Internet Sales Tax Coalition “Fact Check” Needs Checking

James Gattuso / Curtis Dubay /

On Tuesday, the Marketplace Fairness Coalition, a group supporting the Marketplace Fairness Act (MFA), released a “fact check” memo identifying no fewer than seven “myths” put forward by The Heritage Foundation concerning Internet sales taxes. As it turns out, none are myths at all. Here is our own fact check of the fact check.

1. MFA Is Taxation Without Representation.

Claim: The authors claim that in an op-ed Heritage president Jim DeMint, then a U.S. Senator, incorrectly asserted that the Internet tax plan would amount to “taxation without representation.”

Response: We have always recognized that ultimately consumers pay the tab for sales taxes. But under the MFA, there would also be a significant tax burden imposed on out-of-state sellers. Not only do they bear legal responsibility for remitting payments to 46 or more tax authorities, but they would be forced to bear a significant burden in administering and collecting the taxes. All of these new burdens would be imposed by states in which they have no physical presence and in which the owners and employees have no representation. That is not just taxation without representation; it’s regulation without representation.

2. MFA Will Harm “Small Businesses.”

Claim: The authors deny Heritage’s assertion that the MFA would harm small business, citing the $1 million revenue threshold.

Response: The MFA will undoubtedly burden small businesses. While $1 million might sound large to some, a firm with that much revenue is typically still quite small. For example, the Small Business Administration defines a small retail business as a firm with annual receipts of up to $5 million and sometimes as much as $21 million (depending on the particular product being provided). The MFA’s mandates would burden small businesses of this size.

3. Collecting Sales Taxes Is Too Complex.

Claim: The authors claim that software, to be provided free to businesses, would eliminate burdens.

Response: The promise of free software hardy eliminates the burden on small businesses. They would still have to integrate the data into their sales and accounting system, ensure that over 46 sales tax forms are properly completed and filed, handle specific customer requests and inquiries, ensure that the software is regularly updated, and deal with potential audits from each state tax authority. Complying with all those burdens would require additional man hours from employees and paying costly tax compliance firms. Both will impact the bottom lines of small businesses.

4. The MFA Will Threaten the Economy.

Claim: The authors take issue with a quote from an MFA opponent saying that it would “threaten a fragile economic recovery.”

Response: The MFA may not, by itself, sink the economy, but to argue that a tax increase will help it grow faster is preposterous. Tax increases are not pro-growth.

5. Small Businesses Will Be Audited.

Claim: The authors take issue with our assertion that small businesses will be subject to audit, citing the $1 million revenue exemption, the promise of free software, and a limitation on liability for software users.

Response: This argument is a complete non sequitur. It does not address in any way the fact that online retailers, under the MFA’s explicit language, would be subject to audits by each of 46 states, the District of Columbia, all U.S. territories and possessions, and Native American reservations.

6. Conservatives Do Not Support MFA.

Claim: The authors deny that a growing chorus of conservative voices is opposing this legislation.

Response: Allowing states to require out-of-state retailers to collect sales taxes for them is opposed by a broad range of conservative analysts and organizations. We believe the concept is fundamentally inconsistent with the principles of limited government.

7. MFA Has Been “Rushed Through” Congress.

Claim: The authors take issue with a statement in a Heritage blog that the MFA was “rushed” through the Senate.

Response: The Senate did not follow regular order with MFA, instead skipping over the committee of jurisdiction on the issue and bringing the bill straight to the floor. That qualifies as rushing.