The U.S. Senate Committee on Commerce, Science, and Transportation held a hearing Wednesday afternoon about the potential effects of passing the Marketplace Fairness Act (MFA).
The MFA, first introduced by Sen. Michael Enzi (R-Wyo.) in November, will close what the senator frequently deems a “tax loophole.” Yet many members of the increasingly influential Tea Party wing of the Republican Party are confused to see a Republican politician calling to end a loophole that essentially boils down to a tax break for online retail companies.
“I strongly believe in allowing states the authority to collect sales tax from all retailers if they choose to do so,” said Enzi in a recent op-ed for The Hill. “Let’s clear up one thing: this is not a new tax. … We are talking about an existing state tax that purchasers already owe. And it is a tax on all sales, not on the Internet itself.”
His sentiment, repeated by Sen. Jay Rockefeller (D-W.Va.) during the hearing, is technically true. The MFA adds no new taxes into written law, but, since the proposed legislation would expand the government’s enforcement powers, companies and their customers would most certainly be forced to pay more in sales tax.
Sen. Dick Durbin (D-Ill.) emphasized that fewer than five percent of Illinoisans pay the already-owed internet sales tax. If states were able to enforce existing law, he argued, the government would collect an extra $23 billion annually. This $23 billion doesn’t appear out of thin air, though.
According to a statement released by the Democratic Press Office, “local retailers who compete with online companies are at the mercy of a 6-10% price disadvantage,” a discrepancy that the MFA’s authors hope the legislation will correct. However, executives hoping to maintain their companies’ current earnings may feel compelled to either reduce costs or raise prices in order to make up for lost revenue, which is naturally passed on to customers.
Steve DelBianco, executive director at NetChoice, spoke in opposition to the MFA. He argued that these new costs will affect small businesses much more drastically than they will affect larger ones, pointing out that the bill’s tax exemption — for companies with less than $500,000 in total remote sales — hardly qualifies most mom-and-pop shops in the U.S. DelBianco compared the tax implementation as “free like a puppy is free.” The bill is simple to read. Its long-term maintenance is not.
Sen. Kelly Ayotte (R-N.H.) agreed with DelBianco’s worries. Beyond the original increase in sales tax, explained Ayotte, smaller businesses cannot afford to hire litigators, accountants, and other personnel to direct the annual tax negotiations with each of the country’s 50 states. She said that larger corporations like Amazon — the vice president for global public policy of which, Paul Misener, attended the hearing in favor of the MFA’s passage — have wiggle room that others do not for dealing with these new costs.
Ultimately the debate about an internet sales tax is not over. The Supreme Court’s 1992 ruling on Quill Corp. v. North Dakota will determine whether this legislation constitutionally bypasses existing legal precedent.
You can watch the complete hearing here.