The Marketplace Fairness Act: Is It Really Fair?
The Marketplace Fairness Act (S.336) was advanced or "endorsed" by a voice vote in the Senate this week. The Senate endorsed the measure as an amendment to the chamber's budget resolution.
The Act would allow states to require out-of-state online retailers to collect sales taxes from in-state purchasers.
If you have been following this bill (or others like it), then you know that this issue is not a new one. However, this bill is gaining more support and traction than any other bill in the past. Hence, despite the opposition (i.e., burden on small retailers, unconstitutional imposition of tax on out of state retailers without a physical presence in the state, precedent set by the Quill case), the push to "level the playing field" between brick and mortar retailers and online retailers keeps getting stronger.
One of the arguments in support of the Act is that the tax is not a new tax. The tax is already required to be paid on the purchases in-state companies or individuals make from the online retailer; however, compliance rests upon the purchaser to self-assess use tax and remit it to the state. Hence, the problem states are complaining about is - if the online retailer doesn't collect the tax, the state will never receive the tax it is and has been legally owed. Annual online sales keeps growing and purchaser self-imposed/assessed use tax apparently is not.
Another argument in support of the Act is fairness between online retailers and brick and mortar retailers. "Fairness" - now, that is a strange concept when it comes to taxes. What you think is fair, may not be what I think is fair. For example, is it fair for states to require out of state companies which have no physical connection with a state to collect taxes from in-state purchasers even though such a law would not be constitutional under the Due Process Clause, Commerce Clause and Quill?
Should the state seek to find a better mechanism or procedure/avenue to collect the legally owed use tax from its own residents instead of placing a collection burden on out of state companies? Out of state companies do not use the roads, legal system, etc. within the purchaser's state. The purchasers do. Brick and mortar companies do.
If the goal is simply to collect use tax that the state has not been receiving in the past - should states seek to find a way to enforce laws that are already on their books, instead of trying to pass a new law that creates another burden?
What do you think?
Here is a recent article in Forbes magazine, if you want to keep reading about this lovely Act.
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
You can reach Brian at firstname.lastname@example.org.
Because state and local taxes are deceptively simple and endlessly complicated.