Ever bought anything on the Internet? If you have, I’m guessing you didn’t pay any sales tax on it. Now, that’s all well and good, except for one little thing: you’re supposed to. That’s right, states should be collecting sales tax on most online purchases, but they aren’t. Congress is attempting to change that with the Marketplace Fairness Act.
According to some estimates, states miss out on almost $23 billion a year because of the Internet sales tax loophole, and at a time when state coffers are badly in need of replenishing, it makes sense to reevaluate this policy. And since an Internet sales tax wouldn’t technically be new, it also allows members of Congress (read: Republicans) to vote in favor of what is essentially a tax increase without voting to explicitly raise taxes.
On May 6, the Senate passed the Marketplace Fairness Act (MFA), with 69 Senators voting in favor of it. This bill allows states to collect sales tax from online purchases, but exempts companies that make less than $1 million in out-of-state sales. Companies that conduct business online will be expected to use software that allows them to collect sales tax on behalf of states, though the government will pay for the development of the software.
The underlying logic to the MFA is to level the playing field between brick-and-mortar businesses and online retailers, in addition to providing states new ways to raise revenue. Since every store has to collect sales tax, physical stores are automatically at a price disadvantage compared to online retailers.
The bill isn’t without its flaws, however, and it will likely face some major hurdles in the House. Mega-online retailers, such as Amazon, support the MFA because they believe it will help push out competitors. Companies like Amazon are already so huge, it would be relatively easy to implement the new regulations and processes set up in the MFA. But that’s not the case with every business with an online presence, and Amazon stands to benefit if these small companies go under.
So, is an internet sales tax a good idea? It’s hard for me to say with 100 percent confidence, but I think so. States need money, online retailers have an advantage over brick-and-mortar businesses, and this will – in theory – level the playing field. On the other hand, critics say it may discourage entrepreneurs and/or muscle smaller businesses out of the online market. With the right legislative language, I think it could be done, but that requires an awful lot of faith in Congress.