Politics & Policy

The Misnamed Marketplace Fairness Act

State and local governments are engaged in an unseemly gold rush, pushing for a new Internet sales-tax regime that would empower them to wring revenues from businesses and individuals far outside their jurisdictions. They seek to overturn the foundational American presumption against taxation without representation, and they do so abetted by parasitical business interests that seek to use the tax code to hobble their more nimble online competitors. When the taxman and the National Retail Federation are on the same side of an issue, there is mischief afoot.

We already have explained our opposition to this bill, and we reiterate that opposition here. Particularly vexing is the fact that this bill, which would in effect grant global tax jurisdiction to each and every one of the thousands of local taxing authorities that exist in this country, cleared the Senate on the support of Republicans such as Wyoming’s Mike Enzi and Tennessee’s Lamar Alexander.

Historically, sales taxes have been imposed and collected at the point of sale by tax authorities with jurisdiction in that particular location. This arrangement has the important effect of making local tax authorities directly accountable for their decisions: If a township should impose an unreasonable sales-tax hike, then the local businesses to which that matters most have an opportunity to respond, either through the political process or by the expedient of packing up and moving to a new location with more reasonable taxes. Tax competition is a salubrious thing for cities, for states, and for the country at large.

But the tax collectors do not much care for it: Taxing authorities in such high-tax locales as Philadelphia and Maryland’s D.C. suburbs resent the fact that consumers make the drive to Delaware for high-priced purchases. In most places, consumers are supposed to pay an equivalent “use tax” on out-of-state purchases, but those laws are difficult or impossible to enforce in many cases. Senator Enzi’s solution is to enable this boneheaded system by forcibly deputizing online retailers, from corporate giants such as Amazon to your uncle’s car-parts business, as a tax collector beholden to each and every one of the country’s 9,600 or so taxing jurisdictions.

With everybody taxing everybody else, the natural inclination of state and local tax authorities will be to seek uniformity across jurisdictions – does anybody think that uniformity will gravitate toward the low-tax end of the spectrum? This bill in fact empowers local authorities to establish multijurisdictional “compacts” to homogenize tax rates and practices. In the private sector, that is called a price-fixing cartel, and it is, generally speaking, illegal.

The sensible solution is to treat online retailers exactly like any other business: Subject to collecting and remitting sales taxes for the jurisdiction in which they are physically present. To the extent that there is any role for the federal government in this issue, it would be in establishing rules (if necessary) for determining who has jurisdiction over sales involving retailers with multiple physical locations. But we would remind Senator Enzi — and any House Republican thinking of backing this bill — that it is the role of the federal government to enable interstate commerce, not to facilitate an unholy alliance between big business and big government. There was a time when Republicans were clear on that.

Senator Ron Wyden, a left-wing Democrat from Oregon, rightly called this bill “a targeted strike against the digital economy.” We wonder if it has occurred to the GOP that if it has any chance of recruiting new supporters from the younger generations, among whom it is notably lagging, then its best bet is likely to be among young entrepreneurs, aspiring entrepreneurs, and small-business operators — traditional Republican constituencies that are very much attached to the online economy. If the Republican party cannot be counted on to be on the side of economic innovation and entrepreneurship, then what does it have to recommend itself?

It is unfortunate that so many Senate Republicans helped the grievously misnamed Marketplace Fairness Act get this far. The bill deserves to be publicly strangled by House conservatives.


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