Time for online sales taxes

A look inside The tax collector’s office, by Pieter Brueghel the Younger

If your local retail owner is smiling a little more than normal the next time you buy something, he might not be flirting with you. He’s probably happy about some legislation that will make the business world a bit fairer.

On May 6, the United States Senate passed the Marketplace Fairness Act (MFA), which would enable states to collect sales tax for transactions conducted over the Internet just as they would for transactions conducted in a street-front store. The bill next heads to the House — the land where reason goes to die — but if it survives that experience, it is expected to be signed by President Obama.

Actually, its prospects might not be too bad in the House; the bill has broad support even from a number of unexpected folks. In late April, as committed an anti-taxer as Wisconsin’s Rep. Paul Ryan expressed support for the Marketplace Fairness Act.

When California made its own plans to begin collecting online sales taxes (which it started doing in mid-2012), had a conniption fit that only ended after it made a deal with the state to open up some distribution centers in the state. This time around, the online retailing giant is skipping the conniption and going right to reason; Amazon supports the MFA and reportedly spent a couple million dollars lobbying for it.

These days, the major online opposition to sales taxes is coming from a different dot-com giant. eBay, that $14 billion 27,000-employee online startup, has taken lead position in opposing the online sales tax. The company’s senior director of global public policy, Brian Bieron, issued a statement after the Senate passed its bill, arguing that “the contentious debate in the Senate shows that a lot more work needs to be done to get the Internet sales tax issue right, including ensuring that small businesses using the Internet are protected from new burdens that harm their ability to compete and grow. eBay will continue to focus on bringing greater balance to the legislation by protecting small businesses with less than $10 million in sales or fewer than 50 employees.”

The “contentious” Senate debate nonetheless resulted in a lopsided vote in favor of MFA of 69 to 27, so eBay’s putting a brave face on the fact that it has publicly backed a losing argument.

The Senate bill exempts small businesses with less than $1 million in revenue, so eBay’s bid to raise the cutoff to a $10 million revenue and 50-employee level puts it in the position of being the brave defender of the small business in America. Too bad that small business includes some of the strongest supporters of this bill. For example, a group called Alliance for Main Street Fairness is arguing for the online sales tax from the perspective of the small business.

Even without this bill, retailers are supposed to collect a use tax in lieu of a sales tax, and if the retailer doesn’t do it, then the purchaser is supposed to track those taxes and pay them directly to the state. That clearly wasn’t happening, so states will now be able to treat all retail businesses alike, regardless of whether they are in brick-and-mortar locations or are shipping purchases out of their parents’ garage to online buyers.

The MFA has been described as an equalizer for bricks-and-mortar businesses, but that’s underselling it (and is about 15 years behind the times). Do you know many bricks-and-mortar stores, large or small, that don’t have an internet presence often with online ordering and even digital catalogs? Some, no doubt, but not many. It no longer makes sense to treat an online sale differently than you would a catalog sale or an in-person sale.

In the early days of the commercialized Internet, online retailers were able to win the argument against collecting sales taxes because there was widespread support in Washington for nursing along this burgeoning sector. Legislators also are for the most part technological luddites who were dazzled by the first dot-com bubble and afraid to look like they were behind the times. You wouldn’t want to be the legislator who supported the bill that killed online business, would you?

But now, the Internet is no swaddling baby and those online retailers are multibillion dollar behemoths that should do more to pay for the government that protects their sometimes-laughable patents, among other benefits.

So MFA shouldn’t be viewed as some sort of troglodyte effort by the “old economy” to hobble the “new economy.” It’s nothing more than legislators finally catching up with technology and economics just barely enough to realize that they have been being played by the online retail giants for long enough. A commercial sale is a sale and should be taxed as such. It shouldn’t be taxed more than is needed to pay for the things we’ve voted for through our legislative solons, but there no longer exists any substantive reason for exempting this one form of commercial exchange.

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