WASHINGTON, March 19, 2013 ― As often happens when members of Congress help out their wealthy cronies, a bill called the Marketplace Fairness Act has popped out of committee and onto the Senate floor with very little warning. Despite its deceptively positive name, this is a giant tax mandate. It is designed to benefit big-box retailers and reduce competition from online businesses by enabling state and local taxation of internet sales.
Right now, tax is collected by sellers on internet sales only when the buyer and seller are physically located in the same state. This bill from Senator Jack Reed (D-RI) would lift the usual federal protections on interstate commerce and authorize state governments to tax sales which cross state lines, and put the burden of collecting that tax on the online business, regardless of where it is located.
(CORRECTION: Senator Reed is cosponsor to the Marketplace Fairness Act. The bill (S.336) is authored by Senator Michael Enzi (R-WY). We regret the error)
This addresses a perceived inequity suffered by large nationwide retailers which have retail outlets in every state and therefore charge tax on all of their sales in person or online. They are at a presumed disadvantage when competing with businesses which operate primarily online and do not charge taxes on most sales.
The unfairness of this is debatable. Online businesses operate under the same rules which mail-order businesses have been under for years. All that has changed is that there are more of them and they have greater access to consumers through the internet.
Store chains with physical locations have many advantages which offset tax disadvantages. They can attract casual and impulse buyers and allow them to examine their products with access which is impossible online. Their size and the bulk in which they buy products wholesale give them an advantage through economies of scale which allow them to sell products through their stores at substantially reduced prices. They can further undercut online retailers because they do not have to pay shipping to deliver each product.
They are hardly suffering in any real way, except that they are being forced to endure competition.
Most online businesses aren’t giants like Amazon. They are entrepreneurial micro businesses which operate in very specialized areas and have to do everything they can to cut overhead. They are the breeding ground of the next great businesses which will grow our economy and are already the strongest area of retail growth area in the nation.
In a time of recession we need new businesses and the activity they generate to rebuild our economic strength. Online businesses have become a haven for many of the unemployed, who have taken their savings and invested them in internet businesses, finding a new way to earn a living and become a new middle class. Through an online store, anyone can open a retail business without the overhead of a physical store, making the internet the ultimate retail democratizer.
This proposed tax policy will take all of that away, give the advantage back to the box stores, bankrupt small e-business owners, and leave them without even unemployment to fall back on.
Raising the relative prices of goods sold by online retailers may be enough to drive them out of business, but even more dangerous to them is the incredible paperwork burden which compliance with this law will place on these vulnerable businesses. Online businesses will have to charge taxes to satisfy the rules of 50 states and hundreds of thousands of other smaller taxing jurisdictions. There is no way they can track all those taxes, charge them accurately and deliver the money to all of the taxing authorities without a huge cost in man hours or money. When you have thousands of employees, hiring a department of tax accountants is a manageable expense. When you’re one guy working out of his garage with a couple of part time employees, it’s instant bankruptcy.
This bill would stifle the freedom which the internet has given to consumers and small businesses and sacrifice the welfare of hundreds of thousands of entrepreneurs for the benefit of some of our largest and most powerful corporations. This is not just a way to raise revenue for spendthrift states and make commerce more “fair”; it is a death sentence for most online businesses.
The bill is backed by the powerful lobbying machines of companies like Best Buy, Target, Wal-Mart, PetSmart, Lowe’s and PetCo as well as by state and local governments eager to get their hands on a few more consumer dollars. It is largely opposed by consumer advocacy groups who see that it will promote monopoly power, and who realize that competition makes the marketplace stronger and prices lower for everyone.
The giant retailers have already forced most local businesses which try to compete with them out of business, and now they want to do the same thing to online businesses. This is the road to monopoly and it is a terrible idea for our economy and for consumers. We need competition and we need the dynamic influence of online businesses and the pressure they put on other businesses to provide better service and keep prices down.
Congress cannot be allowed to continue to make war on the middle class and on small businesses. They do not understand how the economy works and their policies lead to unemployment and growing economic inequality. The Marketplace Fairness Act makes the marketplace less free and competition less fair. It’s another bailout for big corporations which will cost jobs and drive productive people into poverty.
The Senate is expected to vote on this bill on Wednesday the 20th. To join the effort to protect online businesses see the action page at the Republican Liberty Caucus.
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