Many states facing deficits are looking for additional revenue to fill their budget holes. While targeted tax increases continue to be more popular than broad-based tax hikes, there remains a sizable push to collect taxes from online and catalog purchases. Currently, this form of taxation is not constitutional and requires congressional approval before states are allowed to force retailers lacking a physical presence, or “nexus,” in their state to collect and remit sales taxes back to the purchaser’s state.
In a recent Heartland Institute Research & Commentary, Senior Policy Analyst Matthew Glans reported, “The Marketplace Fairness Act (MFA) once again rose from the dead recently, when a group of legislators reintroduced MFA in the U.S. Senate. If passed into law, MFA would significantly change how online retailers are taxed by allowing state governments to charge sales taxes on out-of-state retailers, regardless of whether the retailer has a physical presence in the state.”
Matthew Adams of Americans for Tax Reform says the proposal “shifts the tax burden onto businesses as they would now have to collect a sales tax in these types of transactions and report and file to dozens of other states. This all results in taking even more money out of your pocket. Worst of all, it discourages tax competition and business incentives amongst the states, and instead encourages higher tax rates. While presented as a protector of America’s small businesses, the bill would only subject our already struggling mom-and-pop shops to a greater regulatory and tax burden.”
Under current law, purchases made at a brick-and-mortar retailer are subject to the tax rate required by the state and locality in which the retailer operates, rather than where the purchaser lives. MFA would reverse that model so that states could collect taxes based on the final destination.
John Nothdurft, The Heartland Institute’s government relations director, argued in a HeartlandPolicy Tip Sheet, “There are three problems with a destination-based tax on the internet. Tax competition among the states would be hindered, it would undercut federalism, and it would push tax rates up. … while destination-based taxation requires reporting to multiple governmental jurisdictions and creating substantial business costs for small start-up companies and internet entrepreneurs, origin-based taxation would foster competition among the states and would be simpler for businesses to comply with.”
Destination-based tax policies hurt businesses and consumers alike. Lawmakers should avoid implementing these burdensome policies to help spur economic growth.
What We’re Working On
Budget & Tax
Research & Commentary: States Should Protect the Right to Earn a Living
In this Research & Commentary, Lindsey Schulenburg examines the Right to Earn a Living Act, the growing need to remove unnecessary regulations across economic sectors, and the burdens occupational-licensing requirements place on entrepreneurs. “Occupational-licensing laws inhibit Americans’ right to pursue the ‘American Dream’ by imposing numerous and often costly requirements that must be met to legally provide a desired service to the public,” Schulenburg wrote. Read more
Research & Commentary: Staffing Surge in Public Schools Has Been a ‘Costly Failure’
In this Research & Commentary, Lindsey Schulenburg summarizes a May 2017 EdChoice study that reveals important information about the “staffing surge” in U.S. public schools. The study claims schools have added an excessive number of new staff members over the past 60 years. From 1950 to 2015, schools increased their administration rolls by 709 percent while they only had a 100 percent growth in students. The costly surge has come at the expense of more-effective learning resources and has not improved student performance. Read more
Energy & Environment
Research & Commentary: Study Says Methane in North Texas Wells is Naturally Occurring, Not the Result of Hydraulic Fracturing
In this Research & Commentary, Policy Analyst Tim Benson examines a new study by researchers at the University of Texas-Austin and the University of Michigan examining methane in wells in North Texas. The study found the methane “is most likely naturally occurring and is not the cause of hydraulic fracturing,” wrote Benson. Benson also reports research shows fracking is environmentally safe and has had a positive economic impact on areas that have allowed the practice. Read more
Research & Commentary: States Pursue Work Requirements for Medicaid
In this Research & Commentary, Senior Policy Analyst Matthew Glans examines the current efforts being made by several states to add work requirements to their Medicaid programs. “Implementing Medicaid work requirements would be a good first step for Medicaid-expansion and non-expansion states toward helping to limit the rising costs of Medicaid,” Glans wrote. Read more
From Our Free-Market Friends
Signed by the Governor: Alabama Law Expands Health Freedom
In late May, Gov. Kay Ivey (R) signed a bill into law to improve health care freedom in Alabama. State Sen. Arthur Orr’s Senate Bill 94 “specifies that direct primary care agreements … do not constitute insurance, thereby freeing doctors and patients from the onerous requirements and regulations under the state insurance code.” This change allows direct primary care physicians to provide another option to patients looking for alternatives to Obamacare. In this article, published by the Tenth Amendment Center, Mike Maharrey writes direct primary care “makes doctors responsive to patients, not insurance company bureaucrats or government rule-makers. Allowing patients to contract directly with doctors via medical retainer agreements opens the market. Under such agreements, market forces will set price for services based on both demand instead of relying on central planners with a political agenda. The end-result will be better care delivered at a lower cost.” Read more