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Marketplace Fairness Act Is More about Tax Revenue and Rent-Seeking than Fairness

Yesterday, Sens. Mike Enzi (R-Wy.), Dick Durbin (D-Ill.), Lamar Alexander (R-Tenn.), and Heidi Heitkamp (D-N.D.) reintroduced the speciously named Marketplace Fairness Act (MFA) in the 114th Congress. The legislation would authorize state tax collectors to reach across borders and tax out-of-state businesses, therein subjecting online retailers to taxation without representation.

Certainly, there are inequities in the way remote sales are taxed, but the MFA’s approach is a cure worse than the disease. It would unfairly burden remote retailers by forcing them to calculate for approximately 10,000 distinct tax jurisdictions—each with their own rates, definitions and tax exemptions—while leaving brick and mortar shops to simply apply and remit tax based on the point of sale. Not much of a level playing field there.

So if not “fairness,” as supporters of the bill claim, what is motivating pro-MFA sentiments?

For the states and localities it’s purely a tax grab. Instead of trimming fat from their bloated budgets, governors and mayors are opting to spend time in D.C. schmoozing congress for the right to tax other state’s businesses. Why deal with disappointing or taxing your own constituents, to whom you are politically accountable, when you can spend the week office hopping on the Hill, collecting pins for your lapel, and topping it all off with an expensed dinner at Cap Grille? 

The other proponents of the MFA are big retailers. If it’s hard for you to believe that Walmart, Target, Best Buy, and Amazon are fighting for “fairness” for main street brick-and-mortar mom-and-pop shops, you’ve got good instincts. They’ve spent millions lobbying to impose these tax collection costs on competitor online retailers. The big guys are banking on MFA’s compliance costs being lethal for their smaller online competitors. Again, why succeed by creating value for consumers in the marketplace when you can bury would-be competitors with tax collection and remittance burdens?

It’s obvious that congressional Republicans, voted into majorities to shrink government, not expand its reach, should reject the MFA for what it is—a tax grab and rent-seeking.

And if legislators are serious about injecting fairness into taxing remote sales they should opt for an origin-based approach. All remote sales would be taxed at the principle point of business—whether online, by catalogue, or whatever we think of next. This would preserve tax competition among jurisdictions, keep authorities politically accountable to those they tax, and never trigger the need for cross state audits or consumer information collection. None of which can be said for the MFA.