The Unfair “Fairness” Act | Citizens Against Government Waste

The Unfair “Fairness” Act

The WasteWatcher

It is disingenuous to call something fair and equitable when it is clearly not. This is the case with both S. 698, the Marketplace Fairness Act of 2015 (MFA), and the Remote Transaction Parity Act (RTPA), introduced on June 15, 2015 by Rep. Jason Chaffetz (R-Utah).

Both bills purport to bring “equity” between the taxation of tangible goods sold in brick-and-mortar stores and items sold online. When individuals purchase an item while they are in a brick-and-mortar establishment, they pay the state and local sales tax rates where the business is physically located. This process follows the Quill v. North Dakota case, in which the Supreme Court held that under the Commerce Clause of the Constitution, a taxpayer must have a physical presence, such as an office, branch, warehouse, or employees in a state in order to require the collection of sales or use tax for purchases made by in-state customers.

For the collection of sales taxes regarding online transactions, 45 states have a “use tax,” a rarely followed requirement that individuals must remit to the state office of taxation and revenue the amount that the taxes they should have been charged to purchase items online. In other words, there is already a solution to the perceived “problem” of the “unfairness” between brick-and-mortar and online purchases: States should enforce their existing laws.

The two bills that have been introduced would transform a relatively simple matter into something that would make Rube Goldberg proud.

Both MFA and RTPA use fairly identical language to replace the current use tax system. Online retailers would need to either understand or purchase software that would calculate sales tax codes for nearly 10,000 separate state and local jurisdictions in order to collect the appropriate sales tax amounts from purchasers in those jurisdictions. Both proposals would also require states to create an additional central tax collecting authority for these remote sales in order to channel the collected taxes to the appropriate states.

However, there are some key differences in how the two bills define the small seller exception. RTPA calculates the exception based on total gross annual receipts, whereas MFA only calculates the exception based on remote sales. Additionally, RTPA specifies that anyone using an “electronic marketplace,” which would appear to include individuals who may have a single, inexpensive sale on eBay or the Amazon Marketplace, would be required to collect taxes regardless of whether or not they qualify for the small seller exemption.

Rather than creating fairness or parity for the remittance of sales tax between brick-and-mortar shops and online retailers, both of these proposals establish unfair tax collection burdens on one specific type of retail operation, but not another. In addition, RTPA creates an unfair burden on anyone wishing to sell items using an electronic marketplace, regardless of whether they are a retail business or an individual wanting to sell grandma’s vase online. Far from being “fair” or “equitable,” the two bills would create an inequitable and truly unfair taxation system that picks winners and losers in the retail space.

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