To Tax or Not to Tax? The Online Sales Debate

Supporters of the bill say that the legislation would have no effect on federal revenues and would simply allow for the collection of sales taxes. The National Governors Associations (NGA) said that states need the $23 billion in lost revenue and the National Retail Federation says the proposal would simply roll back the unfair advantage online stores have on brick-and-mortar retailers.

“[The Marketplace Fairness Act] rectifies the discrimination against brick-and-mortar retail outlets of all sizes. Internet sellers now receive a subsidy of 8%-10% because they don't collect sales tax on retail sales outside their states, a subsidy that harms other sellers,” said NGA’s Executive Director Dan Crippen. “Yet Internet sellers get the benefits of the world's third-largest consumer base, not to mention state roads for delivery of their products, plus the protection of the state court systems to enforce business contracts.”

Lawmakers from states without a sales tax condemned the measure, saying it would burden retailers that are not currently required to charge sale taxes to customers.

Sen. Max Baucus (D-Mont), whose state does not collect sales taxes, said the bill would hurt businesses in Montana and other small businesses in America because it forces small businesses “to play tax collector for other states.”

The anti-tax-hike group Americans for Tax Reform (ATR) echoed the senator’s remarks, saying the bill would force businesses to collect taxes for all states.

“The legislation hands a small cartel of state tax administrators the ability to reach across state borders and export the burden of tax collection onto out-of-state businesses,” said ATR’s president Grover Norquist.

ATR maintains an anti-tax pledge that nearly every Republican in Washington has signed and suggested that the legislation can only be viewed as tax increase because “it grants states new tax collection authority without removing equivalent taxing authority elsewhere.” The group has yet to explicitly say that lawmakers would violate the pledge by voting for the bill.

The NGA fired back at ATR’s remarks about the bill, accusing the organization of trying to undermine legislation that “levels the playing field between Main Street and e-street.”

“The Marketplace Fairness Act is common-sense legislation that is simply about the collection of sales and use taxes already owed. The Americans for Tax Reform may not like this legislation, but they are not entitled to their own facts,” said the NGA in a statement.

The group also argues that the online sales tax bill does not violate the tax pledge because candidates for Senate office pledge to “one, oppose any and all efforts to increase the marginal income tax...and two, oppose any net reduction or elimination of deductions or credits.”

“Marketplace Fairness does neither. It is not a new tax or a tax increase. It clearly does not violate the pledge. In fact, the Americans for Tax Reform themselves admitted to leadership of the [NGA] that this was not a violation. To say anything else is disingenuous,” said the group in a statement.

House Republicans are by no means united in opposition to the bill. The House version of the bill already has roughly two dozen GOP sponsors.

“I’m a co-signer of the [Norquist] pledge. I’m a co-signer of the legislation. We have to collect the taxes that are due,” said Rep. Austin Scott (R-Ga.).