Congress Revives Plan to Collect Sales Tax on Internet Purchases

Published April 9, 2015

A group of House members are reintroducing a proposal that would force online businesses to collect and remit sales taxes on purchases made in states where the businesses are not located.

In 2014, the Marketplace Fairness Act (MFA) was passed in the U.S. Senate but did not receive a vote in the House. The bill is being reintroduced by Sens. Dick Durbin (D-IL), Lamar Alexander (R-TN), and Mike Enzi (R-WY).

Taxing Across Borders

R Street Executive Director and Senior Fellow Andrew Moylan says MFA would make doing business more complex and expensive for small business owners and workers using the Internet to sell goods and services.

“The Marketplace Fairness Act would have a huge impact on web-based retailers, their consumers, and the Internet economy as a whole,” Moylan said. “The Internet is borderless, and giving states the power to tax outside their borders, as the MFA does, would add significant burdens on e-commerce to the detriment of businesses and individuals.”

Moylan says MFA’s name is misleading and that the legislation is actually unfair for both consumers and businesses.

“When you make a purchase in a brick-and-mortar store, [businesses] are not required to ask where you live and then forced to accurately determine, collect, and remit those tax dollars to a far-flung jurisdiction with which they may have no physical connection at all,” Moylan said. “And yet, that’s precisely what the MFA would force Internet sellers to do.”

Raising Prices, Limiting Choices

National Taxpayers Union Federal Affairs Manager Nan Swift says MFA would cause younger consumers to purchase less goods and services online.

“Consumers between 18 and 34 [years old] spend more online than other age groups, yet they typically are on the bottom rungs on the pay scale,” Swift said. “Increased sales taxes could mean a significant hit for this age group, and because they are currently driving the e-commerce boom, we can expect to see that slowdown. An average family who shops online regularly could pay an additional $360 in sales taxes. The households that would see the biggest hit are those in the South and Southwest.”

‘A Logistical Nightmare’

In addition to harming consumers, Swift says the bill would make commerce more complicated for entrepreneurs and small business owners, increasing their costs.

“Forcing small businesses to become tax collectors could be a logistical nightmare,” Swift said.

“On the back end, there are hundreds of different shopping carts that don’t necessarily integrate with the software necessary to comply with state tax collection, and each state could have a different one,” Swift said.

Matt Hurley ([email protected]) writes from Cincinnati, Ohio.

Internet Info:

Austan Goolsbee, “In a World without Borders: The Impact of Taxes on Internet Commerce,” National Bureau of Economic Research: