Today, Sens. Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.), and Lamar Alexander (R-Tenn.) introduced the Marketplace Fairness Act (PDF), a third bill unveiled in Congress this year to allow states to tax Internet and out-of-state sales. The bill aims to level the playing field between online and brick-and-mortar retailers. Currently, under the U.S. Supreme Court's ruling in Quill v. North Dakota, online retailers not based in a state do not collect and remit the state’s sales tax.
While the legislation contains improvements over the previously introduced Main Street Fairness Act, the Marketplace Fairness Act would result in an automatic tax increase in twenty-four states that are members of the Streamlined Sales and Use Tax Agreement. Remaining states would be permitted to enact taxes on online sales provided they meet certain good, but inadequate simplicity and compliance standards.
The first, minimum step to protecting taxpayers is ensuring that tax reform is revenue neutral. No federal bill should constitute a net tax increase, yet – like its predecessors – this legislation would raise taxes in multiple states without the opportunity to cut taxes elsewhere or enact other taxpayer protections. In this sense, the bill is less representative of tax reform that levels the playing field between online and brick-and-mortar stores than of a net tax increase.
The bill also claims in a section titled "No New Taxes" that it does not encourage "a state to impose sales and use taxes on any goods or services not subject to taxation." This is highly misleading. While states can impose use taxes on goods bought out-of-state, they are not permitted to impose sales taxes. Thus, there are currently goods and services not subject to sales taxation that would be taxed under this bill. Forcing out-of-state businesses to collect and pay sales tax, which is the intent of this legislation, is a new form of taxation. Most importantly, taxpayers will pay more in taxes following the passage of this bill, rendering false any claim that this is not a tax increase. A section titled “No New Taxes” should instead ensure reform cuts taxes elsewhere or contains other taxpayer protections.