Senate Vote on Internet Sales Tax Endangers Small Business

Senate Vote on Internet Sales Tax Endangers Small Business

Approved Amendment Promotes Controversial "Marketplace Fairness Act"
March 22, 2013

WASHINGTON, D.C., March 22, 2013 - Today, the U.S. Senate voted to approve an amendment to the Senate Budget Resolution surreptitiously meant as a pathway for the controversial Marketplace Fairness Act (S. 336, H.R. 684). The Act would empower states to collect Internet sales taxes from out-of-state businesses. While the language of the amendment (No. 0578) is vague, the danger is clear: the Senate is one step closer to blessing a huge expansion of state taxing power and subjecting small businesses to remote states' oversight and audits.

“It's particularly ominous that senators claiming to be small government, fiscal conservatives sided against those principles--and with powerful retailers,” said Jessica Melugin, Adjunct Policy Analyst at the Competitive Enterprise Institute. “Big box stores, Amazon, state governments with high sales taxes, and public employees got their lobbying millions' worth today when many Republicans wilted under the pressure.”

“The Marketplace Fairness Act would subject small businesses with a physical presence in only one state to audits from other states,” explained Melugin. “I can't imagine a Tennessee small business selling on eBay or Etsy will appreciate being audited by California or New York tax authorities.”

Melugin continued, “Senators who voted for today's amendment have betrayed the small businesses they represent in order to appease governors and public unions who care more about dollar signs than the constitutional principles of interstate competition.”

These audits also raise alarming privacy implications for consumers. “Two states have already demanded consumers' purchasing histories from out-of-state retailers for tax purposes. These efforts were only thwarted by the courts,” said Melugin. “Those judicial protections would disappear if Congress blesses this state tax cartel.”

“This is a step in the wrong direction for healthy tax competition, small businesses, and the future of Internet commerce. However, it might be a step in the right direction for primary challengers who paid attention to the vote,” Melugin added, pointing out how support of the Marketplace Fairness Act may leave Republican politicians vulnerable to challenges from the right.

Jessica Melugin can be reached for comment at jmelugin@cei.org or (202) 904-4795.