Is the “Marketplace Fairness Act” good or bad?

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The idea’s been simmering for some time – to allow the states the option to collect sales taxes from all Internet marketing firms, to “level the playing field” supporters contend.

Two bills introduced recently in Congress -- the “Marketplace Fairness Act” (S.1832) in the Senate and the “Marketplace Equity Act” (H.R. 3179) in the House would tax remote internet sales. There’s even a third, the “Mainstreet Fairness Act,” floating around in Congress. While the latter bill is expected to fade away, it demonstrates there is higher interest than ever in taxing Internet sales.

Both bills have bipartisan support and solid backing from retailers like Wal-Mart and Best Buy. Even Amazon, the largest internet retailer, reportedly supports the bills, if for no other reason than fear of the monster that would be created if all the states expand their own definitions of “nexus.” Right now, online sellers are required to collect sales tax when the customer lives in a state where the seller has a physical presence - called “nexus.” If these bills pass, the online seller would have to collect sales tax, period.

The retail boating industry has generally favored such legislation because marine dealers, in particular, have seen their accessory business lost to big Internet sellers. Still, many dealers actually sell products on the Internet, for example, via eBay, Amazon and their own websites. Until now, most Internet sales tax proposals didn’t move because they would have triggered draconian bookkeeping and reporting requirements that clearly small businesses couldn’t handle.

These bills, however, exempt small business Internet sales up to $1 million in the House bill and $500,000 in the Senate bill. Plus, they include mandates for simplification, like a single state agency must handle tax reporting, there must be a uniform tax base among state and local jurisdictions within any state, states must even provide compliance software, among other provisions.

Previous bills would have created an impossible compliance management situation for small businesses like marine dealers. These latest bills do more than any other bills to eliminate many complications and seemingly make it possible to move forward.

There are two reasons these bills have Congressional support: First, current law has always given big Internet sellers an unfair advantage over local retailers because they can sell in many states without charging tax. Second, the states are increasingly losing tax revenue as more commerce takes place online! Actually, under most state laws, the customers are currently supposed to report and pay a “use tax” on their Internet purchases. Yeah, I’ll bet everyone’s rushing to do that!
Still, timing may be questionable right now. Does it make sense to promote new sales tax burdens on any businesses during a time when we have a clear national need to see businesses create more jobs, get people back to work bolstering consumer confidence and, therefore, realize the increased economic activity such would bring? What do you think?

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