Could the Marketplace Fairness Act actually work in Rhode Island?

Last edited at 1:30 ET since the state in question was Rhode Island, not Maryland, and I apparently need more coffee in the mornings. Jazz

Last year we had a series of hotly debated discussions regarding the possible implementation of the Marketplace Fairness Act, which could result in states collecting sales tax on internet sales. These were highly informative (including for yours truly) and highlighted a lot of potential problems with the legislation, as well as the benefits touted by supporters. One of the seemingly obvious objections to the bill came in response to a claim widely touted by those supporting it. It was said that allowing states to recoup allegedly lost revenue from internet sales would free up space in state budgets to lower – or at least not raise – other taxes and spur growth. The obvious response was along the lines of saying that this was a lovely dream, but it would require state governments to actually carry through and do it rather than simply pocketing the cash in the state’s coffers and find new ways to spend it.

I certainly had to agree that this was a good point, particularly given the record most government entities have racked up on spending. But in Rhode Island, there may be a glimmer of hope that this could actually work.

Pointing to no increases in “any broad based taxes” as one of the highlights of his FY15 budget proposal, Governor Chafee touted that “when Congress enacts the Marketplace Fairness Act”, the budget directs revenue to reduce the State’s corporate tax to 6.0 percent, and eliminate the sales tax on non-manufacturers’ gas and electricity.

Providence City Council President – and potential Mayoral candidate Michael Solomon, said “I think the Governor’s commitment to education and increase in funding is good not only for Providence, and the whole state. However, I would have liked to see more aid to city and towns, take the burden off property owners; tax relief. It was nice to see his commitment to eliminating the sales tax on commercial businesses for gas and electric.”

Of course, this is just the Governor’s proposed budget. It holds no real power unless the legislature decides to take up the matter and pass it into law. But assuming it actually happens, it would represent at least a minor victory for people arguing in favor of the MFA.

The Governor’s proposal also sparked some interesting responses from opponents, leading to the unusual situation of having Democrats arguing not about how much to raise taxes, but which ones to cut.

Rep. Jan P. Malik, D-Warren, who chairs a commission that is looking at reducing or eliminating the state sales tax, said he was disappointed that Chafee focused instead on the corporate tax.

The state chapter of the National Federation of Independent Businesses said it, too, was “mostly disappointed” by the address.

“Governor Chafee’s proposals nibble around the edges without ever addressing the real problems in this state and that’s disappointing to the small-business owners who were hoping for some direction,” said Bill Vernon, state director of the National Federation of Independent Business.

At first glance there’s something a bit ironic about wanting to eliminate the state sales tax by collecting internet sales taxes, but seeing the debate focus on which taxes to cut should be a positive sign. And it’s a debate worth having in Rhode Island. Cutting taxes for residents is undoubtedly a popular idea, and it puts more money in people’s pockets to spend and invest, boosting the economy. But reducing taxes on businesses spurs overall growth and hopefully leads to more jobs and additional employers being attracted to the state.

Either way it’s a win, but we’ll have to wait and see if they carry through on these plans. And that’s assuming that the MFA is signed into law in the first place.