaker John Boehner, R-Ohio, has pronounced it dead in that chamber. It is a disappointing demonstration of unnecessary partisanship.
The Marketplace Fairness Act would allow states to require online retailers to collect sales taxes, thereby placing virtual merchants in the same taxing realm as that of brick-and-mortar retailers who must collect sales taxes from their customers. Under current law, only those online merchants that have a physical location in a given state must collect sales tax. Those that exist only virtually are not compelled to do so. That, say traditional retail operators, puts online stores at a distinct advantage in the marketplace, giving consumers incentive to forgo a local purchase for a slightly cheaper one online. It is a compelling argument, particularly for small communities such as Durango and Cortez, with comparably few local retailers competing for customers with infinite choices on the web. Applying a universal taxing structure to those purchases, regardless of the vehicle through which they are made is fundamentally fair.
Boehner and House Republicans, though, see it differently, claiming that voters would see the Marketplace Fairness Act as a backdoor tax increase. That is a leap of logic on several levels. First, it overlooks the fact that consumers are technically required to send to their respective state the sales tax owed for these online purchases. Not surprisingly, almost no one complies with the rule. The bill would shift the onus to merchants – a far more sensible approach to sales tax collection, given that it is the structure for doing so in cases where the tax is required. Republicans’ opposition to the Marketplace Fairness Act overlooks the significant reality that those online merchants with facilities in a particular state must collect tax for sales made in that state. Extending the rule to those merchants that exist only virtually makes the taxing structure universal and fair.
These are not make-or-break issues – for small online retailers, local merchants, Internet giants or state coffers. Consumer behavior may be somewhat swayed by the varying taxing requirements their various purchases evoke, but not likely enough to move retail markets. Nevertheless, applying a consistent standard to sales and how they are taxed so that all purchases in a given state are conducted in line with that state’s taxing structure would apply a blanket of fairness that all would welcome. Doing so would not be imposing a new tax, but rather ensuring that an existing one is levied equally.
Boehner should reconsider his decision to halt action on the Marketplace Fairness Act, and instead offer the measure for discussion and action in the lame-duck session. There is bipartisan support from consumers and merchants alike.