The Retail Industry Leaders Association (RILA) has taken issue with an opinion piece that appears in the August 1, 2012, issue of the Wall Street Journal. The piece, written by United States Senator Jim DeMint (R-SC), is about the Marketplace Fairness Act (the legislation would end special treatment for online-only retailers who currently exploit a decade’s old loophole to avoid collecting and remitting state sales tax, according to RILA). The article includes a number of factual errors or “myths,” RILA claims, and it has produced the following document to highlight the inaccuracies.
The Myths: “The Marketplace Fairness Act recently introduced in the Senate would require online retailers to collect and pay sales taxes to states where they have no physical presence or democratic recourse. Overstock.com, eBay and the like could have to pay sales taxes to any state from which an Internet user placed an order.”
The Facts: “Pay” is misleading; the retailer simply remits taxes collected from the consumer.
The Myths: “Such online sales tax proposals are taxation without representation.”
The Facts: False. The tax is imposed by the state to which the goods are shipped. The consumer in that state pays the tax and ordinarily has a vote in that state (except for felons, tourists, etc.).
The Myths: “The Supreme Court ruled (in Quill Corp. v. North Dakota, 1992) that retailers can be required to collect sales taxes only in states where they have a physical presence.”
The Facts: The Court further said “… that the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.”
The Myths: Consider the absurdity of such a law. When a customer buys a product in a store, does the cashier ask for the customer's home address? Of course not. The store simply charges the state and local sales taxes applicable for its physical location, no questions asked.
“The proposed law would hold online sellers to an entirely different standard. Websites would have to add taxes to a sale based on the shipping destination of the product, which may be a state in which neither the seller nor the buyer resides. We would never ask mom-and-pop store owners to do such a thing.”
The Facts: For over the counter sales, the point of delivery is the counter. For other sales—whether online or not, whether large retailers or “mom and pop” stores—it is the destination to which the goods are shipped. All sellers are treated the same for tax collection purposes, except that remote sellers currently enjoy a federal exemption from collection.
The Myths: “Politicians want this bill passed to raise new tax revenue for broken state governments facing budget shortfalls. But legislators in state capitals don't want to make the hard decisions to cut spending or raise taxes on their constituents—they fear the voter backlash.”
The Facts: States across the political spectrum continue to act far more fiscally prudent than the federal government. They have made hard decisions to cut spending; during the current recession, state and local government employment has dropped significantly, but federal government employment has continued to increase. State lawmakers have made and will continue to make tough choices. With regard to sales tax collection, state legislators have no choice but to turn to Congress. As the Court has said, Congress has the ultimate authority in this area.
The Myths: “At its core, this is a nationally mandated Internet sales tax on businesses.”
The Facts: False. Each state would maintain its own sales tax system, or continue to choose to impose no sales tax at all. Residents in states without a sales tax would continue to shop “tax free” on the internet and on main street. Residents in states with a sales tax would pay exactly what they owe today, not a penny more.