With Congress back from the August recess, attention will quickly shift to the “Must Pass” legislation that has to be approved by the end of the year to avoid calamity. But there are two Internet Sales Tax bills that should be on everyone’s “Don’t Pass” list, because if either is slipped into moving legislation, it would be a calamity for America’s small- and medium-sized businesses.
We’re talking about the fatally-flawed Marketplace Fairness Act (MFA) and the Remote Transaction Parity Act (RTPA), which was supposed to fix the problems with MFA, but actually made a bad bill even worse.
MFA would force America’s online and catalog sellers to comply with the sales tax laws of 10,000 local jurisdictions in our nation, creating costly administrative and compliance burden on small- and medium-sized businesses that can scarcely afford it. It would also expose every single American business to new risks of government audits from any of the 46 states that impose a sales tax.
MFA is a law that only big box stores, with their massive resources and stable of lawyers, could love. For them, compliance with MFA would be a walk in the park. But MFA could be fatal for small- and medium-sized businesses, who would be required to keep up with 46 states that have major differences in rates, reporting, and even definitions for taxable goods. Why would we give big box stores an even greater competitive advantage over small- and medium-sized sellers than they currently have?
A second bill, the Remote Transaction Parity Act (RTPA), would force even the smallest online and catalog sellers to implement “free software” to deal with 10,000 U.S. tax jurisdictions. But such software is “free” the way a new puppy is free: With it comes hundreds of thousands of dollars of software implementation, upkeep, and administrative costs – all unaffordable to most small- and medium-sized businesses.
Even worse – just like MFA — this legislation exposes every American business to the real threat of government audits from any of 46 states with a sales tax. If businesses make a single mistake in categorizing their inventory, or mis-apply a sales tax holiday, they are subject to fines and back taxes that could put them right out of business.
So, if enacted, the RTPA would add costs, increase complexity, and create chaos even among small business making a good effort to comply with a bad law. Proponents of RTPA talk about a small business exemption, but they conveniently forget to say that the exemption disappears in just three.
But wait, there’s more. The RTPA legislation discarded two features of MFA –federal preemption and federal court jurisdiction – thereby making a bad bill worse. By eliminating federal court jurisdiction, RTPA discards a critical backstop when legal questions arise about a state’s compliance with federal law. But RTPA says that businesses have no recourse in federal courts, and forces them into state courts located in the state demanding more taxes.
Instead of either MFA or RTPA or anything similar, Congress should consider a much fairer and simpler approach developed by House Judiciary Committee Chairman Bob Goodlatte (VA-6th). Essentially, Chairman Goodlatte would require that Internet and catalog sales taxes be based on the location of the seller, rather than the residence of the customers. This is exactly how brick-and-mortar retailers collect sales tax today. It lets a business comply with just one set of laws, and the risk of intrusive audits and unending litigation would practically disappear.
On behalf of America’s online and catalog sellers, we strongly urge members of Congress to closely examine both the Marketplace Fairness Act and the Remote Transaction Parity Act. We know what they will find: essentially a how-to guide to eliminate America’s small online and catalog sellers. MFA and RTPA are bad policy that should be strongly opposed.
Steve DelBianco is executive director of NetChoice, a trade association of e-commerce businesses and online consumers.