Some ideas are just bad timing, and some ideas are just plain bad. The Internet sales-tax legislation being rushed to the Senate floor, the so-called Marketplace Fairness Act, has the dubious distinction of being both. Right now, businesses collect sales tax in states where they have a physical presence. That makes sense: if you are a retailer in Texas, you collect taxes there. But under this legislation, that same Texas business would be forced to pay sales tax to 45 other state tax authorities across the country.
Supporters claim this isn’t a new tax. Please tell those hundreds of thousands of businesses, many of them small with part-time accountants, that would start filing taxes with 46 different states that this isn’t a new tax burden. (Four states have no sales tax.)
They’ll laugh in your face and then cry in their hands.
Why this is bad timing? Those businesses have been pummeled by the worst economy since the Great Depression. Now, as they are only gradually getting back on their feet, Congress is poised to impose new burdens on them. Do we really want state tax collectors from New York demanding payments and audits from a business in Nebraska? Under this proposal, state tax bureaucrats will be able to go after businesses across the country to audit them for payment of taxes plus penalties and interest.
Americans don’t buy into this plan. By a 2-to-1 margin, likely voters in a recent Zogby Analytics poll said shifting this tax-collecting responsibility to businesses would be burdensome on companies.
Yet the Senate is rushing forward with this plan having completely skipped the committee process, where tough questions may have been asked perhaps including some from Sen. Max Baucus, Montana Democrat and chairman of the Senate Finance Committee, who has warned that business would have to keep track of “thousands” of different tax codes to do online business and that the new tax scheme is “unprecedented.”
So, if a company has to spend more on computer programmers and accountants to keep up with tax collectors from around the country, some very bad things are going to happen. First, they may just choose to stop selling outside their state, curbing their growth and America’s economy. If they do sell, instead of investing in new features or hiring new salespeople to grow their business, they’ll hire accountants and lawyers to sort out why California exempts granola bars from a food tax, but Kentucky taxes it as candy.
That’s why this is a bad idea. We need American businesses focused on innovation, growth and their customers, not keeping up with disparate tax regimes across 46 states.
There is no reason to rush this along. President Obama and Congress have already indicated that they intend to take a deep look into simplifying the tax code for both businesses and individuals. The time to consider tax proposals even ill-considered state expansions like this is with a comprehensive approach, not a one-off in a bad economy.
When they do consider Internet sales taxes, members of Congress should require states to first adopt minimum simplifications, such as a single state rate and universal definitions for taxable products and services.
The Senate has a big test this week on the Internet sales tax. It should soberly weigh the shortcomings of this ill-timed legislation and send it back to the drawing board. If they don’t, the only ones cheering will be accountants and lawyers and the state tax collectors who will see out-of-state businesses as ripe for the plucking.
Jerry Cerasale is the senior vice president of government affairs for the Direct Marketing Association and a founding member of Trust, a coalition seeking tax simplification.