Marketplace Fairness Act’s Burden on Small Business
By: Griffin Adams
With the Marketplace Fairness Act (MFA) passing in the Senate and awaiting a vote in the House, businesses across the country should be very concerned with what they will face. MFA, commonly known as the internet sales tax, requires businesses collect and remit sales tax for out of state sales, regardless of whether they have an established presence in the state. Proponents claim that the law is necessary to restore equity in the national marketplace. Remote retailers are not burdened with collecting and remitting sales tax for out of state sales, allowing them to sell at lower prices, MFA supporters contend. However, in its attempt to level the playing field, this bill puts small businesses and remote retailers at a distinct disadvantage. Not only would they have to keep track of 9,600 unique tax jurisdictions, but they would be subject to any collection or audit from any state (as specified in Section 6 of the Bill). This would stifle small business and slow economic growth as a whole.
In an attempt to soften the blow of this bill, states would be required to provide free software to companies to process the collection and remittance of out of state sales tax. However, as Scott Peterson of the Streamlined Sales Tax Board confirmed recently before Congress, this necessary software does not yet exist. In fact, he claims that it may not become ubiquitous until twelve months after the Bill passes. Even with the 180 day waiting period between enactment and implementation, this oversight sets up MFA for failure from the beginning.
Assuming the free software does make it to businesses on time, the expenses that come with software integration and training are still very damaging. According to the Main Street Alliance, these costs could be anywhere from $20,000 to $300,000 dollars and cause a loss of an estimated 220,000 jobs in the first year alone. Many businesses do not have the resources necessary to handle such a drastic increase in their overhead expenses and will suffer as a result.
Small businesses in particular will take an additional hit when competing with big box retailers such as Wal-Mart and Sears. Large corporations support MFA because they are much more equipped to shoulder the burden placed on them by the MFA than small businesses, giving them the edge in competition. While these stores can continue operating without much of a hitch, smaller businesses might have to downsize or close, taking jobs and revenue down with them. Worse yet, businesses might take their operations out of the country to avoid compliance, removing their revenues from our economy altogether. This contradicts everything MFA has set out to do and negatively impacts our already weakened economy.
In order to prevent excessive taxation of small retailers, any business with gross annual receipts exclusively in remote sales less than one million dollars is not subject to the tax compliance specified in this bill. While it sounds like it protects and promotes small business, it discourages their growth. In reality, a business that makes less than one million in remote sales annually has a powerful disincentive to not expand their business past the one million dollar threshold. It means a massive set of new tax laws they must comply with. E-commerce is a rapidly growing industry and as more businesses take to the internet, stagnation in their growth would result in an immense loss of potential revenue and job creation. Furthermore, in order to prove their small business status, businesses could be subject to audits from any state. This is incredibly overwhelming and costly for small businesses, especially because they are not allowed to challenge these audits in their home courts.
It is easy to see that the Marketplace Fairness Act is anything but fair. In fact, for many businesses, it could force them out of the marketplace altogether. What those businesses need is more room to expand and produce, not 9,600 new sets of restrict tax laws to comply with. Especially when those laws are so unnecessarily convoluted that something as insignificant as candy is taxed differently in different jurisdictions. With small business being so crucial to the recovery and growth of our economy, the American people simply cannot afford to pass legislation this harmful.
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