Marketplace Fairness Act
Speaker Boehner Holds Line against Internet Sales Tax
On Wednesday, Speaker Boehner stood firm against an Internet sales tax. Speaker Boehner said the Marketplace Fairness Act (MFA) will not come to the floor this Congress, preventing the Internet sales tax (IST) mandate from coming to a vote during the lame-duck session of the 113th Congress.
We expect that his statement also means that IST will not come to the House floor as part of a package either.
The Marketplace Fairness Act sought to impose one state’s sales tax on the residents of a different state during cross-border online transactions. This mandate would have unfairly subjected citizens of one state to the taxation whims of another.
Furthermore, MFA would have allowed for potential audits of businesses and individuals from other states.
This inherently unbalanced mandate would undermined federalism while giving states the power to enforce their ideology on others.
Opponents of Internet freedom have attempted to force MFA through Congress by attaching MFA to the expiration of the Internet access tax moratorium. This agglomeration, known as the Marketplace and Internet Tax Fairness Act (MITFA), is an attempt to bundle the Internet sales tax mandate with a 10-year ban on taxing access to the Internet. This is a cheap political ploy to force through the controversial MFA while holding hostage the widely supported Permanent Internet Tax Freedom Act (PITFA). Since the Internet Tax Moratorium is set to expire on December 11th, it is vital that Internet freedom be extended.
It is crucial that Speaker Boehner was able to dispel any hopes of passing MFA in this Congress. It is now essential that Congress pass a permanent Internet Tax Moratorium in order to end this attempt to inhibit digital liberty once and for all.
ATR Praises Boehner for Internet Tax Stance
As reported by Roll Call on Monday night, when asked about the so-called ‘marketplace fairness act’ House Speaker John Boehner’s spokesman said:
The speaker has made clear in the past he has significant concerns about the bill, and it won’t move forward this year,” said spokesman Kevin Smith. “The Judiciary Committee continues to examine the measure and the broader issue. In the meantime, the House and Senate should work together to extend the moratorium on internet taxation without further delay.
Today, Americans for Tax Reform president Grover Norquist issued the following statement in praise of Boehner:
Too many politicians in state capitols and Washington have looked at the internet only as a way to raise taxes. They want to tax Internet access, they want to tax Internet sales. Boehner has drawn a line in the sand saying the American people come first and politicians need to keep their hands off the Internet. This gives encouragement to American taxpayers and consumers that we will win this fight. Obama says yes to taxing the Internet, Reid says yes to taxing the Internet. Speaker Boehner just said 'hell no' to taxing the Internet. Boehner wins. The American consumer wins.
In addition, Katie McAuliffe, Federal Affairs manager for Americans for Tax Reform and Executive Director of Digital Liberty, said:
Passing a short term extension of the Internet tax moratorium that still allows states to implement Internet access taxes is not a ‘deal’ Americans should accept. It is far better to let the moratorium expire and reinstitute in the next Congress than to accept a bill that exposes Americans to 45 different state departments of revenue and 50 states regulatory burdens.
Grover Norquist Show: Permanent Internet Tax Moratorium Strangled by Internet Sales Tax?
Since 1998, the Internet Tax Freedom Act, called the Internet Tax Moratorium in law, has prevented states and localities from imposing taxes on Internet access that create barriers to Internet adoption and innovation.
On the Grover Norquist Show, Norquist of Americans for Tax Reform and Katie McAuliffe of Digital Liberty discussed the importance of permanently banning Internet access taxes rather than a neutered act with a torn ACL.
The Permanent Internet Tax Freedom Act, PITFA, permanently bans Internet access taxes and removes the taxes on access that are already in place.
The lame bill is known as MITFA; a combination of Internet sales tax legislation, the Marketplace Fairness Act, and an Internet Tax Moratorium that is not permanent and allows taxes on access to continue.
Norquist and McAuliffe highlighted the December 11th expiration of the Internet Tax Moratorium and the devious, post-election MITFA lame duck scheme.
Marketplace Fairness Act Would Cripple Small Businesses
The Marketplace Fairness Act is being billed by its supporters as a common-sense proposal that would level the playing field between online and brick-and-mortar retailers by taking away online retailers’ exemption from sales tax. Currently, sales tax is only applied to online purchases when a customer buys something from a business that has a location within the customer’s state. What sounds noble, or at least harmless, at first glance begins to sound more like foxes volunteering to guard the hen house when you look at how the MFA would play out in practice, and when you examine who’s supporting it and who isn’t.
Not only would the complexity of complying with the MFA be a massive burden on businesses (the tax would be based on where the customer lives, so a popular online retailer could realistically find themselves paying sales tax to all 50 states, navigating all the unique tax jurisdictions with unique rules of each state.). The cost of compliance would cripple a startup or small niche business. According to Freedomworks Policy Analyst Julie Borowski’s article on Rare; “It would be overly complicated for online businesses to pay sales taxes on goods shipped across state lines. There are nearly 10,000 different sales tax jurisdictions in the United States. The number of tax jurisdictions varies widely by state—New Jersey has only two while Texas has over 1,500 different sales tax jurisdictions.
To add extra confusion, some jurisdictions charge different rates based on the type of item being sold. For example, eight states fully or partially exempt clothing from sales taxes. Some exceptions do apply. In Pennsylvania, there are no sales taxes on clothes except for formal wear, bathing suits, fur coats, and accessories such as jewelry or purses.”
The True Simplification of Taxation (TruST) coalition finds in their recent study; “Mid-market online and catalog retailers ($5-50 million in annual sales) will spend $80,000 to $290,000 in setup and integration costs for the so-called “free software” promised by advocates of the Marketplace Fairness Act (MFA). And every year, these retailers will also spend $57,000-$260,000 on maintenance, updates, audits and service fees charged by software providers.”
When you look at the hundreds of thousands of dollars annual compliance would cost, it’s easy to see why online-only giants like Amazon, and other big businesses like Best Buy and Home Depot, who do a significant amount of online business would support the MFA despite the burden it stands to be. These businesses can afford to comply with the MFA, and would even get the extra benefit of seeing their smaller competitors hurt or driven out of business by the immense cost of this tax.
On top of the unfair cost and complexity of the Marketplace Fairness Act is the issue it raises about tax jurisdiction. Why should any state be allowed to collect taxes from businesses in other states? What right does the government of New York have to take money from an Arizona business? As ATR’s Katie McAuliffe explains, the MFA sets a disturbing precedent for states to tax people who aren’t even their constituents;
“Their ultimate goal is to export their tax and regulatory burden to Americans who have no recourse at the ballot box. A politician’s dream come true.”
MFA/MITFA Could Impact Up to 3.5 Million Retailers
TaxCloud, a certified service provider (CSP), estimated that 350,000 to 3.5 million retailers could be affected by the implementation of the Marketplace Fairness Act/MITFA. An Internet sales tax mandate would place a burden on millions of retailers across the country that would force them to change their tax policy for the worse.
MFA seeks to force one state’s sales tax upon another based on the concept that the Internet has grown to the point of allowing such transactions to be made easily. However, this mandate would ultimately allow certain states to impose their tax policies on customers buying products in other states. With the potential for 3.5 million retailers to have to alter their decision making, MFA/MITFA is yet another intrusive tax that would harm the growth of both the economy and online retail.
This estimate is far above the number of businesses that one might expect to be ensnared by MFA/MITFA. This just goes to show the unwelcome and obstructive nature of such a federal tax mandate.
4 Reasons for a Permanent Internet Tax Moratorium
Without further Congressional action, states and localities will begin taxing Internet access as soon as December 11th. A permanent moratorium, the Permanent Internet Tax Freedom Act, has passed the House with a simple voice vote, demonstrating bipartisan agreement about the importance of a tax-free Internet. Unfortunately, Senate Democrat Leader Harry Reid has refused to introduce the bill to the Senate, preferring to hold out for a remote sales tax increase through the so-called “Marketplace Fairness Act” (MFA), a highly controversial issue. Polling shows Americans overwhelmingly oppose Reid’s scheme to tax online sales, but a large majority of Americans can get behind a permanent continuance of a tax-free Internet. Nonetheless, in a classic show of divisive politics, Harry Reid has held hostage the freedom of the Internet to pass a tax increase on Americans that buy products online or over the phone.
No American wants to pay more taxes, but taxes on access to the Internet is bad economic growth policy, not just tax policy. Here are the top four reasons why a permanent Internet tax moratorium is necessary to stop this.
1. Keeping the Internet tax free encourages online innovation and digital entrepreneurship. Online investment and tech startups would be disincentivized to the point of obscuring the open and inventive Internet we all know and love. The United States is a global tech leader due to our private development and deregulation of online ventures. A tax moratorium also promotes innovation in cost-defective expansion of broadband access. An Internet access tax would be another cost paid by customers and Internet Service Providers (ISPs) that would ultimately turn companies away from creating new developments in the tech space. Taxing Internet access would serve to hamper this industry in much the same way other great American industries (auto, manufacturing) have been hamstrung by government interference.
2. Taxing the Internet would have a harsh impact on lower income families. This is the demographic that a tax-free Internet serves to help and assist in seeking employment. Raising the cost of the Internet through a usage tax would diminish the overall number of users. A recent study predicted that a 10% increase in price can be expected to illicit a 15% reduction in adoption. This negative growth is the antithesis of a free Internet.
3. An Internet access tax would raise the costs of all Internet-related business. Whether it be the price of ISPs, the cost of running and maintaining a website, or transaction fees of e-commerce including online shopping, a usage tax would hurt all Internet users. In much the same way that rising gasoline prices are felt throughout the economy, raising the cost of using the Internet would be seen by all online participants.
4. Access taxes would be yet another permanent part of the government shakedown. If the moratorium expires, state and local governments will be able to tax access to the Internet. If the ban is allowed to expire and governments start taxing access (which they certainly would), these funds would be built into state budgets with vested interests devoted to keeping these taxes in place. As every previous tax has proven, you can’t put the toothpaste back in the tube.
Permanently extending the Internet Tax Freedom Act is a crucial step in safeguarding long-term American Internet prosperity and continued online growth. Americans for Tax Reform, Digital Liberty, and supporters of Internet freedom throughout the country endorse a permanent moratorium on Internet access taxes.
Keeping the Internet Free
Senator Michael Enzi (R-WY) has crafted the Marketplace and Internet Tax Fairness Act (MITFA) in hopes of forcing the controversial Marketplace Fairness Act (MFA) through Congress by holding hostage the widely agreed upon Internet Tax Freedom Act (ITFA). Supporters of Internet freedom, including Americans for Tax Reform and Digital Liberty, have sent a letter to Congress reiterating the problems with MFA and urging them to keep ITFA and MFA separate during consideration of these two consequential issues.
Internet usage taxes, prohibited by ITFA, and an Internet sales tax, promoted by MFA, are different issues that must be addressed one a time. Permanent extension of ITFA has the support of the American people and should be passed before November elections. Action regarding an Internet sales tax, an issue drawing more debate, should not hold ITFA hostage. Refraining from combining these topics will ensure the continued convenience, effectiveness, and ingenuity that have made the Internet a central driver of both our lives and our economy.
Congressmen on both sides of the aisle agree that an Internet tax is a restrictive measure that will inhibit a free market and the innovation that the Internet provides. Originally passed in 1998 and thrice extended since, ITFA has allowed the Internet to grow and prosper. Further proliferation of the Internet can be encouraged by extending ITFA permanently. The Internet was created as a means of free communication and exchange of ideas, goods, and services. Regulating Internet use through a tax will impede the continued development of such expression and improvement. If previous regulation of industry (water, electricity) tells us anything, we know that government intervention does more harm than good. Clearly ITFA should be extended permanently.
While the continuance of ITFA is a clear-cut essential, the issue of sales tax concerning out-of-state sales over the Internet is a different and far more hotly debated issue. MFA (S. 743) passed the Senate in May 2013 but has been held up in the House due to concerns over tax hikes and the sovereignty of states. MFA seeks to give states cross-border tax authority for businesses located outside their jurisdiction, effectively letting each individual state impose their tax ideology on any of the other 49. Previously, states have been protected from the whims of out-of-state tax collectors through the “physical presence standard.” This standard controls the regulatory power of each state by not allowing it to spread beyond its borders. The MFA would ultimately increase interstate tax complexity by forcing companies to reconsider the tax regulation that would stem from doing business in 50 different states.
These are undoubtedly two separate subjects. The permanent extension of ITFA has a large following, while MFA has two divided sides. In order to tip the scales on the MFA question, Senator Enzi and his co-sponsors have added ITFA to the equation in order to produce MITFA, a convoluted amalgamation of two separate issues. MITFA would only extend ITFA ten years, at which point its lengthening would once again be used as a political bargaining chip. Senator Enzi and his supporters seek to raise taxes through MFA by combining it with ITFA, an issue of monumental importance. Defenders of Internet freedom need to hold strong and demand that these issues be faced apart from each other.
Americans for Tax Reform and Digital Liberty urge Senators and Representatives to pass a clean permanent extension of the Internet tax moratorium before November 1st.
Keep Internet Access Tax Free!
Keep Internet access tax free! Sign the petition!
The House recently passed a permanent extension of the internet tax moratorium, H.R. 3086, Permanent Internet Tax Freedom Act (PITFA). PITFA would permanently prevent state and local governments from imposing taxes on internet access. (This should not be confused with the Marketplace Fairness Act, which would allow sales tax to be collected from e-commerce.) The Senate has not yet passed the moratorium, but it is of great importance that they pass it before the current moratorium expires on November 1st.
The Permanent Internet Tax Freedom Act is the only thing stopping state and local governments from taxing internet access and making it significantly less affordable. If internet access is less affordable, fewer people will have it, and if fewer people have internet access, there is less investment in broadband infrastructure and overall less people using the internet as the amazing tool for innovation and entrepreneurship that it ought to be.
There is very little doubt that states and cities would impose taxes as soon as they were allowed. Using cellular phone access as an example, an average of 17% of the average American cellular phone bill is now comprised of taxes.
Please do your part to keep internet access tax-free by signing our petition telling Congress to pass PITFA!
New Poll: Internet Sales Tax Widely Unpopular in Virginia; Will Gas Tax Go Up?
A new poll released by the National Taxpayers Union (NTU) and the R Street Institute found that Virginia voters overwhelmingly oppose federal legislation that would expand state sales taxes to the Internet. The law that some large retailers are pushing alongside many state governments is called the Marketplace Fairness Act (MFA) and would require businesses without a physical presence in a state to enforce state sales tax laws everywhere in the nation that they do business.
In Virginia, 59% of poll respondents said that they oppose the Marketplace Fairness Act, compared to 33% of voters who said they favor it. Even self-identified liberals oppose the law by a 47 to 46 point margin. Republicans oppose the bill 67% to 28% and Independents oppose it 56% to 36%. Voters are even more opposed to the concept of empowering out of state retailers to collect taxes on Virginia online consumers, by a 68% to 26% margin.
The Marketplace Fairness Act has little chance of passing Congress this year but that hasn't stopped some from pushing for the bill, in an effort to generate revenue for the state. The 2013 transportation package, which amounted to a $5.9 billion tax increase on Virginians included a provision that counted on passage of MFA at the federal level, as a way of generating money for state coffers. If and when MFA fails to pass by year's end, the state gas tax will automatically increase from 3.5% to 5.1%, amounting to a $1.2 billion tax hike over 5 years.
Conservative activists would be wise to focus on repealing this provision of House Bill 2313 (the transportation package) instead of urging members of Congress like Representative Bob Goodlatte to support MFA.
"This most recent poll confirms what many of us have been saying for more than a year; subjecting small businesses and online consumers to billions of dollars in higher taxes and compliance costs is a widely unpopular idea, especially in Virginia," said ATR state affairs manager Paul Blair.
"Last year's transportation package included a trigger to grab more money from consumers if the Marketplace Fairness Act failed and now state lawmakers have until the end of the year to figure out how to stop the gas tax from going up. Without legislative action in Richmond, motorists throughout the commonwealth will all see even higher gas prices at the beginning of next year.
If I was a Republican running for re-election in next year's legislative races and had previously supported the transportation package and online tax schemes like MFA, I'd be worried about a primary challenge from the right."
Keep Government Taxation out of the Internet and Ecommerce
Since 1998, the Internet Tax Freedom Act has protected consumers from incurring costs on Internet access from state government taxation. Americans for Tax urges Congress to continue this policy of protecting Americans from the burden of taxation, by supporting the Permanent Internet Tax Freedom Act (PITFA).
PITFA would permanently limit state government ability to tax Americans' access to the Internet, eliminate grandfathered-in states taxes on Internet access, and prevent discriminatory taxation of e-commerce. This legislation will not only protect the consumer, but also allow Internet service providers to keep costs low and continue to expand ISP services and technology.
Unfortunately, PITFA may run the risk of having detrimental laws attached to it, due to its universal support and immediate nature. Now, with the expiration of Internet access taxes on the horizon, the temptation to attach the vastly disputed Marketplace Fairness Act to PIFTA may be on the mind of some Members. PIFTA would save consumers from taxation, while the MFA would incur out of state Internet sales tax on businesses. The attachment of MFA to PIFTA would certainly be a killer amendment. Dialectically opposed, passage of MFA with PIFTA is unacceptable.
Congress needs to immediately pass a PIFTA as a stand alone bill in order to protect the American consumer.
You can read Americans for Tax Reform's letter here.