Online Retailers & Consumers Hit with a Fairness Tax

April 23, 2013

By: Kelly Diamond, Editor

Online retailers are the latest target for tax revenues because up to now, people were engaging in duty-free e-commerce!

While the larger online retailers like Amazon welcome the cost prohibitive nature of enforcing state and local taxes, it only demonstrates the UNfairness of legislation like the “Marketplace Fairness Act”.

I used to think that teenagers were the greatest abusers of the phrase “that’s not fair”.  Turns out, statists also like to sling those words around whenever the time comes to either monitor our lives or tax it in some way.  Well, this time it’s the latter: taxes.  Until now, the mandates for collecting state sales taxes on online transactions were rather loose and for the most part unenforceable.  There are laws on the books saying that if an online retailer has a “significant presence” in a given market, then they would have to pay sales tax in that state… and retail juggernauts like Amazon do. 

The “Marketplace Fairness Act” (because you MUST have the word “fair” laced into any bill that relates to taxes) would make it so that online retailers would charge the respective state sales tax based on the location of the purchaser/customer.  To date, many consumers are dodging the costs associated with sales tax by making their purchases online.  But the brick-and-mortar retailers found this practice “unfair”, since they were bound by sales taxes which put them at anywhere from a 5 – 9% price disadvantage.

Studies indicate that upwards of $11 BILLION in tax revenues are being “lost” to states across the country because of this hole in the sales tax mandates.  The individual states could not do much other than to make requirements based on the locations of the warehouses or corporate offices of these online retailers… so they, along with their brick-and-mortar lobby props, ran to the federal government for legislative assistance. 

The same “commerce clause” that allowed for Obamacare is now going to allow for the federal government to pass legislation which forces online retailers to charge and pay sales taxes to states based on the location of their customers.  How a federal entity has the authority to enforce state level mandates or taxes is beyond me… but not beyond our Congressional elites!

Problem #1

The OBVIOUS solution to all this “unfairness” is to eliminate the sales tax for all retailers.  The fact that the state of New Hampshire has no sales tax ostensibly absolves its residents from having to pay it regardless of this law.  Our lack of sales tax also taunts Massachusetts to no end!  The little cluster of New England states makes it rather easy for someone from Massachusetts to take a little drive up north, shop to their heart’s content, and go home… duty free.  That discrepancy is exactly the problem actual stores have with the virtual ones, and it’s the large scale of this discrepancy that has states and businesses in a tizzy.   

But what still seems like a practical conundrum is, if an online retailer sets up camp in a state like New Hampshire, and someone came to New Hampshire – from a state like Massachusetts or Texas —  to purchase directly from the New Hampshire based retailer, they wouldn’t have to pay the tax.  Even if the consumer has legal residency in another state which charges a sales tax, they would not have to pay the tax.  So, it’s the fact that the person isn’t PHYSICALLY presenting themselves at the point of sale in a tax-free state that appears to be the taxable matter at hand. 

Sales taxes for brick-and-mortar establishments are contingent upon the physical location of those storefronts.  But online taxes are contingent upon the location of the customer.  I fail to see the fairness of this law given that the provisions of charging a sales tax are inconsistent.  Will this mean that if a Massachusetts resident makes a purchase in New Hampshire, they would still be charged Massachusetts’ sales tax, and the retailer would then have to reimburse Massachusetts?  OR even better, can a New Hampshire resident have their lack of sales tax follow them from state to state?

Clearly, the answer is no.

Problem #2

As with any criminal act, I wonder who stands to gain from such an act passing legislation.  Well, eBay is against it… but lo!  Amazon is for it?!  They used to be such staunch advocates AGAINST it.  And understandably so!  Price advantage coupled with the costs of having to file individual state sales taxes, it stands to reason that a retailer like Amazon would oppose this. 

So why the change of heart, Amazon?  As mentioned earlier, there are laws on the books requiring online retailers to pay state sales taxes if they have a “significant presence” in that state: a cost Amazon was only too eager to assume to then turn around and offer same or next day shipping by placing their warehouses in the larger metropolises.  Same-day service WAS one of the few advantages actual storefronts HAD over their virtual competitors: at least you don’t have to wait for it to be delivered! 

While there is a little bit of extra cost involved in accommodating the other states and municipalities, Amazon is largely already set up to comply with this legislation.

Which leads to the real reason Amazon has come around to embrace this legislation: because they CAN!  Typically, larger corporations enjoy inconveniences like these because while they have the momentum to absorb the costs, their smaller competitors do not.  This is why establishment businesses and purveyors lobby for new regulations on up and coming competition: it makes it prohibitive for others to enter the market place.

Again, I gotta ask: how is this making things fairer?

Problem #3:

The alleged $11 billion in tax revenues is of course based on current levels of spending online.  When you jack up the cost of doing business anywhere from 5 – 9%, we can expect that overall spending will go down!  So, for example, let’s say I have $100 to spend.  I don’t magically get another $9 for taxes… Instead of buying $100 worth of products from the vendors, I’m buying $91.74 worth of product from the vendors… and the difference of $8.26 goes to government in the form of taxes.

That could mean the difference of buying one more item.  If it puts me over the top of what I can spend, I just round down and keep that insufficient difference in my pocket.  For example, let’s take the same $100.  I want to buy some clothes.  I see two sweaters for $25 each and a pair of jeans for $50.  No sales tax means I buy all three.  Sales tax means I don’t buy one of the sweaters.  Add my 9% sales tax onto $75, I’m at $81.75.  I just don’t spend the remaining $18.25 at all.

So the reality is, it’s a total economic buzzkill.  The local governments WON’T see nearly as much as what they are expecting, and people won’t be buying as much as they were.

The government mentality views “fairness” as subjecting everyone to the same evils.  This is why we have defunct systems like government indoctrination… I mean EDUCATION… institutions.  The idea that everyone is entitled to an “education” demands that everyone be forced to receive the same indoctrination.  The real fairness is when government no longer obstructs the path to education for anyone.  Likewise, in the case of taxation: it’s not UNfair that rich people may pay a lower effective tax rate… what is unfair is that ANYONE would have to pay taxes.  So the same can be said of this Marketplace Fairness Act.  Is it unfair that a brick-and-mortar establishment have to charge its customers sales tax?  ABSOLUTELY!  The unfairness is the imposition of a sales tax in the first place; not in the fact that online proprietors, until now, didn’t have to charge it.