Marketplace Fairness Act Resuscitated

Published June 8, 2017

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.

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