Under pressure from retailers such as Amazon, Walmart, Macy's and Best Buy, the Senate is expected to vote on amendment to a budget resolution that would implement the first national Internet sales tax.
Senators clashed on Thursday over a budget resolution amendment to empower states to tax online purchases.
Sens. Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.) argued in speeches on the Senate floor that the amendment, which is based on their Marketplace Fairness Act, would close an unfair loophole that benefits online retailers over local brick-and-mortar stores.
But Sen. Max Baucus (D-Mont.), the chairman of the Senate Finance Committee (R-Mont.) called the proposal "revolutionary" and said lawmakers should take more time to consider potential consequences before rushing to a vote.
The Heritage Foundation is concerned, saying the Act would:
...overturn a Supreme Court decision setting limits on a state’s ability to require out-of-state retailers to collect sales taxes for them, turning every out-of-state retailer into a sales tax collector for nearly 10,000 separate state, local and municipal tax jurisdictions.
This would be a dangerous extension of state power into other states. Not only would it place costly burdens on retailers, but it would allow states to impose taxes in a way that favors their local businesses over out-of-state firms, who have no representation in the taxing state.
Reason Foundation’s Steve Titch wrote about the proposal last July explaining how the legislation would undo two Supreme Court decisions and fundamentally change how we are taxed:
While proponents say the law will level the playing field for brick-and-mortar stores that collect taxes, it will actually fundamentally change the basis on which merchants collect sales tax. As of now, sales tax is calculated based on the retailer's location. A New Jersey resident shopping on Manhattan's Fifth Avenue pays sales tax to New York City. Does the Marketplace Fairness Act set up a legitimate sales tax claim by Trenton to any purchase made in any state by a Garden State resident? Don't discount it. The logic behind the bill is "what applies to local retailers should apply to Internet retailers." From there it's easy to argue the reverse.
All the talk of loopholes and level playing fields diverts attention from the real issue. The Marketplace Fairness Act is not about the Internet, e-commerce, the marketplace or fairness-it's about what the Constitution says about the power of state governments to tax citizens beyond their borders.
The Marketplace Fairness Act treats the Internet sales tax issue as a procedural issue when it actually ushers in something unpecedented: cross-border taxation. The bill requires an unusual quid pro quo, states must simplify the way they collect taxes before the law goes into effect. This may be because Congress is trying to offer states the appearance of buy-in. Perhaps they forsee that any federal attempt to impose a national internet sales tax structure wholesale on the states would likely face constitutional challenges on 10th Amendment grounds of states' rights.
Image by Plastic Tubing.