Online sales tax bill is bad for consumers and small business

A FedEx employee sorts packages on Cyber Monday last December.
A FedEx employee sorts packages on Cyber Monday last December. Associated Press file

With all the fantastic Black Friday and Cyber Monday deals, you could buy some great gifts for $360: an Xbox One video game system, an iPad Mini 2 or about 18 copies of Disney’s “Frozen” DVD (or one copy for every time your daughter will sing one of the movie’s songs on Christmas Day).

But if some members of Congress get their way, you might be short $360 come next Christmas. Sens. Harry Reid of Nevada and Dick Durbin of Illinois, the top Democrats in the Senate, are aggressively pushing a bill called the Marketplace Fairness Act. The legislation would remove constitutionally enshrined limitations on commercial regulation by empowering state governments to collect taxes on interstate transactions. In other words, it means that online shoppers would pay sales taxes up front on all purchases.

New research by National Taxpayers Union revealed that the MFA would cost families across the country a combined $340 billion over a 10-year period. While that equates to $360 a year for the average household, it gets worse for those living in states with higher sales taxes.

For instance, the average online shopping family in California would see their sales tax burden increase by 9 percent and their disposable income reduced by a whopping $590 each year. The most negatively impacted state, Louisiana, would shoulder a hefty $850 per family if the measure becomes law.

That’s bad news for taxpayers any time of the year, but it’s especially troubling as we enter the holiday shopping frenzy. Yet the legislation’s supporters – namely big-box retailers and state governments – and their army of lobbyists in Washington, D.C., are doing everything in their power to pass this bill during the lame-duck session of Congress.

Large retail stores are doing so because they believe they’re losing sales to smaller, online competitors. State governments, many of which are facing budget shortfalls, are looking to bring in as much tax revenue as they possibly can – and forcing people who cannot vote against them to do the collection work is a nice bonus.

If they get their wish and pass the Marketplace Fairness Act, consumers would be seriously shortchanged. Not only would online shoppers find themselves paying hundreds more in taxes each year, they would see a dwindling number of online merchants over time.

That’s because the bill isn’t just about higher taxes; the regulatory and compliance burden placed on Internet retailers, which would have to remit taxes to numerous jurisdictions across the country, could cost hundreds of thousands of dollars. To the big-box stores, this is merely a rounding error in their books. To many mom-and-pop operations, this extra overhead would mean bankruptcy.

Smaller merchants simply do not have the resources to comply with the heavy regulatory costs associated with the law, such as integrating their product line with the requisite software and complying with potential audits from out-of-state tax collectors. Of course, as these stores start to disappear, shoppers would be left with only a handful of retail options – for instance, the same big-box retailers who are advocating for the legislation.

Fortunately, House Speaker John Boehner of Ohio has thrown some cold water on the notion of passing the bill at this time. But shoppers should not rest easy just yet. Reid and Durbin, with a horde of well-heeled lobbyists behind them, have said they’ll do everything in their power to pass the bill. That could mean employing legislative sleight-of-hand and hardball tactics in the closing days of this Congress while citizens are distracted with holiday events and last-minute shopping.

Taxpayers must remain vigilant, or the sales tax “Grinch” might snatch away $360 worth of presents just before Christmas morning.

Brandon Arnold is executive vice president of the National Taxpayers Union.