In an effort to address growing budget problems, many states have attempted to draw on the as yet untapped revenue source of online sales taxes. Currently, these efforts have been stymied by legal precedent and a lack of public support. However in the last few years, Congress has attempted to accelerate these efforts with several pieces of legislation that expand the states’ ability of states to charge sales taxes on out of state retailers regardless of if the retailer has a physical presence in the state. The most prominent of these is the Marketplace Fairness Act (MFA), which was first proposed by Sens. Dick Durbin (D-IL), Mike Enzi (R-WY), and Lamar Alexander (R-TN) in 2011.
This week, the National Taxpayers Union (NTU) and the R Street Institute launched a 20-state tour to announce new poll results that demonstrate the publics near complete lack of support for the MFA and the detrimental the tax plan would be. The first stop was in South Carolina, where R Street Executive Director Andrew Moylan and NTU Executive Vice President Pete Sepp hosted a press conference annoying the results. Voters in South Carolina rejected Internet sales taxes by a significant margin of 51-36.
It should come as no surprise that the majority American public against attempts to impose taxes on internet purchases. Internet sales taxes have long been unpopular with everyday shoppers, for good reason. Imposing such a tax on online and mailer order sales would unfortunately have strong negative effects on the online economy, hinder tax competition amongst the states while raising far less revenue than legislators expect and worst of all open taxpayers up to a slew of new possible taxes.
A Gallup poll conducted in 2013 found that 57 percent of respondents opposed enacting a law that would allow states to collect sales taxes on online purchases, as the Marketplace Fairness Act does. Another 2013 poll commissioned to Mercury by the National Taxpayers Union and R Street Institute found the same results, 57 percent of respondents were opposed to an Internet sales tax scheme like the MFA.
“New Internet sales tax laws are bad policy, but this polling proves that they’re terrible politics as well,” said R Street’s Andrew Moylan in a press statement. “It shows that strong majorities across the country seek an Internet that enriches their lives, not out-of-state revenue agents.”
NTU’s Pete Sepp pointed to a disconnect between Washington and the average taxpayer, “Special interests might convince some in Washington, but in the states, voters are not fooled by any attempts to unleash tax collectors from reckless states like New York and Illinois on their hometown businesses.”
The tour will continue over the upcoming months, with individual results being released for each state. More information on the fight against Internet sales taxes can be found online here: DontTaxtheInter.net.
While proponents of this measure and others have argued that efforts like it are needed to restore a balance between online and bricks-and-mortar retailers, the reality is quite the opposite. The Marketplace Fairness Act would give bricks-and-mortar retailers a distinct advantage over online retailers. Even with today’s technology, it is difficult and expensive for online merchants to accurately charge sales taxes for the products they sell to the 9,600 different taxing bodies in this country. In addition, local retailers benefit from services such as roads; police, fire, accident, and disaster protection; and utilities delivered over money-saving public rights of way. Out-of-state retailers get none of these.
One alternative state legislators could consider is an origin-based sales tax system for Internet sales taxes. It stays within the parameters of the physical presence standard and ensures that out-of-state consumers are not paying taxes for services they will never use. Preserving this standard is essential. Allowing it to be overridden would create a significant expansion of state taxing powers and would undermine tax competition, which helps keep taxes low.