Streamlined Sales Tax: Marketplace Fairness…for whom?

 

As Back-to-School tax-free weekends make their annual appearance in many states, you can’t help but think about sales tax in general, and a favorite issue for national retailers to commiserate about: online-only and catalog retailers collecting sales tax only in states where they have a physical nexus. 

 

First though, a little history lesson is warranted. The Supreme Court ruled way back in 1967 that out-of state-retailers could not be forced to remit sales tax to the state (National Bellas Hess vs. Illinois). Of course who cared much back then as this was mainly an out-of-state catalog issue… mainly niche businesses like office supplies. Then came a second ruling in 1992 (Quill vs. North Dakota). Again the Supreme Court ruled that the state could not demand taxes be remitted by out-of-state retailers. Unlike the earlier case though in which the ruling was based on both due-process (states’ rights) and interstate commerce, the Quill ruling was based solely on interstate commerce (only the Federal Government can regulate interstate commerce). “What a big breakthrough” thought the national retailers… and what a soon to be timely breakthrough as by the end of the 90’s, the internet (and Amazon) was rearing its ugly head. The ruling meant that all that’s needed now is federal legislation! So, in 1999 the national retailers started to work on the streamlined sales tax project, dubbed Main Street Fairness, and later dubbed Marketplace Fairness. 

 

So why, 16 years later, do we still not have “Marketplace Fairness” legislation? …Maybe because it’s not all that fair? fairness for whom? 

- Obviously fair to the large national chains who have to collect sales tax in all states, and cry for a level playing field. This was a big problem with the dramatic growth of Amazon…. Hence the nickname “Amazon tax”. Yet, with Amazon building distribution centers across the country and establishing nexus state-by-state, Amazon tax is becoming a moot point. 
- What about fair to the true Main Street retailer? The mom and pop retailer and the entrepreneurial start-up? For them, the internet is the great equalizer. They can sell their unique products to consumers across the United States thanks to the internet and its “long tail”. Is it fair to pass federal legislation requiring these true Main Street retailers to deal with the burden of correctly collecting sales tax for every state, countless municipalities, and not to mention countless Native American reservations? 
- And what about the consumer who buys direct from out-of-state Main Street sellers’ websites? Is it fair to them to add another tax? (Well I know the argument that this is not a new tax because the consumer is technically responsible for remitting sales tax if the retailer does not…. but let’s be real here.) 

 

So, we go full circle to back-to-school tax-free weekends. Why do customers come out in droves to shop? Because they hate taxes! If you were in Congress, would you push for “Marketplace Fairness” taxation? In your re-election year? … and think of that poor “mom and pop” and entrepreneurial merchant under Marketplace Fairness trying to figure out for each state, which states have tax free weekends, on which weekends, which products qualify, and what is the dollar limit? No surprise that after 16 years, streamline sales tax remains the large national retail chains’ dream. 

 

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