Response to Senator DeMint’s WSJ op-ed on internet sales tax

August 3, 2012

Los Angeles Times: Online sales taxes [are] not taxation without representation

Los Angeles Times: Online sales taxes [are] not taxation without representation.
RILA responds to Senator DeMint’s WSJ op-ed
NRF sends a letter to senators Enzi, Durbin, and Alexander—the three main sponsors of the bill—rebutting Senator DeMint’s assertions

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.

NRF urges congressional “supercommittee”: Main Street Fairness Act is key

August 11, 2011

NRF: Main Street Fairness Act is key

In a press release issued today, the National Retail Federation urged the congressional “supercommittee” on deficit reduction to focus on the economy and job creation, and it named the Main Street Fairness Act as one of three key initiatives Congress should enact:

The panel is an important opportunity to look at a range of policies and reset our national priorities so that we can put our nation’s economy back on track and put Americans back to work. For the nation’s retailers, this means a tax system that treats all players fairly instead of being riddled with special breaks, and it means looking at rules and regulations that kill jobs. . . .

The Main Street Fairness Act . . . would make it easier for states to require out-of-state Internet retailers to collect sales tax on sales to their residents. The legislation would end an unfair tax advantage held by online retailers over Main Street stores, which are struggling to keep their doors open and to continue providing employment in local communities across the country.

The other initiatives the NRF recommended: corporate tax reform and “relief from the employer mandate provision of the 2010 health care reform law.”

We’re glad to see the NRF point out how much the Main Street Fairness Act can contribute to the economy and job creation. By leveling the playing field between online and local retailers, the MSFA helps keep local stores open and employing local residents. It also means that states will receive the sales tax revenue that has been steadily disappearing as shoppers have moved online over the past decade—revenue that pays for schools, police, parks, and libraries.

In all the talk lately about the debt ceiling, deficit reduction, and the economy, we’ve been a bit concerned that the Main Street Fairness Act could get overlooked. It’s worth remembering that this bill, without raising taxes or creating a new tax, helps everyone:

  • Large and small retailers alike, both local and online, would find it easier to collect and remit sales tax;
  • State and local governments would benefit from much-needed revenue that funds vital services
      • States would no longer need to resort to controversial presumed nexus laws
      • States that have already implemented presumed nexus could repeal them
  • Affiliate marketers would no longer be threatened by state-by-state legislation
      • Retailers that rely upon affiliate marketing would be able to continue (or resume) doing so;
  • Consumers would no longer be subject to use tax self-reporting and payment obligations.

For anyone concerned that compliance with MSFA would be difficult or costly, we remind them that TaxCloud is absolutely free, and handles all aspects of compliance including calculation, collection, reporting, returns, and remittance—and even will respond to jurisdictional audits.

We agree with the NRF (and many other organizations) that the MSFA should be one of Congress’s top priorities.