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Alexander's Column
The e-Tax Scam
Republicans Back Colossal e-Commerce Tax Scheme
By Mark Alexander · April 25, 2013  
"We may be assured by past experience, that such a practice [as some
states charging high taxes on goods from other states] would be
introduced by future contrivances..." --James Madison (1788)
Executive Summary: Senate Democrats and Republicans
voted 74-20 in a cloture to move S743, the "online sales tax," to the
Senate floor for a vote early next week. This huge tax collection scheme
will stifle product and market competition, and innovation and
entrepreneurship. That is precisely why, in addition to the Obama
administration, mega-retailers like Walmart back this oppressive
legislation, and why all advocates of free enterprise need oppose it.
The relentless 24-hour news cycle coverage of the Boston bombers eclipsed last week's Beltway gun-battle in the Senate, where Democrats shelved the so-called "assault weapons" ban in anticipation of the next mass murder, at which point Democrats will take immediate advantage of emotionally charged populist appeal. Barack Hussein Obama has, of course, mastered this cynical appeal to raw emotion. As Obama
lamented last week during his much-publicized tantrum, "Their emotions
are ... relevant to this debate." Fortunately, given the legislative
delay, emotions yielded to reason -- this time.
Obama's gun-ban legislation itself overshadowed another piece of leftist
legislation, rushed through a Senate cloture vote with the support of
many Republicans in order to put it before the full Senate as early as
next week.
I'm referring to the laughably euphemistic "Marketplace Fairness Act," a
behemoth Internet sales tax collection scheme on interstate sales,
which would be more aptly named the "Mega-Retailer Protection Act." This
legislation was formerly designated S. 1832 when backed last year by
the Internet Tax Tag Team of Dick Durbin (D-IL) and Lamar Alexander (R-TN.)
Alexander and other backers of this tax collection scheme argue that
Internet sales are driven by the avoidance of state and local sales tax.
Apparently he forgot that online sales include shipping charges, which
often exceed the cost of sales taxes. (Have any of these politicos ever
personally completed an online transaction?)
Fact is, e-commerce is driven by product selection, retail price
comparison and convenience -- old-fashioned free-enterprise competition
-- not the avoidance of local sales tax. Additionally, many items
purchased on the Internet may not be available in a local market, and,
much to the shock of some Beltway dwellers, not everyone in America
lives next to a mall, or wants to burn up time and fossil fuels in
search of a higher priced and lower quality product from a Walmart,
K-Mart or Sears.
Some otherwise erudite Republican senators joined Alexander, supporting
this tax legislation, suggesting that if on board, they can amend it in
order to ease the pain on small online businesses -- recalling that most
job creation takes place in small companies. For the record, I do not
consider that to be legitimate justification for backing this measure.
As Sen. Kelly Ayotte (R-NH) has concluded, "There is absolutely nothing
conservative about this proposal because, again, what this is about is
officials in cash-strapped states across the country looking for new
ways to plug their budget holes."
Predictably, Senate backers are attempting to cover their posteriors
with this little nugget in section 3(d) of the bill: "[N]othing in this
Act shall be construed as encouraging a State to impose sales and use
taxes on any goods or services not subject to taxation prior to the date
of the enactment of this Act." In other words, they can point their
fingers at the states when the massive impact of this legislation pounds
consumers and the economy.
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In effect, this legislation overrides the Supreme Court's landmark 1992 ruling in Quill Corporation v. North Dakota,
in which the Court determined that, in the case of interstate sales, a
seller in one state cannot be forced to collect taxes from a buyer in
another state and remit those taxes to the buyer's state. Not only did
the Court uphold the historic prohibition on interstate sales tax
collections (in this case retail catalog sales), but also given the
advent of e-commerce, nonexistent in 1992, there are now millions of
small businesses that depend upon online sales.
Based on the "logic" of those arguing for the e-tax, if I travel across a
state line to make a purchase in Georgia, which is only a mile away
from our Tennessee home, that purchase should be subject to the state
and local sales tax where I reside, not Georgia taxes, and the Georgia
seller should have to collect and remit it to Tennessee.
Many states, which depend in part on sales taxes, have already
legislated that residents of their states remit sales taxes annually on
any and all out-of-state purchases. This existing legislation is
intrastate, between the voters and their state representatives, exactly
where it belongs in a federalist system.
Requiring a seller in one state to collect and remit sales tax on behalf of another state is tantamount to "taxation without representation,"
according to Heritage Foundation President Jim DeMint. The former South
Carolina senator notes correctly that the mega-retailers "are in favor
of the Internet sales tax, because online retailers are competitors. But
the other big proponents of the tax are state governments, which would
be able to reach into other states for revenue. Politicians want this
bill passed to raise new tax revenue for broken state governments facing
budget shortfalls. But legislators in state capitals don't want to make
the hard decisions to cut spending or raise taxes on their constituents
-- they fear the voter backlash. So they'd like their allies in
Washington to make it legal for them to tax people who can't vote
against them."
Political analyst Jeff Jacoby
asserts, "States must not be allowed to reach beyond their borders,
imposing tax obligations on retailers who had no vote or voice in
creating those obligations, no political recourse, no opportunity to be
heard. Against such unfairness, Americans once fought a revolution. A
craving for revenue is no reason to forget that."
Of course, the National Retail Federation, which represents huge sellers
like Walmart and Amazon.com, backs Senate Majority Leader Harry Reid's
effort to quickly vote on this legislation before American consumers
figure out its implications.
But why would an online seller like Amazon support this measure? Because
Amazon already has warehouse and shipping facilities in most states,
and has already cut tax-break deals with those states.
Moreover, for millions of small online businesses, our own Patriot Post Shop
being one, determining, collecting and remitting state and local sales
taxes on every purchase massively increases transactional overhead. So
Amazon and other mammoth e-commerce sellers are now positioning
themselves to "rescue" poor little "mom and pop" online sellers by
offering to process all of their transactions -- in return for a
substantial fee...
If passed, the e-Tax not only will stifle the very product and market
competition, innovation and entrepreneurship that drive our economic
growth, it most assuredly will force small businesses "under the
protective wing" of big transaction clearinghouses, because in addition
to state taxes, there are now more than 9,500 regional and local tax jurisdictions
in the United States, with, as Jacoby writes, "an ever-shifting
kaleidoscope of sales-tax rates, definitions, exemptions, and
deadlines."
All of them would have their hand out for every out-of-state sale.
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John Donahoe, president and CEO of eBay, which is the selling arm of
millions of small business entrepreneurs, notes, "This isn't a debate
pitting the Internet against Main Street. This is about big retailers,
like Amazon, trying to undermine small online businesses."
Needless to say, the e-Tax has the full support of the Obama
administration, which should give prima fascia pause to any Republican
and every conservative.
The administration's statement noted that it "strongly supports S. 743,
which will level the playing field for local small business retailers
that are in competition every day with large out-of-state online
companies. ... This bill would eliminate the unfair advantage currently
enjoyed by big out-of-state online companies over local
neighborhood-based small businesses."
Now that's a load of bull pucky! This legislation will in no
way "level the playing field" for small retailers. Walmart and other
mega-retailers backing this measure have already put most small local
American retailers out of business -- with the help of their Chinese
producers and sweatshops around the globe.
Of course, I support free enterprise and free markets. But the fact is,
small online retailers are doing to Walmart and other mega-retailers
what the latter did to small local retailers!
The bottom line is this: State legislators already have the ability to
require interstate sales taxes payment by their constituents. They just
want to avoid the accountability associated with having to collect those
taxes -- especially when they're up for re-election.
If the "Mega-Retailer Protection Act" does pass, every governor and
state legislator should be held accountable to ensure it is revenue
neutral -- meaning state sales taxes should be reduced by the same
amount of new sales taxes collected -- lest those collections would be a
windfall to increase the size and scope of state governments -- which
is, in large measure, the underlying motivation for this tax collection
charade.
I'll close with some wise words from former Supreme Court Chief Justice
John Marshall, which are as true today as they were in 1819: "An
unlimited power to tax involves, necessarily, a power to destroy;
because there is a limit beyond which no institution and no property can
bear taxation."
Pro Deo et Constitutione — Libertas aut Mors
Semper Vigilo, Fortis, Paratus et Fidelis
Mark Alexander
Publisher, The Patriot Post
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