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The Marketplace Fairness Act passed with a vote of 69-27 yesterday in the democrat-controlled Senate, and will now move on to the House. 23 out of the 27 ‘nay’ votes came from republicans and only 21 of the ‘yea’ votes came from the GOP. It’s clear that this bill was heavily favored by the democrats but split down the middle by Senate republicans. It will be interesting to see how this data transfers to the republican-controlled House.
The Marketplace Fairness Act makes Internet taxes a states’ issue. If the online business has a physical location in the state, it must collect based on that state’s tax code, but only from buyers from other states. The bill brings money from other states into the state the business is based in. You can read more about the bill from this previous post.
When reading about this bill, it’s easy to picture legislatures saving the small mom-and-pop stores on Main Street from big bad online retailers. In this story, local human interaction is good, global faceless online corporations are bad. However, in the modern era, mom and pop stores can be found both in small town America and online. Small businesses start selling their products online or entrepreneurs go straight to the Internet and skip the brick and mortar phase entirely.
It’s the small online businesses that are most concerned about the Act. Amazon has entire buildings full of accountants and lawyers, but the local toffee company that’s slowly growing in popularity can’t afford the manpower figure out the tax codes of various states and handle the books correctly. This is not a new problem for businesses, collecting taxes across states has been an issue long before the Internet.
MarketplaceFairness.org explains that precedents set for interstate taxes are outdated with regards to the Internet. Currently, lawmakers look to National Bellas Hess v. Illinois Department of Revenue for a tax guide. The case determined that companies don’t need to collect taxes in other states because keeping up with 50 different tax codes is cumbersome. The website goes out of its way to point out that this case was resolved in 1967. There was no Internet in 1967, much less ecommerce.
Proponents of the bill have pointed out that it’s a lot easier to calculate and collect taxes now than it was in the 60s because small businesses have – wait for it – Internet technology. We have websites, we have algorithms, and we have software.
The current act has implemented a $1,000,000 threshold that small businesses must cross before they start paying the tax. This way the tiny mom and pop store based in Mississippi doesn’t have to figure out another tax code for their handful of customers in North Dakota.
Politicians stand by this bill because they see it as a way to place small businesses on a level playing field with major corporations. They like how the tax benefits individual states rather than the federal government. It’s a curious bill to follow as it moves to the House.