Think buying your favorite products online is a good deal? You could face higher costs for online shopping if Congress approves a new sales tax bill that is making its way through the Senate. The bill, dubbed the Marketplace Fairness Act, would allow states to force out-of-state retailers to collect taxes for them.
Right now, online retailers are required to collect sales tax only in states where they have a physical presence, such as a store or warehouse. But Senate Majority Leader Harry Reid (D-NV) and other lawmakers are hastily pushing through a bill to expand the power of state tax collectors, at the expense of online businesses and their customers.
The Internet sales tax bill is actually the antithesis of “fairness” and simply is another vehicle for states to collect new tax revenue to fill gapping budget deficits. Small online sellers will have to comply with tax laws created by distant governments in which they have no representation, Heritage President Jim DeMint wrote in The Wall Street Journal.
With 81 percent of American adults using the Internet (and 71 percent of those Internet users buying products online), this bill could have a huge impact on online commerce and create an unprecedented money grab for states.
For consumers, it will not matter if they buy from an online store that is based in a state without a sales tax. For example, if you live in Illinois, you’ll pay the applicable Illinois sales tax for those books you purchased from an online store based in Delaware, a sales-tax-free state.
The end result for the consumer could be added costs for goods and less choice. Analysts have warned that fewer entrepreneurs could start up online businesses as a result of the onerous tax collection regulations they’ll be forced to comply with—which includes looking up the appropriate rates for goods in more than 9,600 taxing jurisdictions across the country, collecting the right tax amount, and then submitting it to those distant authorities.
Even existing online businesses have hinted they could ratchet down their operations to avoid costly compliance associated with the bill. Keep in mind that physical stores don’t have to face such complexity. They simply charge the sales tax applicable to the state and locality they’re in.
The bottom line is that consumers could be paying more for items they love to buy online, or worse yet, see their favorite sellers on Etsy and eBay close their “doors.” It’s another bad idea from Washington that will end up hurting consumers who are already struggling from fewer job opportunities, higher health care costs, and a sluggish economic recovery.