House to Take Its Time with the Online Sales Tax

Online Sales Tax

On Monday, the Senate passed the so-called “Marketplace Fairness Act,” legislation that would allow states to force businesses into serving as tax collectors. While it cleared the chamber by a large margin, the House of Representatives appears to be cool to the proposal, at least for now:

“Call me a conservative, but I believe the right approach to tax fairness is to reduce rates — not force higher rates onto others,” said Tom Graves, a House Republican from Georgia.

House Speaker John Boehner plans to send the bill to the House Judiciary Committee, a senior Republican aide said. That will mean hearings ahead. The Senate uncharacteristically bypassed this step.

Judiciary Committee Chairman Robert Goodlatte, a Republican, has reservations about the legislation, including its complexity and potential impact on small businesses, a spokeswoman said.

Goodlatte has yet to schedule any hearings on it, she said.

Goodlatte’s statement on the online sales tax proposal was more encouraging than what his spokeswoman has told the media. Specifically, Goodlatte says that the scheme “attempts to make tax collection simpler, [but] it still has a long way to go.”

“There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions,” he added. “There is also concern that despite disclaimers the bill could create due process type concerns regarding the ability for affected businesses to sufficiently petition for relief from aggressive state actions and could open the door for states to tax or even regulate beyond their borders.”

Dan Mitchell, an economist at the Cato Institute, put the issues with the tax in a more direct manner, noting that it the debate is about more than just tax policy:

this debate isn’t just about tax policy and the proper limits of state government power.

The bill still must go through the U.S. House, where the GOP is divided on the issue. If politicians in Washington approve the so-called Marketplace Fairness Act, they’ll not only be authorizing extraterritorial tax enforcement, they’ll also be setting in motion the creation of a database that will erode privacy for consumers and create opportunities for identity theft.

This is because the legislation only can be enforced if governments set up some sort of system for tracking where consumers live, what they buy and how much it costs. With 9,600 sales tax jurisdictions in the United States (cities and counties also impose sales taxes), this is a compliance nightmare.

And it means that your personal and financial details will be collected and stored in a database that will be a magnet for criminals and hackers from all over the world.

To be blunt, a sales tax cartel is bad news for tax policy and bad news for privacy. Let’s limit the power of state governments so they can only screw up things inside their own borders.

The fact that Speaker Boehner sent the bill to committee is a good sign. That’s the usual process for legislation, but Senate Majority Leader Harry Reid (D-NV) bypassed that step.

Rather than empowering them find a new revenue stream with which to fund their spending binge, Congress should be telling states to reduce regulatory and tax burdens to make the market more competitive for brick-and-mortar retailers.

There are a number of conservative members who have already expressed reservations to the law. Let’s hope that the opposition is loud enough to force Republican leadership to actually be the advocates of limited government that they so frequently claim to be. Either way, make sure you call your representative and ask them to oppose the online sales tax.

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