Policy Documents

The Marketplace Fairness Act Would Create a State Sales Tax Cartel and Hurt Consumers

Jessica Melugin –
July 30, 2012

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 brick-and mortar retailers to “level the playing field.” The Marketplace Fairness Act (S. 1832) seeks to capture more tax revenue for states on Internet purchases. Traditional retailers, states, and localities have urged Congress to act in the name of “fairness,” but for consumers, this will only mean a tax increase. There certainly are inequities in the way online sales are taxed, but in the case of S. 1832, the cure is worse than the disease. If Congress is to consider Internet sales tax policy as part of broader tax reform efforts, an origin-based approach would address the legitimate need for sales tax reform and avoid the Marketplace Fairness Act’s harmful consequences.