Marketplace ‘Fairness’ Act a Misnomer

A new Congress brings new faces and presumably new ideas. Unfortunately, that’s not the case when it comes to setting tax collectors loose on the Internet.

A bipartisan pack of pro-tax senators, led by Dick Durbin (D-Ill.) and Mike Enzi (R-Wy.), is once again pushing the misleadingly named Marketplace Fairness Act. All but written by lobbyists for the nation’s biggest retailers (such as WalMart and Amazon), the MFA would unleash tax collectors from almost 10,000 taxing jurisdictions across the country to roam the Internet in a quest for increased tax revenues.

Congressional proponents of the bill recite the mega-retailers’ talking points when they claim that it would level the playing field between brick and mortar stores and e-retailers, and that the compliance cost for e-retailers would be negligible. They are wrong on both counts.

The MFA exposes even tiny online retailers to the risk of potential audits from 45 states – something no small brick and mortar operation faces. For a small e-retailer with just a couple of employees, even one audit might be enough to put them out of business. The threat of 45 such audits would force many of these small businesses to consider shutting down completely.

The cost burden to keep all the records for potential audits by 45 states is far from negligible. PricewaterhouseCoopers has studied this question and estimated that the costs are 15-17 cents on the dollar. So if you have $100,000 in sales, you would face a breathtaking increase of about $16,000 in new costs. One brave provider of tax calculation software – TaxJar CEO Mark Faggiano – has taken direct aim at the “free software” claim. He stated, “the stories being told by some tax software vendors – that all it will take is some cheap software – ignores the real life accounting, legal and registration burdens that will come along with sales tax mandates in the Marketplace Fairness Act.”

The Marketplace Fairness Act is not about providing a “level playing field” for all retailers. Rather, it’s about the Amazons of the world using their friends in Congress to crush their smallest online competitors through legislative action.

In 2013, the Senate, then under Democratic control, passed the MFA, but the House of Representatives refused to do so. Now, with a Republican majority in the Senate and a majority leader who voted against MFA two years ago, as well as a House majority that remains steadfast in its opposition to the bill, MFA has no chance of becoming law.

If Senators Enzi, Durbin and their colleagues are serious about addressing this issue, they should junk the Marketplace Fairness Act and start over. Thankfully, in September of 2013 House Judiciary Committee Chairman Bob Goodlatte released a set of seven principles that serve as a far more serious starting point for legislation that could tackle this problem in a way other than the heavy-handed and fundamentally unfair approach of the MFA. That’s not to say any approach based on the Goodlatte principles will be perfect, but as a starting point they are likely to be less burdensome for small e-retailers.

However, one of the bill’s supporters, Senator Lamar Alexander of Tennessee, recently said that he hopes the House of Representatives will move first this time. This not only calls into question their commitment to solving this issue (rather than smothering small e-retailers via the MFA); it also suggests that they’re fresh out of ideas. Politicians need to start with Chairman Goodlatte’s principles and go back to the drawing board.


Phil Bond is the Executive Director of the WE R HERE Coalition and a former U.S. Under Secretary of Commerce for Standards and Technology.

Morning Consult