Fundamental to maintaining our system of free enterprise is the notion that government shouldn’t pick winners and losers in the marketplace. In one major respect, Congress has failed to live up to that principle, allowing Internet sales a government-sanctioned competitive advantage over brick-and-mortar businesses.
As the Internet started to become a consumer phenomenon in the late 1990s, Congress was rightly cautious about forcing online sellers to collect sales tax because of the complexity involved in following sales tax rules in 45 different states. But today, technology has caught up. Software exists that enables “etailers” to collect sales tax in any jurisdiction in the country at minimum cost and with little bureaucratic complexity.
When an etailer doesn’t have a business presence in a state, they are not required to collect sales taxes from customers in that state. For certain types of sales, this puts local, brick-and-mortar business at a serious competitive disadvantage. Imagine owning a jewelry or camera store, where you make your margin on the sale of high-cost goods. Often, you end up being the showroom for eBay and other online competitors. Folks come into your store, take your valuable time to sort through options, and then go online to purchase from an out-of-state, online vendor that won’t charge them sales tax.
Congress has the opportunity to stop playing favorites. With the Marketplace Fairness Act, millions of brick-and-mortar retailers are simply asking members of the U.S. House not to side with out-of-state, online companies over the local stores in their own district. Even the largest seller of online goods, Amazon.com, has pushed for a federal solution to this tax injustice. The Senate passed this measure 69-27 and it is now pending in the House Judiciary Committee, which includes U.S. Rep. Lamar Smith, R-San Antonio. Smith’s district stretches into Austin. We urge his support for this measure in order to promote fair competition that will help keep local businesses open.
The fate of the Marketplace Fairness Act may very well be determined by the Republican delegation from Texas. The largest Republican delegation with 24 members, Texas Republicans have an opportunity to live up to a basic tenet of conservatism: preventing the government from picking winners and losers in the marketplace. For too long, out-of-state businesses have benefited from favorable treatment. If Congress requires parity in sales tax collection, it will create thousands of jobs in Texas, and add $750 million each year to state coffers. With $1.5 billion to spare in the next biennium, state legislators could pass a major tax cut to further stimulate the economy if the Marketplace Fairness Act is passed into law.
Those who call this measure a tax hike ignore the fact consumers already owe this tax in Texas, and most states around the country. It’s called the use tax, and Texans are supposed to report their online sales and pay sales tax on those items. The practical reality is most don’t. It’s an unenforceable tax in any jurisdiction unless online sellers collect it. The bill also exempts any business that makes less than $1 million a year in online sales. So, only the largest online etailers would be required to collect sales tax under the law, including Internet giants like eBay.
The question facing Republicans in Congress is a simple one: since when did it become conservative to force businesses in your local community to collect a tax that their out-of-state competitors are not forced to remit? The answer is also simple: there is nothing conservative about a free enterprise system that favors out-of-state, online businesses over the ones in our communities that create local jobs, provide economic input, and support our communities.
It’s time to do right by mom-and-pop stores on Main Street Texas. Pass the Marketplace Fairness Act.