Keep your eye on the, ahem, “Marketplace Fairness Act” in Congress (S.1832). As Tim Carney of The Washington Examiner explains, we’ve all been ordering online for years with no sales tax because there is no federal sales tax, and a 1992 Supreme Court case ruled states can’t “collect sales taxes from a business [with] no physical presence in the state.”
Up until now, online sales tax bills have had a powerful opponent in Amazon, with the popular online retailer playing defense against efforts by powerful brick-and-mortar lobbyists working to get bigger government to handicap its new competitor. But now Amazon is switching sides.
In order to provide faster shipping, Amazon is building warehouses throughout the country. These warehouses constitute a “physical presence,” which requires them to collect sales taxes, in any event. So, if Amazon is going to have to collect sales taxes under the existing “physical presence” doctrine, it may as well try to expand online sales taxes to whack its smaller competitors who don’t have a 50-state network of giant warehouses.
The rest of the online retail industry remains on the anti-tax side. NetChoice, a coalition including other online retailers like eBay and Overstock.com, is fighting the “Marketplace Fairness” bill.
These are the typical battle lines in Washington: big business for big government, and smaller business for smaller government. And the bigs typically win.
Here’s Sen. Jim DeMint addressing Amazon’s change of heart at a hearing on the bill in the Senate Commerce Committee Wednesday. Key quote via Amanda Carpenter: “I’ve been here a long time and I’ve seen many businesses that used to be small, they grow. Then they use their political clout to come here, to advantage themselves and to erect barriers to entry for smaller companies.”
The deck was stacked against taxpayers at the hearing, with six tax supporters testifying and only one opponent on hand. But one of the tax’s supporters unwittingly offered the senators an object lesson in how difficult implementation of such a law might be:
Steven Bercu, CEO and co-owner of BookPeople book store in Austin, Texas, told the committee that he felt so strongly about collecting sales taxes that his business did so even for sales into states where he has no physical presence. He has no legal obligation to do so, but he likened it to a kind of civic obligation to support infrastructure and services in other states (nevermind the fact that shipping companies that help deliver his items already do plenty of that through income and gas tax burdens of their own).
The revelation of illegal tax collection came when Steve DelBianco, Executive Director of NetChoice, gave his testimony. In it, he presented a screenshot of a purchase he made on BookPeople’s website this morning which showed that he was charged what was purportedly Virginia state sales tax of 8.25%. There’s only one problem: Virginia’s sales tax is 5%. Mr. Bercu quickly proclaimed that a mistake had likely been made and that he’d look into it with the provider of the service that calculates sales tax collection for his business. It turns out that 8.25% is actually the prevailing sales tax rate in Austin, Texas, where BookPeople is physically located. In all likelihood, this is the source of the mix-up.
While it was somewhat amusing to uncover this mistake, it also suggests that the tax was illegally charged to DelBianco. If BookPeople collected and remitted on behalf of Virginia, they illegally overcharged him because no business can collect more than the legal sales tax rate. If they collected and remitted to Texas, they illegally charged DelBianco on a transaction which was not subject to sales tax. Under current law DelBianco has no sales or use tax obligation whatsoever in Texas and if BookPeople charged him one, that was just as illegal as a grocery store charging someone sales tax on something in a state where food is exempt from it.
As Andrew Moylan notes, “even the best of intentions can’t iron out mistakes resulting from the confusion of 9,600 taxing jurisdictions with different rules across the country.” The Senate’s bill is branded as an attempt to level the playing field for small businesses. I concede there are genuine concerns for small, brick-and-mortar stores, but this law will just burden small online businesses while big retailers will be able to devote resources to compliance and absorb the extra taxes. Complexity is a subsidy for those with the money for a better lawyer.