Congress shouldn’t pass Internet tax bill in dark of night

When Rep. Paul Ryan (R-Wis.) was sworn in as Speaker of the House, he promised that legislation would go through “regular order.”  This pledge will be tested as Congress tries to finalize an omnibus spending bill over the next two weeks. 

That’s why it’s deeply troubling that some lobbyists are urging Congress to slip the fatally flawed Marketplace Fairness Act (MFA) into the omnibus in the dark of night, in opposition to the Speaker’s promise.

{mosads}But there’s a bright spot:  Recently Sens. Kelly Ayotte (R-N.H.), Marco Rubio (R-Fla.), Steve Daines (R-Mont.) and Mike Lee (R-Utah) urged Ryan to oppose any efforts to pass “misguided and destructive” Internet tax schemes such as the Marketplace Fairness Act (MFA). They wrote: “instead of protecting and fostering e-commerce, [MFA] would stifle small business growth and job creation.”  

This is a timely request, since we know that lobbyists for big box stores are desperate to attach MFA—or its close cousin from the House, the Remote Transaction Parity Act (RTPA)—to other pieces of legislation, thankfully with no success so far.   

These bills suffer from similar fatal flaws.  They impose taxes based on the location of the purchaser, adding enormous cost, complexity, and compliance requirements on small- and medium-sized businesses that can scarcely afford it. 

Analysis indicates that MFA would impose $80,000 to $290,000 in initial implementation costs, with another $57,000 to $260,000 in annual upkeep. For many of these companies, costs of this magnitude are questions of life and death.  We should take actions to support these companies, not crush them with huge compliance burdens. 

Additionally, under MFA companies would be forced to comply with the tax laws, holidays, and exemptions from any one of 10,000 jurisdictions across the nation.  Those who tout the merits of MFA or RTPA point to “free software” as the solution. But this only makes the situation worse.  Small businesses would face huge costs of integrating this software with their existing systems.  

Furthermore, this legislation opens the door to the risk of government audits from any one of the 46 states that apply sales tax.  

MFA and its ilk are legislation that only the big box stores and their high-priced lawyers could love.  When analyzed closely, one can easily see they are designed to give big retailers a competitive advantage over smaller online and remote sellers.   

There is a much better and simpler approach being advocated by the chairman of the committee of jurisdiction, Rep. Bob Goodlatte (R-Va.).  Rather than impose Internet sales tax based on the location of the purchaser, the Goodlatte approach would determine it based on the location of the seller.  Small businesses would only have to apply a single sales tax rate or set of rates, and would only face potential audits from the states in which they operate.  This cuts out considerable complexity, creating the least amount of burden for small- and mid-size catalog and Internet sellers. 

Just as importantly, this approach reflects the principles laid out and endorsed by the new House leadership—that legislation should follow regular order and go through the committee of jurisdiction – namely, the House Judiciary Committee.  

Solving the Internet sales tax dilemma is critically important.  But we should do it in a way that respects both the Committee process in Congress, as well as allowing small and medium sellers to survive and not to be crushed by an avalanche of cost, complexity and chaos.

Davison is co-founder of TruST and president of the American Catalog Mailers Association.