The Misguided Push to Tax the Internet

By John Nothdurft – This week sponsors of the Marketplace Fairness Act, Sens. Mike Enzi and Dick Durbin, are introducing an amendment intended as a proxy vote for the expansion of states’ ability to charge sales taxes on out-of-state retailers regardless of whether the retailer had a physical presence in the state.

Last week a group of 16 conservative, free-market, and libertarian groups, including The Heartland Institute, co-signed a letter to Congress opposing this expansion of taxing powers. The letter explains, “In seeking to address the failures of the ‘use tax’ systems employed by states, the ‘Marketplace Fairness Act’ ends up giving a federal blessing to a massive expansion in state tax collection authority, the dismantling of a vital taxpayer protection upon which virtually all tax systems are based, while harming a segment (online sales) that despite its dramatic expansion still only accounts for roughly $0.07 of every $1 in retail spending.”

Some states may see the Marketplace Fairness Act as an opportunity to tap a mostly untapped source of revenue. While that may be true, it also would hinder tax competition among the states, undercut federalism, push tax rates up, and even possibly pave the way for a national sales tax.

As I have pointed out in the past, “The so-called Marketplace Fairness Act is anything but fair for the marketplace. Giving states a new open-ended power to tax out-of-state residents regardless of physical presence would be a disaster for consumers. Bricks-and-mortar retailers enjoy many basic advantages over other retailers. Driving up the cost for purchases made online or by mail-order will hinder competition and open taxpayers up to a whole new slew of possible taxes.”

Ultimately, states need to be allowed to compete with one another rather than reaching over the borders for additional revenues. The federal government and states should focus their attention on balancing their budgets and creating a competitive tax climate that will grow the economy and encourage commerce rather than proposals such as this one that will burden consumers and small businesses.

This week’s edition of The Leaflet features research and commentary addressing the Marketplace Fairness Act, Gov. Dayton’s tax hike package, entitlement reform, the renewable fuel standard, money following the child, and an interactive map depicting Medicaid expansion costs.

John Nothdurft is the Director of Government Relations for the The Heartland Institute

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