Please use the sample letter below. Cut, paste, and modify it to your needs, then send to your representative. You can find your representative here. A similar letter was sent by an online retailer to Senator Jeff Flake of Arizona before the Senate vote. Senator Flake responded to the letter and then voted against the bill.
Dear Representative _____,
I am _______ of _______.com, a small business that transacts primarily over the Internet. I am writing you today to ask you to oppose S.743, the “Marketplace Fairness bill of 2013,” which was recently passed by the Senate and is being considered by the House of Representatives. If you do plan to vote in favor of the bill, please respond to my questions that appear at the conclusion of this letter. Your response to these questions is very important to help me prepare for compliance with the law, should it pass
The bill is unfair, unwise, heavy-handed, provides awful incentives for small business, and is legally dubious. Proponents of the bill argue that it is about “fairness” and necessary to “level the playing field.” However, the bill purports to relieve one unfairness while merely introducing others, which I’ll highlight below.
I understand why some feel the “fairness” argument to be compelling. However, there are several reason this bill is not fair.
1. It puts confusing and complex compliance requirements on businesses, and makes them responsible to pay into over 9,000 unique tax venues, even if they are collected by one entity in each state. Most states collect taxes monthly. That would require me to perform up to 50 filings each month – 600 tax forms and payments per year in addition to all other tax and regulatory forms and remittances I make!
2. It places significantly more tax compliance burdens on Internet businesses than it does on non-Internet businesses. It makes an small Internet business in one state subject to audits from tax collectors in all other 49 states. (see section 2.a.i and 2.a.ii of the bill). Every single state in the union can now perform a costly audit on my business, potentially putting me, and any online seller out of businesses.
3. It disadvantages growing companies and penalizes them for said growth and job creation. In short, it picks winners and losers – with the biggest losers being the businesses that are most helping with job creation and economic growth.
The bill exempts businesses of $1,000,000 in revenue or less from collecting and paying any tax at all. This means that a business with $999,000 in revenues pays zero tax, while a business with just $1000 more in sales pays $70,000 in tax. This actually incentivizes businesses to shrink or stall their growth in order to retain a competitive advantage. That is a very perverse incentive.
The compliance costs for this bill will be extremely burdensome. Rather than implement unfair exemptions, I feel that any legislation should force state governments to make compliance easy and simple. Any legislation should force states to change their tax codes for online sellers and only require annual payments, and one unified tax rate for all online sales tax. There should be only one tool for calculation and payment of tax, not fifty different websites. Alternatively, make the sales taxes that would otherwise be owed in other states payable to the home state. Not only would this help with the compliance burden, but it would also allow states to compete on sales tax rate for Internet businesses.
If the bill is going to pass regardless, one way to deal with the cost of compliance for all businesses would be to exempt the first $1,000,000 in sales for every seller. There are some logistical issues that would have to be worked out with such, but that would treat businesses of differing size more fairly.
Or, let there be a federal tax deduction – up to a certain reasonable amount – for compliance costs.
But if there is a tax, all online sales must be taxed in order to not pick winners and losers nor create adverse incentives.
Replacing one perceived unfairness with manifold others is not right.
In addition to the items I just mentioned, you may also consider the following negative consequences of the bill, many of which are completely antithetical to liberty:
- The bill undermines States Sovereignty by giving states the ability to levy taxes beyond their own borders.
- The bill creates a situation where there is taxation without representation, putting businesses into jurisdictions that can audit them while keeping those businesses outside representation in that jurisdiction.
- The bill damages consumer privacy by forcing retailers to turn over customer data to state governments.
- The bill hurts healthy tax competition between states.
- The bill faces legal issues regarding due process. (see http://cei.org/web-memo/facts-marketplace-fairness-act-s-743-formerly-s-336 )
- The bill creates a new definition of a small business, completely out of step with other definitions. For example, the Small Business Administration defines a small business in the online sales industry as $30 million in annual revenue. The Internal Revenue Service defines a small business at $20 million in annual revenue. The Marketplace Fairness bill arbitrarily defines a small online business as having $1 million in revenue.
There are other unintended consequences brewing in this bill. I have identified some of them in the following questions, which the bill does not address.
Would you or your office please answer the following questions that are not answered in the bill?
1. What measures protect my business from tax audits, court proceedings and penalties like tax liens imposed on my business by state departments of revenue where my business has no physical presence?
2. How will I be protected over time from politicians in a different state that I cannot vote for or against? I feel like I will have taxation but not representation in other states
3. Can states audit me for my customer data and then retroactively (i.e., prior to the enactment) audit the citizens in these states for “unpaid” Use Taxes? As you may know, California can perform audits reaching back six years. Can California, or any other state, ask me for historical customer purchasing data and then audit my customers based on this data?
4. What is the enforcement process for overseas sellers with no presence in the United States? Are they required to comply with state tax collection duties?
5. If states make changes to the Streamlined Sales Tax Agreement after the enactment an Internet Sales Tax, do those changes become law?
6. The bill says that states may not impose requirements on remote sellers that they do not impose on non-remote sellers. Currently, many states give special state sales tax deals for businesses with in-state presence, while offering remote sellers no such deal. Since this practice is giving preferential treatment to in-state sellers in relation to the collection and remittance of sales taxes, will this be prohibited under the Marketplace Fairness Act?
7. Will there be any limitation on states giving special sales tax breaks to large in-state businesses while forcing strictly out-of-state businesses with no presence to comply? I am watching to see just how serious states are about “fairness” by how willing they are to stop tax giveaways to large in-state-businesses that they are denied to small businesses.
8. Under the Streamlined Sales Tax Agreement states agreed that sales price was the cost that a consumer actually paid for an item. However, Nebraska wants to claim that “sales price” is the gross price before discounts. Is there anything in the bill that prevents this type of excessive taxation from occurring in Nebraska or other states? From what I understand the minimum requirements of the bill do not prevent this type of theoretical taxing from occurring.
9. Many online retailers sell digital goods. How will the bill affect digital goods and services? Without a clear structure for digital goods taxation, these types of goods could fall under multiple taxation schemes. Does the bill protect digital goods from multiple taxation?
10. In terms of digital goods, like apps and music, who is responsible for remitting the sales tax: my businesses or an app store or sales platform?
11. Does the bill require simple, flat taxes for low cost and digital goods? Some states, like Maryland have different sales tax rules for goods that are priced under one dollar. For example:
Effective January 3, 2008, the Maryland sales and use tax rate is 6 percent, as follows:
• 1 cent on each sale where the taxable price is 20 cents.
• 2 cents if the taxable price is at least 21 cents but less than 34 cents.
• 3 cents if the taxable price is at least 34 cents but less than 51 cents.
• 4 cents if the taxable price is at least 51 cents but less that 67 cents.
• 5 cents if the taxable price is at least 67 cents but less than 84 cents.
• 6 cents if the taxable price is at least 84 cents.
On each sale where the taxable price exceeds $1.00, the tax is 6 cents on each exact
• 1 cent if the excess over an exact dollar is at least 1 cent but less than 17 cents.
• 2 cents if the excess over an exact dollar is at least 17 cents but less than 34 cents.
• 3 cents if the excess over an exact dollar is at least 34 cents but less than 51 cents.
• 4 cents if the excess over an exact dollar is at least 51 cents but less than 67 cents.
• 5 cents if the excess over an exact dollar is at least 67 cents but less than 84 cents.
• 6 cents if the excess over an exact dollar is at least 84 cents.
If Maryland, or states wishing to follow suit, do not comply with Streamlined Sales Tax Agreement or the minimum simplification requirements included in the bill, can they tax low-cost goods in this way? This is important to many online businesses because they sell digital goods priced at less than $1 and complying with this labyrinthine scheme is impossible.
I look forward to hearing from you or your office in response to my questions.
I hope by now you understand that you should be voting No on this bill until all of these issues are addressed.
A tax that is so difficult to comply with, so complex and burdensome, that you have to exempt any business from collecting and paying it is bad policy.