Politics & Policy

Support the Marketplace Fairness Act

It restores free-market principles by treating all retailers equally.

The authority of states to enforce their current sales-tax laws with regard to online sales has emerged as a hot topic in recent months. In opposing the Marketplace Fairness Act, some of my fellow conservatives have made the suggestion that for the U.S. Congress to allow states to enforce their existing laws on remote sales would amount to “taxation without representation,” because the retailer is in another state. That basis for opposition is ill-founded.

First, sales taxes are not paid by the retailer, but rather by the purchaser; the seller only collects the appropriate levy and remits it to the state. In the 45 states with a sales tax, if the retailer doesn’t collect the sales tax at the time of purchase, the purchaser is legally required to pay a “use tax” to the state. Many consumers don’t realize this or choose to ignore it, and, as a result, no taxes are paid on most online purchases. And as any brick-and-mortar retailer will tell you, the price advantage of “tax free” shopping distorts the free market, providing online retailers an unfair 5 to 10 percent pricing advantage over the local storefront.

This advantage is no more than a subsidy, allowing the federal government to pick winners and losers, something most conservatives traditionally abhor.

#ad#Under current law, states are forbidden to require out-of-state retailers that sell to their residents to collect and remit the existing sales taxes. Congress has legislation before it that would take government’s thumb off the scale. The Marketplace Fairness Act would allow states to collect taxes from online retailers, provided that the state commits to a simplified process that makes it easy for online sellers to remotely collect and remit the appropriate amount of tax.

Be sure: This is not a new tax. In Mississippi we have had our sales tax and corollary use tax since the 1930s. The Marketplace Fairness Act would not require or allow any state to collect sales taxes from its citizens unless the tax is already due under current state law.

And let’s not forget the merchants who hire our neighbors to work in their stores; who pay property taxes to support law enforcement, fund our schools, and build our roads; who make our communities great places to live. It is common knowledge that many consumers will visit a store located in their community, examine and pick out a product, and then order it online — sometimes in the store with their smartphone — to avoid paying any sales tax at the point of purchase.

The current system destroys local retailers and hurts the communities they support. Continued government distortion of the free market will mean the continued loss of jobs at these establishments, and the hollowing out of many of our Main Streets and downtowns.

Allowing states to require remote sellers to collect sales taxes the same way that brick-and-mortar stores do will end a byzantine system that has left consumers confused and most local business owners fuming.

Conservatives know that when loopholes are closed, the tax system can have lower rates for everyone. The first step to across-the-board tax relief is to effectively enforce existing laws to ensure that people actually pay the taxes they owe. Indeed, several governors have publicly identified the other state taxes they will cut or eliminate if this bill passes.

The Marketplace Fairness Act is good policy based on conservative ideas. It restores free-market principles by treating all retailers equally and all purchasers the same. And it gives governors and state lawmakers the authority to effectively manage their own state tax codes — under the watchful eye of the voters. The Marketplace Fairness Act is something all conservatives should be proud to support.

— Haley Barbour is a former governor of Mississippi, a former chairman of the Republican National Committee, and a founding partner of the BGR Group, which represents the Retail Industry Leaders Association.

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