CEI Urges Congress to Reject Internet Tax Bill

Washington, D.C., July 23, 2012 – Congress should reject legislation to increase taxes collected on Internet and mail order remote sales, argues the Competitive Enterprise Institute (CEI) in written testimony filed today with the U.S. House Committee on the Judiciary.

The Committee is holding a hearing tomorrow morning at 10:00 a.m. on the Marketplace Equity Act of 2011 (H.R. 3179), which would authorize state governments to collect sales taxes from sellers beyond their borders. Several states have already made a joint agreement to do just that; but their agreement—the Streamlined Sales and Use Tax Agreement (SSUTA)—does not have Congressional approval. H.R. 3179 seeks to codify SSUTA into law.

Supporters of H.R. 3179 argue that the bill will fix existing tax inequities. But CEI Policy Analyst Jessica Melugin, the author of CEI’s testimony, points out that H.R. 3179 will actually create several new problems for businesses and consumers. Among other things, the bill would:

• increase the amount consumers pay in taxes when shopping online;

• permit double taxation on remote sales;

• raise compliance costs for online retailers;

• destroy the competitive sales tax advantage some states and localities enjoy;

• force states to expand the list of taxable purchases and harmonize tax rates up;

• tax online retailers for remote services they cannot use;

• increase consumer privacy concerns;

• prevent businesses from voting for, or against, the taxing authorities; and

• create new inequities between bricks-and-mortar and online businesses.

“While sales tax inequities between traditional and online retailers certainly exist and need to be addressed, this legislation is a cure worse than the disease,” writes Melugin in her testimony.

If Congress is to reconsider how existing online sales taxes are collected, CEI encourages it to pursue an origin-based approach whereby retailers remit existing online sales taxes to their home jurisdictions only.

An origin-based approach would create true equity between online and bricks-and-mortar retailers while putting downward pressure on taxes by allowing consumers to “vote with their wallets.” It would encourage online sellers to gravitate toward lower tax-rate jurisdictions and preserve the healthy competition among states and localities nationwide.

An origin-based regime would treat all retailers the same, protect consumer privacy, minimize compliance burdens, and ensure that those taxed maintain their political voice and receive services from their tax dollars.

>> Read Jessica Melugin’s Testimony on the Marketplace Equity Act of 2011

>> See also:

• Melugin’s May 2011 op-ed in The Washington Times: “State Cartel Looking to Hike Internet Taxes”

• Melugin’s April 2011 op-ed in The San Jose Mercury News: “An Alternative to California Proposal to Tax E-Commerce