A new study released by the Small Business Administration funded with taxpayer money examines the effects of Internet sales taxes on small businesses. The study has drawn swift criticism from groups opposing the wide scale imposition of Internet sales taxes through legislation like the Marketplace Fairness Act. The paper, “An Analysis of Internet Sales Taxation and the Small Seller Exemption,” was released by the SBA’s Office of Advocacy and written by Donald Bruce and William Fox of the University of Tennessee’s Center for Business and Economic Research, who have written articles in the past downplaying the negative effects of taxes on different aspects on the Internet like Internet access.
Filled with arguments that have made dozens of times before by supporters of Internet sales taxes, the taxpayer funded report’s sole intention is to promote to taxpayers an unnecessary tax hike. In addition to the new paper, the SBA Office of Advocacy has begun a social media campaign to promote both the paper and Internet sales taxes. The Institute for Policy Innovation even found a list of suggested Twitter tweets that the Office of Advocacy wrote for supporters to use to promote the flawed report.
The authors of the SBA study concluded that online retailers have benefited from the lack of sales taxes at the expense of brick and mortar store. The SBA report covers a tired argument that is misleading while supporting a tax policy with many serious flaws. Imposing sales taxes on internet sales would slow the growth of the e-commerce industry, one of the few sectors of growth recently.
Critics of the Marketplace Fairness Act immediately called foul on the study. Andrew Moylan of the R Street Institute quickly pointed out in an article responding to the study that that it was incredibly biased and written by authors who have already written articles favoring the MFA in the past, all on the taxpayer’s dime. “In service of the PR campaign for President Obama’s and Senator Dick Durbin’s favorite Internet sales tax law, the SBA decided to fork over $80,000 of taxpayer money to…(drumroll please)…the very people who have been writing studies in favor of the Marketplace Fairness Act (MFA)! What a coincidence!”
Moylan also contends that the actual information contained in the study was not of any real importance, covering no new ground. “In fact, the most important passage essentially concedes that having a higher small seller exception in the bill ‘does not add measurably to the covered share of total online retail,’ wrote Moylan. “In other words, protecting a larger number of businesses from the onerous compliance obligations of MFA wouldn’t appreciably reduce revenues.”
Jessica Melugin, an analyst at the Competitive Enterprise Institute argues that the provenance of the study erodes its credibility. “We spent $80,000 of tax money so long-time advocates of the legislation could cite ‘anecdotal evidence,’ cherry-pick data, change numbers to aid their arguments and cite themselves throughout the paper. This does not a credible study make.” wrote Melugin in a CEI article.
Melugin also criticized the many important issues the paper overlooked, including major legal issues, consumer privacy concerns and competitive interference. “The paper dismisses the MFA’s constitutional problems, all but ignores the threat out-of-state audits would pose to small businesses and makes no mention of both the consumer privacy concerns and detriment to healthy tax competition,” wrote Melguin. “Perhaps most amusing in light of recent events, the report repeatedly implies that government-supplied software will alleviate tax compliance burdens.”
Requiring online retailers to charge a sales tax in states where they do not have a physical presence would force consumers to pay a tax to a government with whom they have no political voice and from whom they receive no government benefits or services. It is bad tax policy that undercuts tax competition and would give states even more ways to tax you.