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
RILA responds to Senator DeMint’s WSJ op-ed
NRF
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.


Online sales tax collection debated in Wall Street Journal

November 15, 2011
Wall Street Journal

Wall Street Journal: Should states require online retailers to collect sales tax?

The Wall Street Journal has published a debate on online sales tax collection. Taking the pro side is Michael Mazerov, Senior Fellow at the Center on Budget and Policy Priorities in Washington, DC. Taking the con side is Steve DelBianco, Executive Director of NetChoice, a “coalition of e-commerce and online businesses.”

Both sides are clearly and cogently presented, and we highly recommend the article. Of course, as our regular readers know, we’ve long been advocates of the “pro” side. Mazerov does a terrific job of explaining why online sales tax collection is necessary and countering the most common objections to online sales tax collection, while DelBianco’s argument boils down to “it’s too difficult for small businesses.”

But we’ve worked hard to make sure that that’s not true. TaxCloud is designed specifically to remove the cost and complexity of online sales tax collection: It not only provides real-time sales tax calculation, it also handle exemptions and audits—plus, it’s easy to use and completely free.

A quick correction: At the head of the article, the description of the current sales tax situation says that state and local governments are pushing Congress to “require all online retailers to charge sales taxes in all states.” (emphasis added) “Charge” here should be “collect”—as we’ve said many, many times, sales tax is already due on online purchases. The question isn’t whether online retailers should charge (let alone, as some have suggested, pay) sales tax; no matter what, consumers owe sales tax on their online purchases. The question is whether online retailers should be required to collect sales tax. And the answer . . . is “yes.”


National Retail Federation outlines the “big picture”

April 22, 2011

This post on the National Retail Federation’s blog sums up the need for federal legislation nicely: “The discussion about broadening the base for sales taxes and lowering rates . . . will not happen until Congress passes legislation to close the Quill loophole.”

We were also struck by these sentences in the post, which deliver stark truths unflinchingly:

While conservatives and liberals fight over big picture issues like taxes and spending, real Main Street retailers are caught in the crossfire, and jobs are at stake.

and

Sales tax rates of 8 or 9 or 10 percent on a narrow base of taxable goods will inevitably drive consumers to search out lower tax alternatives. It is an absolute truth that where unfair tax policies treat similar entities differently, consumers will vote with their feet whether it’s across state lines or across sales channels.

The post comments on both a Wall Street Journal editorial and a letter to the editor about the editorial. The letter to the editor, written by Sandy Kennedy, president of the Retail Industry Leader’s Association (RILA), states that “as the American economy grows and evolves, it’s only prudent that we update our laws to reflect new realities” and makes it clear just how much those laws need updating:

The Journal is correct that the Supreme Court’s decision in Quill Corp. v. North Dakota [which stated that retailers must collect sales tax only for states where they have a physical presence] gives Amazon.com Inc. a loophole for evading sales tax collection. But that decision came in 1992, when no American without an MIT degree knew what the Internet was.

Kennedy also succinctly makes the case for leveling the playing field between online retailers and local retailers: “There is no reason government should be protecting a loophole that gives some companies a competitive advantage over others.”

We were also glad to see her point out that “readily available software has made sales tax collection across multiple jurisdictions remarkably simple.” We agree—that’s exactly what TaxCloud does.