Tax laws need reform

By Michael Moroney

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As new technology makes it easier makes than ever to buy and sell goods online, it's important to that our laws evolve to reflect these advances. Unfortunately, a new bill that just passed the Senate, the Marketplace Freedom Act, is a wolf in sheep's clothing for consumers and independent online retailers alike.

Supporters of the MFA argue, in the interest of “fairness,” that online purchases should be subject to the same sales taxes as in-store purchases. They conveniently leave out, however, that this is already the case under current law. Any out-of-state purchases, including online purchases, brought back to Iowa are supposed to be reported when you file your taxes so that sales tax may be collected. Despite the failure of many consumers to pay the taxes they owe on online purchases, shifting that burden entirely to the sellers severely threatens their ability to do business.

Estimates suggest that states would collect an additional $23 billion in tax revenue if the bill passes into law - costing the average consumer around $170 a year in upfront taxes. For small business owners, the issue isn't paying the tax, but rather the crushing mountains of paperwork and regulations involved. Unfortunately, the notion of fairness has been co-opted by large corporations that favor regulating their competitors out of business instead of competing on a level playing field. In fact, the legislation doesn't level the playing field for online retailers - it creates new burdens that only the largest online retailers could survive.

The mom and pop business is no longer just the shop on the corner. It's evolved into the antique enthusiast who wants to spread America's heritage selling her collection online, or the father who turned his passion for cars into a lucrative hobby by selling spare parts on eBay. As soon as these budding entrepreneurs became successful enough to bring in $1 million in revenue - not profit - they would be hit with an avalanche of new regulations. Not only would these new regulations force small business owners out of the market, they would squash consumer choice.

At the end of the day, large online businesses like Amazon and Best Buy that favor the MFA are trying to establish new barriers to entry for current and potential competitors.

Our tax laws need reform, but hastily thrown-together legislation with a populist title will only exacerbate the problems we already have. Instead of responsibly solving state budget issues, too many in Congress are opting for the politically expedient, short-term infusion of cash to their state without weighing the long-term effects.

Furthermore, the Constitution protects state sovereignty, and the Supreme Court has consistently reaffirmed the right and responsibility of each state to collect its own taxes. The Supreme Court ruled in 1992 that businesses were only responsible for collecting state sales taxes in states where they have a physical presence.

If the MFA passes into law, online retailers will have to collect taxes for each of the 9,600 state and local jurisdictions in the country. Rep. Bruce Braley should stand up for consumer choice and small business owners in Iowa - even if those businesses aren't the traditional brick and mortar we think of.

Michael Moroney is the Director of Communications at the Franklin Center for Government & Public Integrity, http://franklincenterhq.org/. Comments: Michael.Moroney@franklincenterhq.org