A Lame Bill for a Lame Duck: Senate Eyes Sneaky Strategy for Internet Taxes | Commentary

Posted October 30, 2014 at 5:17pm

As a general rule, the less you hear about a particular political strategy, the more you should worry about it. So it’s telling that an effort by the Senate to impose a radical new Internet sales tax regime during this year’s lame-duck session is being planned in secluded Capitol hallways, far from public scrutiny.

We wonder what good, if any, will come from Senate Majority Leader Harry Reid’s, D-Nev., intention to attach the ironically-named Marketplace Fairness Act — a bill that requires online retailers and catalogs to collect and remit sales taxes to nearly 10,000 U.S. tax jurisdictions — to the Internet Tax Freedom Act — a bill that would prevent new taxes on Internet access charges.

The MFA strategy, which is widely known in Congress but barely publicized outside of it, seeks to jam through an Internet tax bill whose popularity has steadily fallen since it first passed the Senate in 2013, thereby exploiting two powerful dynamics.

The first dynamic is the sloppiness of the lame duck session, where outgoing lawmakers can be rallied around unpopular causes, free from electoral repercussions. The second dynamic is the critical importance of the ITFA, which must pass in order to protect Americans from a barrage of unfair and discriminatory taxes on their Internet access.

It’s a slick maneuver to usher in a new tax system that saddles online retailers and catalog companies with increased compliance burdens while creating assorted collateral damage in the local communities these businesses employ.

A 2013 study commissioned by the True Simplification of Taxation (TruST) coalition shows that mid-market and catalog retailers with annual sales between $5 million and $50 million will spend $80,000 to $290,000 in setup and integration costs for the so-called free software promised by state tax administrators. After initial setup, these retailers will spend up to $260,000 annually on maintenance, updates, audits, and service fees. These are heavy price tags for remaining in compliance with these new tax policies.

Beyond compliance costs, businesses face the dilemma of retaining valuable staff members or having to downsize in lieu of adding a full time tax accountant and/or expanding legal representation to deal with increased audit requests. This assumes they have the financial wherewithal to undergo these changes at a time when the economy is still struggling to gain steam.

While the House deserves credit for passing a clean, permanent extension of ITFA in July, Reid’s MFA strategy represents a dire departure from that path.

Consider Terri Alpert, CEO of Connecticut-based Uno Alla Volta, a catalog retailer of handcrafted jewelry, home decor, and unique gifts. Terri is just one of many small business owners who doubt their company could keep the doors open should MFA become law. With more than 40 full-time and many part-time and seasonal employees, Terri will be forced into significant and expensive changes if MFA sneaks through in the lame duck.

It doesn’t have to be that way. The House is currently engaged in a highly productive debate over how to collect remote sales taxes without unfairly burdening Internet and catalog sellers. House Judiciary Committee Chair Robert W. Goodlatte, R-Va., is working on an alternative proposal and plans to unveil it soon. Short-circuiting those valuable efforts to displace the flawed MFA would be unconscionable at this stage of the process.

Merging ITFA, a measure that has protected Americans from regressive and unfair taxes for more than 15 years, with the flawed and discriminatory MFA is a toxic combination of bad policy and bad politics. Let’s hope the Senate will reverse its course and allow the deliberative process to develop a solution that works for all Americans.

Steve DelBianco is executive director of NetChoice, a trade association of e-commerce and online businesses, and co-founder of TruST.