The ‘We’re-Really-Not-Raising-Your-Taxes’ Tax

The Senate of the United States is currently debating the so-called Marketplace Fairness Act. Doesn’t that sound nice? I mean, who could possibly be against fairness in the marketplace. The essence of the bill is the repeal of the sales tax exemption for any online purchases.

Of course if you ever purchase anything online, the cost of that item will go up by way of sales taxes. Oops, I of course meant they will increase because of “fairness”.

Current law says that state sales taxes, county sales taxes, and city sales taxes (and for all I know there is a hamlet somewhere in America that also has its own sales tax), do not apply to purchases made over the internet. So to encourage “fairness”, the exalted members of the Senate want to increase the tax on online purchases from zero to whatever cumulative sales tax rate applies in your jurisdiction.

It sounds so simple, doesn’t it? After all, your small, local, mom-and-pop type merchant can manage to charge the right amount of tax when you purchase something, right? So why would some online company have a problem at all?

Well, there are 50 states (regardless of how the president counts them), and of those 50, there are five states that do not have any statewide sales tax at all — Alaska, Delaware, Montana, New Hampshire, and Oregon. But even with only 45 states with a statewide sales tax, there are still 9,646 sales tax jurisdictions, so a lot of hamlets might actually have their own sales tax rules.

But that’s fair, isn’t it? Why should you be able to avoid paying more just because you made a purchase over the internet? That’s not “fair”. According to Senator Durbin (D-IL), we need to “level the playing field” so that no one is being treated unfairly.

There are two groups of senators debating this “fairness” issue. And unbelievably there is bipartisan cooperation on both sides of the question. There are Democrats and Republicans who think that local business are being treated unfairly because they have to collect taxes on each sale, while other Democrats and Republicans feel that asking online retailers to deal with nearly ten thousand different tax jurisdictions is an undue burden and will unfairly inhibit the industry.

Unfortunately, the answer to any question of exactly who is being treated unfairly always seems to be sort of fuzzy.

Amazingly, the one interested group that would be intimately involved in the question of “fairness” has no champion on either side of the question. Want to guess who Washington is ignoring with all this talk? Consumers! Those folks who have to actually pay the tax.

Our friends on the Democrat side of the aisle, as well as more than a few Republican members, seem to think that it’s unfair to those folks who invested in a brick-and-mortar store in your community. If you were to compare prices between your local retailer and an online retailer (they claim) that the price difference is solely due to the unfair benefit the online retailer has unfairly gained by being exempt from the aforementioned sales taxes.

In at least one community, according to the Tax Foundation, that might actually be true. Tuba City, Arizona clips their shoppers with three separate sales taxes (6.6% state tax, a 1.125% county tax, and a 6% tribal tax levied by the To’Nanees’Dizi local government) for a combined sales tax rate of 13.725%. Allow me to rephrase that: if you buy something for $100.00, you would be required to pay almost $14.00 in sales tax in Tuba City.

Other politicians, of both parties, think it’s unfair for small retailers who deal with online sales to be forced to comply, at some significant cost, with the varied sales tax rates, and an equal number of sales tax returns, to comply with all those 9,646 tax jurisdictions, when local retailers only have to deal with one and only have to file a single return for sales tax. Those in favor of all this “fairness” say that large online retailers, such as, have enough business so that the cost of compliance could be managed.

So our politicians have picked sides. One side says it wants to be fairer to the small retailers in brick-and-mortar stores in our communities, while the other wants to be fair to the smaller retailers who sell online.

How noble of them! Fairness for all. But more taxes for us. Senator Durbin recently said in a press release:

Small businesses in Illinois and across the country don’t want special treatment,” said Durbin. “They don’t want a handout-all they want is a level playing field. The Marketplace Fairness Act gives them that while helping states avoid raising taxes or making painful cuts that will slow our economic recovery.

This is a matter of basic economic fairness, and for some small businesses it’s a matter of economic survival. Small businesses on Main Street invest in our communities, they create jobs for local workers; they are our neighbors and they deserve a fair shake. But local businesses will never be able to compete if we continue this unfair advantage for huge online retailers.(emphasis added)

Yet the states actually will be raising tax revenue. They may not necessarily raise tax rates, but they will tax every person who has used the internet to secure those things that they wish to purchase. The states and municipalities will be able to grab even more of our earnings to waste on frivolous nonsense.

Small retailers have always been at a disadvantage when they have to compete with the likes of Home Depot, Lowe’s, J.C. Penney, Sears, and countless other major firms. Does Senator Durbin want to penalize these large, successful retailers because their success harms some small mom-and-pop operation? How about the problem that occurs in communities that abut neighboring states with different and lower sales tax rates? Do we require any goods that are brought back from shopping in the next state be declared to some state customs official, always in the name of fairness? Or what about those who choose to shop in the next county, where sales tax rates are lower? Do they have to pay an additional sales tax to their home county even though nothing was purchased there? (Some states, such as New Jersey — actually do this. It’s called a “use tax.”)

Durbin’s real objective is to provide the Illinois legislature with a greater income stream for their tax-and-spend addiction. Where the money comes from is immaterial, as long as it appears on demand. Senators who support this budget amendment want the same thing for their home state.

Politically it’s a great scheme. The states can claim that they aren’t raising taxes, they’re just enforcing already existing law. Washington can claim it’s not raising taxes since not a nickel goes to D.C. But the fact is that tax revenues will rise for states and municipalities. If tax revenues rise, it means that taxes have been raised, if not by increasing the rates then by increasing the number of citizens punished by existing rates.

Obama and the Democrats also hope it works for them in the 2014 mid-term elections. If any Republicans vote in favor of repealing the sales tax exemption for online retailers, the left will claim that the Republicans raised taxes on the common man. If Republicans vote against the repeal, the Democrats will claim that the right is once again taking the side of giant corporations.

Neat trick, isn’t it? The Democrats are setting it up as a “heads-I-win-tails-you-lose” situation.

Unless, of course, the Republicans finally grow a brain and generate a narrative that Democrats wanted to raise taxes on everyone, most especially those who are not in the notorious 1% and Republicans worked to foil the dastardly plot. (Perhaps Republicans might use less florid language to describe it, though.)

Sales taxes would then be a real political hot potato for the Democrats since they always portray themselves as the champion of the “little guy”, yet sales taxes are the most regressive form of taxation available. It always hurts those in the lower and middle income brackets much more than the wealthy.

“Fairness” should be a word that is banned in any official Washington document. The only thing about the use of the word that is actually illuminating is that whenever it is used, the taxpayers of America have a clear signal that they are about to be fleeced again.


About Jim Yardley

Retired after 30 years as a financial controller for a variety of manufacturing firms, a two-tour Vietnam veteran, and independent voter.
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5 Responses to The ‘We’re-Really-Not-Raising-Your-Taxes’ Tax

  1. Jackie says:

    It’s ALWAYS about taxes isn’t it? I wonder if these elected officials have actually read their job description. It isn’t primarily to find ways to “enhance revenue” although you would think it is. How much legislation comes out that is beneficial for us? Anything that protects and preserves our freedom? Anything to protect us from foreign invasion? Not a damn thing. Even the hated Obamacare is about nothing but taxes. I read this morning that the government wants to look at retirement pensions and funds to make sure it’s fair. Oooohhh Noooo!

    Every time I hear some moron whining about how much this or that failure to tax “costs” the government or when they say something about “spending through the tax code” it INFURIATES ME! Letting us keep our own money has morphed into stealing from the government. After all they tell each other “look at how much [or their own money] we let them keep!”

  2. But Jim, Where would we be if you eliminated “fairness” from the Congressional and Executive vocabulary? What about Obama’s riff about a fair shot and a fair chance and a fair deal— so memorable that I can’t recall it correctly. They would have nothing left with which to appeal. If the people are not victims because the Evil Republicans are so mean and unfair, then what do they use for arguments? Once you get past “It isn’t fair” (always in a high pitched whine) then what?
    Socialism doesn’t work. Europe’s Democratic Socialism doesn’t work, so what’s left but reforming Capitalism — to make it more fair. Ooops! See how hard it is? :>)

  3. Retail sales taxes are often the most transparent way to collect tax revenue. Indeed, while many citizens do not know the standard 10, 15, 25, 28, 33 and 35 percent federal personal income tax rates, they tend to have at least some idea of the sales tax in their state, or could reach into their pocket to pull out a receipt with the rate printed on it.

  4. Five states do not have a statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Of these, Alaska and Montana [1] allow localities to charge local sales taxes.

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