Policy Documents

Marketplace Fairness: Leveling the Playing Field for Small Business

Kelly Cobb –
August 1, 2012

Chairman Rockefeller, Ranking Member Hutchison, and Members of the Senate Commerce, Science, and Transportation Committee, thank you for the opportunity to submit written testimony on behalf of Americans for Tax Reform on the issue of remote state sales tax collection and physical presence. 

Americans for Tax Reform advocates for a system in which taxes are simpler, flatter, more visible, and lower than they are today. However, ATR is concerned that the Marketplace Fairness Act (S. 1832), sponsored by Sens. Dick Durbin (D-Ill.) and Mike Enzi (R-Wyo.), would not only raise tax revenue on net for states, but also fail to adequately simplify the tax code and erode the physical nexus standard that protects Americans from the tax laws of other states.

Under the U.S. Supreme Court’s ruling in Quill v. North Dakota, it is a violation of the Commerce Clause for a state to require an online or remote retailer without a physical presence in that state to collect and remit the sales tax. This is not a “tax loophole” as some would suggest, but law derived directly from the U.S. Constitution. The Marketplace Fairness Act would overturn the Quill decision, permitting overzealous state tax collectors to reach well outside their borders to force online and other out-of-state retailers to collect their state’s sales tax.

The effects on taxpayers of the Marketplace Fairness Act and similar legislation would be dramatic. From a taxpayer perspective, any bill that touches remote sales taxes must preserve the physical presence standard and protect consumers on net from a higher tax burden. Unfortunately, the federal online sales tax bills miss the mark widely on both fronts.