Lawson Bader of the Competitive Enterprise Institute devotes a Human Events column to problems associated with the so-called federal Marketplace Fairness Act.
The MFA undermines state sovereignty. Empowering a state to reach beyond its borders to tax businesses in other states is simply taxation without representation, as the businesses being taxed have no political voice in the taxing state. It also sets an unprecedented expansion of state taxing authority.
It threatens privacy. Some states have already asked out-of-state retailers for their own residents’ transaction histories. Courts have blocked these efforts, but the MFA would destroy that safeguard by making such information requests lawful.
It reduces tax competition. It’s the equivalent of gas stations collecting fuel tax based on a customer’s license plate. This is like forcing residents of high-tax states to wear their home state’s tax regime like an albatross when shopping online.
Finally, it guts due process and creates uncertainty. The Supreme Court has yet to weigh in on whether a business having a website accessible from another state amounts to its availing itself of the other state’s taxing regime. Until it does, retailers face an uncertain fiscal climate.
Despite the flaws, Senate Democrats might push for the MFA before they’re relegated to minority status in the next Congress. This leads Bader to an interesting thought experiment.
What if the MFA becomes law, and businesses and customers en masse, simply don’t go along? There are not enough IRS agents or state attorneys general to identify, collect, and enforce tax collection on thousands of small merchants throughout the country. Imagine massive civil disobedience by those tasked to bear the burden of processing, calculating, and remitting the local tax. What happens when a state suspects a mistake? Will it send agents across state lines to investigate? Will Florida send its tax auditors to northern Idaho to look at the books of Big Boxes ‘R’ Us? Certainly not in January!
George Mason University law professor Michael Greve, comments:
Even in interstate commerce, [it] won’t result in neutrality. Delaware will remain a “tax-free” shopping haven for shoppers on buses from New York, New Jersey and Maryland. The Internet offers the same opportunity, at a lower cost, to folks who don’t happen to live near a “tax-free” state. If we make Internet sellers collect and remit the locally applicable tax, why shouldn’t we force shopping malls in Delaware to do likewise?
Imagine—brick and mortar stores requiring zip codes to determine where their customers come from and how much local tax should be collected. More sophisticated software won’t help much and it corrupts too easily anyway.
The MFA has a massive enforcement problem. But perhaps, therein lies the solution. Imagine the federal government passing a law that can’t actually be enforced. Congress might want to consider that and save face.
