Congress Looking to Usher in the Holiday Shopping Season with a Tax Increase

Monday, September 15th, 2014 and is filed under Blog, Issues

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Buried in the stopgap funding bill that House Republican Leadership cobbled together last week was a little noticed provision that tees up a vote for a multi-billion tax increase during the lame-duck session of Congress.

The funding bill would extend the Internet Tax Freedom Act (ITFA) – which blocks taxes on Internet access – from November 1, 2014 until December 11, 2014. Congress has known about this looming expiration for seven years.  There is broad support for making the tax prohibition permanent – permanent extension has 53 sponsors in the Senate and passed the House on a voice vote.

Never letting a good (manufactured) crisis go to waste, Congress is going to use the pending expiration of the Internet access tax prohibition to shepherd through a tax increase on phone, catalog and internet purchases. This week, the chief sponsor of the Internet Tax Bill, Senator Mike Enzi (R-WY), said as much, “I think there will be less concern after the election. The two go together nicely. One makes sure the Internet isn’t taxed and the other makes sure that sales taxes that are avoided with the Internet will be collected.”

The Marketplace Fairness Act

The Marketplace Fairness Act – or as it’s more accurately known, the Internet Sales Tax Act – is an effort by big spenders in Washington to enable their friends in state governments across the country to collect sales taxes on purchases made outside their states.  Under current law, unless a company has a physical presence – a nexus – in a state, that state cannot tax their sales.  It’s a common sense approach – if a company isn’t in the state, it shouldn’t be subjected to the tax laws of the state.

Most folks who have shopped online have experienced this at checkout – if you live in one of the twenty-four states which have a sales tax, but does not have an Amazon warehouse or office, you get to check out without being forced to pay sales tax.  Your state most likely requires you to pay something called a “use tax,” but it’s your job to pay that, not Amazon’s to collect it.

What Congress wants to do is force Amazon, eBay, catalog vendors, infomercials, and anyone else who sells you something from out of state (as long as their company sells over one million dollars a year – a small threshold) to collect more taxes from you. In fact, the total is $23 Billion more in taxes each year.

This is the kind of idea that is only popular with lobbyists and government officials.

Lobbyists love it because it gives their wealthy corporate clients a leg up over smaller more nimble competitors.

Compliance with this law will be a nightmare for a small businesses.  There are ten thousand different taxing jurisdictions in the United States all imposing different rates on different goods at different times of the year.

To keep up with the various tax laws, small businesses are going to have to pay expensive fees to integrate tax collection software with their in house computer systems.  If the software costs weren’t enough, the attorney fees and accountant bills will be astronomical when they get something wrong.

If, for example, a small business in Maryland doesn’t correctly charge sales tax for of one of Connecticut’s latest sales tax holidays for school clothes, they could see themselves getting audited by the tax collector in Connecticut.  (For example, gloves and mittens are tax exempt, batting gloves for the little league baseball team are not.) And when that small businessman fails to charge Johnny’s parents tax on his batting glove, what’s going to compel that tax collector to treat him equitably?  Nothing. By it’s nature that Maryland company has no presence in Connecticut and not one Connecticut Representative or Senator to complain to about an abusive tax collector.  Further if they don’t comply with the dictates of the out of state tax collector they can find themselves hauled into court in a city thousands of miles away threaten with a court judgment if they don’t comply.

While this may be a nightmare for small businessmen, Amazon loves the idea.  They have enormous IT, accounting and legal departments already.  Complying with this is an insignificant burden in the grand scheme of issues they have to deal with. It also comes with the added benefit of sticking it to their competitors.  Win-Win.

Government officials love it because they see it as free money.  Every month Amazon’s going to send them a big check and all they have to do is lobby Congress to help the company stick it to the little guy.   As usual the person whose ox get’s gored is the taxpayer.

So when Black Friday rolls around, remember that unless Congress hears objections, they’re going to sneak one more thing into your online shopping basket – a $23 billion tax increase.