What’s so unfair about the market now?

I’m always leery of pieces of legislation which imply they’re about “fairness” and the Marketplace Fairness Act is no exception.

I was alerted to this by a group called Americans for Job Security, which called the MFA something where “our shared conservative principles matter”:

Limiting the reach of the federal government by returning power to the states. Leveling the playing field so government gets out of the business of picking winners and losers. Ending the federal subsidies that put one part of an industry over another.

There is currently a bill before the U.S. House and Senate that embraces each of these principles, the Marketplace Fairness Act. This legislation is an important step towards protecting taxpayers and enacting our shared principles.

Unfortunately, the Marketplace Fairness Act does none of these things.

For example, rather than return power to the states, the MFA “requires that states must simplify their sales tax laws.” To me, that sounds like yet another federal mandate.

The MFA, it is argued, doesn’t level the playing field, either. A coalition of conservative groups writing under the R Street Institute states the case that:

…(T)he bill would create a decidedly “unlevel” playing field between brick-and-mortar and online sales. Brick-and-mortar sales across the country are governed by a simple rule that allows the business to collect sales tax based on its physical location, not that of the item’s buyer. Under the “Marketplace Fairness Act,” that convenient collection standard would be denied for online sales, forcing remote retailers to interrogate their customers about their place of residence, look up the appropriate rules and regulations in thousands of taxing jurisdictions across the country, and then collect and remit sales tax for that distant authority.

Nor can I find the federal subsidies proponents refer to – presumably that’s a backhanded way of referencing previous Supreme Court decisions which said collecting tax for multiple jurisdictions was too much of a burden for small businesses. And whether there’s software out there which can do this is besides the point – unless it’s constantly updated with the changes made by any of the thousands of taxing jurisdictions on a regular basis, they run the risk of flouting the law. Proponents use the analogy of dealing with real-time shipping, but real-time shipping is only market-based and not a legal requirement.

The real reason for the Marketplace Fairness Act is admitted by proponents at the end of their spiel:

…(T)he Marketplace Fairness Act will help the many states now facing significant budget shortfalls. Although some suggest these States have a “spending problem” rather than a “revenue problem,” it is important to recognize that these States have already been reducing their spending levels year-over-year and increasing collection and enforcement efforts based upon their existing sales and use tax laws.

Maybe other states are reducing their spending levels, but I know Maryland isn’t reducing its spending anytime soon.

We know what advantage states with lower taxes have over the states with higher rates – all one has to do is see how many big-ticket businesses locate themselves just across the Delaware line from Salisbury. And although Maryland residents are supposed to declare their sales tax for items purchased in Delaware, the general attitude (one I share) can be summed up in one two-word phrase: Molon labe. Needless to say, cross-border businesses (particularly gas stations this year) are forever salivating at the prospect of higher taxes for Maryland residents.

A primarily sales-tax free Internet is a boon for consumers. The companies pushing for this marketplace “fairness” are a collection of large retailers, both online and brick-and-mortar, which would be able to afford the overhead required to make these changes while small mom-and-pop outlets would be hindered. If the recovery is about jobs, I think on balance more would be lost than created if MFA becomes the law of the land.

Update: While I was writing this piece, I thought about Martin O’Malley’s bid to tax internet purchases last year and Robert Stacy McCain’s reaction to that fiasco came to mind. Just had to find it.

But instead of particular states trying to sniff their way into the honey pot of e-commerce money, in this case the federal government wants the whole enchilada. Once the mechanism is in place, what’s to stop the feds from using the precedent to add their own national sales tax on Internet purchases? While I am a proponent of the FairTax, I don’t see anyone repealing the Sixteenth Amendment anytime soon.