May 07 2013

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Impact of Marketplace Fairness

Taxation is often A if not THE focus for fiscal conservatives.  Taxation occurs at every political level: Local, State, and Federal.  Another equally important focus is a constitutionally limited government.  As such, we would expect to drive taxing decisions closer to the people when possible.

Our existing Ohio State tax code declares Sales & Use tax must be paid on all purchases made by Ohio residents and businesses if the proper amount of sales tax has not been paid to the vendor, seller, or service provider. The use tax rate is equal to the sales tax rate in effect in the county where the property is used or benefit of the service is received by the purchaser.

The “Marketplace Fairness Act” enables the states to require online merchants to collect this tax on behalf of the state instead of consumers paying the associated “USE” tax on the items as they are required to do today.

Let’s face it.  It’s easier to force merchants to act as agents of the states than to enforce consumer payments of use tax.  However, consider how onerous this may be for small online merchants to apply, collect and remit the correct tax to every taxing authority in the country.  This bill addresses this issue by excepting merchants with $1,000,000 in gross or less.

“How can we possibly know the tax rates in [those] jurisdictions?” said Overstock.com CEO Patrick Byrne. “In one jurisdiction, cotton candy is food; in another, it’s entertainment or candy.” Anyone who has ever tried to fill out a simple tax form knows how ludicrously complex it can get.

Advocates of an Internet tax say — as the title of the bill indicates — that the issue boils down to a matter of fairness. Why should bricks-and-mortar merchants, and not online retailers, have to pay the taxes in question?

Mr. Byrne has a pat answer for that: Backers of an Internet tax have it exactly backward. Internet merchants “put a lot lesser load on a local infrastructure” than Target, Wal-Mart or any other corporation with numerous physical stores. These companies, not the online retailers five states over, are the ones using the roads, sewers and schools.

“We don’t impose nearly that load, so it isn’t fair that we should have to pay those taxes,” Mr. Byrne said.

Edwin J. Feulner, Ph.D., Founder of Heritage Foundation asks “Would you like to pay more for the items you buy?” He continues, “I’m guessing the answer is NO. But if Congress passes the Marketplace Fairness Act, you can expect to see your totals rise when you go to checkout with your online shopping cart.”

So, how fair is “Marketplace Fairness”?  You decide.

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Richard Inman

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