Testimony on “The Marketplace Equity Act of 2011”

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The Competitive Enterprise Institute (CEI) is a non-profit public policy research organization dedicated to advancing individual liberty and free enterprise with an emphasis on regulatory policy. We appreciate the opportunity to comment on the importance of tax equity under our federalist system of government.

The rapid growth of online retailing has been accompanied by increasing calls by state and local officials to allow them to capture more sales tax revenue and by bricks-and-mortar retailers to “level the playing field.” The Marketplace Equity Act (H.R. 3179) seeks to capture more tax revenue for states on Internet purchases. Traditional retailers, states, and localities, urge Congress to act in the name of “fairness,” but consumers will perceive this change as a tax increase. Certainly, there are inequities in the way online sales are taxed, but in the case of H.R. 3179, the proposed cure is worse than the disease. If Congress is to consider Internet sales tax policy, an origin-based approach would address the legitimate need for sales tax reform and avoid H.R. 3179’s harmful consequences.