Jim Bridenstine has decided to oppose the Marketplace Fairness Act (HR 684). After researching the proposed legislation and conferring with various concerned constituents, the Congressman explained his stand:
Under current law, a state can only collect taxes from retailers that have a physical nexus (presence) in the state. The growth of online retailers has made it very difficult for states and local tax jurisdictions to generate revenue from their citizens who buy items online from other states. The Marketplace Fairness Act is federal legislation that empowers states to reach across their borders to compel internet businesses in other states to collect and remit taxes no matter where the online retailer is located. This would enable my state, Oklahoma, to charge sales tax (in some localities as much as 10%) to a business in New Hampshire when an Oklahoman buys something online from the New Hampshire business. The New Hampshire business would have to collect and remit the tax to Oklahoma, even though New Hampshire has a sales tax rate of 0.0%.
While I understand the desire of local governments to have access to this revenue, this legislation presents multiple unintended consequences.
1. Oklahoma online retailers could be required to open themselves to tax audits from 49 other states in addition to the IRS. This would be true of businesses in all other states as well.
2. Five U.S. states have worked very hard to have no sales tax and many internet businesses have located in these states for that reason. While these states have benefited from the resulting economic activity, this legislation would change the rules in the middle of the game and adversely affect these businesses and states.
3. While it is true that online sales taxes are not new taxes, this bill will have the same negative economic effect as a new tax as more money is taken out of the private sector.
4. Many businesses will simply choose to move offshore or lose business to other offshore retailers. The Marketplace Fairness Act cannot compel a business in Canada to collect and remit taxes to a U.S. state. Apart from the lost U.S. economic activity, offshoring will negatively affect U.S. federal revenues.
5. Brick and mortar retailers often assert that online retailers have an unfair tax advantage. However, once this bill passes the online retailers will be responsible for managing 9,600 or so tax jurisdictions, while the brick and mortar retailers will only manage one tax jurisdiction. This law doesn't eliminate unfairness, it just reverses the unfairness.
6. In additional to the regulatory unfairness, this law institutionalizes tax unfairness. Only companies with over $1 million dollars in sales will be forced to participate. Straight from the Obama progressive playbook, successful businesses will be punished.
7. Businesses would be required to collect and remit taxes for over 9,600 tax jurisdictions. Each business will have representation in only one of these jurisdictions. No taxation without representation is a foundational American principle that this law overturns.
8. This bill empowers local authorities to establish "compacts" to homogenize tax rates. States and local jurisdictions will no longer compete for the best tax policies. In the private sector, this would be called price-fixing.
9. Once rates are homogenized, we can expect tax rates to increase since formerly competing tax jurisdictions will no longer compete for businesses to locate in their jurisdictions. In fact, the incentive will be to impose the highest tax rates to maximize tax revenue from out-of-state businesses.
10. The Republican Party should be the party of young people. It cannot become so by punishing web entrepreneurs and online commerce.
The current tax system is complex enough. Business decisions have been based on the current laws. Let's not change the rules in the middle of the game unless we have a real improvement. Taxes must be simplified not made more complex, reduced not expanded. There exists a solution, but this is not it. I intend to oppose the Marketplace Fairness Act.