We had planned to respond to and correct the inaccuracies in Senator Jim DeMint’s recent Wall Street Journal op-ed
on the Marketplace Fairness Act, but the Los Angeles Times
, the Retail Industry Leaders Association (RILA), and the National Retail Federation (NRF) all beat us to the punch.
The first to respond was the Los Angeles Times, which emphasized that collecting sales tax online is not taxation without representation—in fact, as we discuss below in more detail, the origin-based sales tax Senator DeMint supports would actually create taxation without representation, not prevent it. The system proposed by the bill keeps power in the hands of the states and their residents.
Then, RILA released a press release that itemizes nearly every statement in the op-ed and offers either a correction (there were a lot of misleading or false statements in the piece) or a differing viewpoint for each.
For its part, the NRF sent a letter to senators Enzi, Durbin, and Alexander—the three main sponsors of the bill—rebutting Senator DeMint’s assertions.
We recommend reading all three responses, but here are some of the most important points to take away:
1. Sales tax is already due on online purchases.
2. The Marketplace Fairness Act would not require online retailers to “pay sales tax” (in their own state or any other). It would end a loophole that lets online retailers avoid collecting sales tax from their customers. That sales tax is due to the state where the customer lives (and presumably votes), and it pays for roads, fire and police departments, schools, and other public services. It is not taxation without representation, any more than the sales tax you pay at your local drugstore is.
3. By allowing states to require online sellers to collect sales tax, the bill would level the playing field for all retailers. The federal government shouldn’t pick retail winners and losers, as it does when it says online retailers don’t have to collect sales tax.
4. The bill doesn’t create a national sales tax or tax online access or online shopping. It actually gives power back to the states, who would get to decide for themselves whether and how sales tax is applied.
5. The bill doesn’t raise taxes. It just gives states the power to enforce their own sales tax laws. States retain the authority to determine sales tax rates, which apply only to goods sold within the state.
6. Senator DeMint supports an origin-based sales tax. “Origin-based sales tax” means that the sales tax rate where the seller is located is applied to the purchase, and it currently only applies within a state’s borders. Essentially, a state can say that if both seller and buyer are located within the state but in two different tax jurisdictions, the seller’s sales tax rate applies—and the sales tax the buyer pays is sent to the seller’s location.
Imagine if this were applied nationally. The very thing Senator DeMint fears would come true: taxation without representation.
Because under that system, if I live in California and buy something from a seller who’s in New York, I have to pay sales tax to the State of New York, where I do not live or vote and where my tax money would go to pay for things I do not benefit from or use—and I’d have no say in how New York used my money. It’s the very definition of taxation without representation.
Senator DeMint is right that taxation without representation is a terrible idea, that the “nexus among Americans, their taxes, and their votes must remain as tight as possible. It is the essence of our democracy.” Unfortunately he’s completely wrong about how to make sure you get to vote on how your sales tax dollars are spent.
Sales tax must be (and, in most states, is) destination-based—it must be applied to the state and region where the person paying the tax lives, to ensure the person paying the tax has a say in how that tax money is spent and benefits from the public goods that tax money provides.
The Los Angeles Times article, the RILA press release, and the NRF letter make other good points, too. Take a look.