Charlie Arlinghaus

April 24, 2013

As originally published in the New Hampshire Union Leader

Other states have always been annoyed by states like New Hampshire without a sales tax. Tax competition is distressing to the uncompetitive. But few tax grabs are as ill considered, unfair, and anti-competitive as the federal government’s attempt to impose a massive new internet sales tax. New Hampshire in particular needs to be careful. The new tax will lead to the elimination of the sales tax competitive advantage that is the foundation of our retail economy.

Under the American tax system, states may apply taxes to entities with a physical presence (or “nexus”) in the state. It would of course be ridiculous to expect an orange grower in Florida to apply your state’s sales tax on fruit you buy on vacation or to exempt you if you came from a state with no sales tax. So, in general, one state’s tax collector has no authority to reach across state lines and regulate you from beyond the borders.

For decades, mail-order catalogs annoyed state tax collectors. Because they weren’t located in a state, they didn’t pay taxes to that state just because a local placed an order – similar to the roadside stand in Florida selling oranges. After many skirmishes, the Supreme Court sided with the retailer and ruled that taxing a company with no state presence was a violation of the interstate commerce clause.

If mail order companies annoyed tax collectors, the internet made it even worse. My buying a shirt or book online and not paying sales tax apparently threatens the foundations of democracy.

By the way, how much of a threat to regular stores do you think the internet is? It’s less than you think. Total retail sales in 2012 were $4.3 trillion. The e-commerce share of sales was 5.2% of that total.

Nonetheless Congress is trying to pass a law to force every internet retailer to collect sales taxes for every jurisdiction in America. That’s not 50 different tax schemes, there are 9,646 different tax schemes. For example, in Chicago you would pay sales taxes on a purchase to four different entities – five different ones on certain purchases.

If you are a giant retailer like amazon.com, this is less of a problem for you so you support the law – it won’t put you out of business but will be a nightmare for your smaller competitors. If you are a small home-based retailer that does a little business through eBay you’ll just go out of business. Thank you Congress.

So far Congress is only punishing the 5% e-commerce people. For the 95% of sales that go to “brick-and-mortar” stores, this tax scheme is considered burdensome so they don’t have to collect any tax but their state’s tax (I’m not sure what the pinheads in Congress think it is about using the internet that makes a regulatory burden suddenly fine but then logic is not Washington’s strong suit).

Don’t expect the state tax collectors to be content with leaving the physical stores alone. Massachusetts has been trying for decades to force New Hampshire retailers to collect sales and use tax on Massachusetts residents. The internet sales tax bill gives them both a mechanism and a precedent. If we can force mail-order and internet companies to collect taxes for more than 9000 jurisdictions, then how hard will it be for Massachusetts to force tire stores or appliance stores to collect their sales tax. The day is not long off when Massachusetts brings action under the new scheme to force our state liquor store to collect and remit Massachusetts taxes on all those cross border sales.

Sen. Ayotte and Sen. Shaheen are both opposed to the bill but the New Hampshire legislature is technically helping to fund the effort to tax us. The legislature pays dues to the National Conference of State Legislatures ($126,761 annually to NCSL and others in the current budget draft). The NCSL is pushing this bill as some sort of state tax relief (I’m not making that up) and promises to “continue to advocate vigorously for” the new tax.

When the federal government interferes in state tax policy, it is never to help you pay less. Somehow “reform” always involves you paying more and the politicians having more to control.

Should every retail business in America, large or small, have to collect taxes for all 9,646 different tax jurisdictions? Garage sales, flea markets, the guy selling old records on eBay, an out-of-print book I bought by mail from England?

Congress should stick to destroying the federal government. They’re good at that. But I wish they’d leave state tax policy alone.

3 replies
  1. Conrad P Koch Jr says:

    I am curious! How many readers share the belief that the Market Fairness Act (as it is misnomered) is, in addition to being unfair and a huge burden to small businesses, a lightly veiled means for the “Government” to expand its surveillance of the citizenry, making “personal privacy” a matter relegated to an old fashion concept?

  2. J.E.H. says:

    States do not have the right to levy taxes on other states … see Art1 Sec10 Paragraph 3. However, the Constitution did not stop Obamacare. But, there is another suit pending that the SC has agreed to hear in early 2014.
    Exactly how do they propose to collect this new found levy on already over regulated and taxed businesses? Does this fool and his tools realize it will have a negative impact on an already diminished job market, or is it their ignorant and malicious intent?
    Can it be circumvented by stating on their websites For the best deals on (list of items) contact us directly by calling 603-XXX-XXXX? Since any sale on the internet is mailed to the purchaser it may be a way around it if this infringement is passed. Will mail orders be impacted by this tax?

  3. Don Sweet says:

    Thank you Charlie for showing us that 95% of the sales taxes collected are by retail stores, Not by internet sales.

    I have a small hobby business and sell products all over the USA . I still use a manual ledger because my work is custom rather than a list of items. I have no way to collect those 9,000 different taxes. But the cruelest part is I would personally be fined or even prosecuted by the receiving state if I did not pay the taxes. The retailer is responsible not the customer.

    My counterpart in Settle, WA has already closed his business because the local town expanded the taxes to include paying a fee to have a home business. Also he was told to make his home ADA compliant and install sprinklers to meet the codes.

    You are correct about let the States manage the local taxes.

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