The Edmond Sun


April 25, 2013

Internet taxation: fair or foul?

WASHINGTON, D.C. — As a general rule, whenever one hears members of Congress talking about “fairness,” you should hold on tight to your wallet. That’s certainly the case with the proposed “Marketplace Fairness Act,” which has been under consideration in the Senate. The bill is aimed at leveling the sales-tax playing field between Internet merchants and so-called brick-and-mortar retailers.

Supporters argue that simple fairness demands the changes. But that fairness will come at a high cost to online businesses and American consumers. Congress should click the “delete” button on this ill-advised proposal.

The ongoing debate over Internet sales taxes actually has little to do with the Internet. Rather, it is a debate over the proper reach of state tax collectors. It has its roots in a 1992 Supreme Court case regarding a distinctly pre-Internet business: mail-order catalogs.

The state of North Dakota had sued an office-supply company called Quill, arguing that the firm should have been collecting sales taxes from North Dakotans buying items through Quill’s mail-order business. Quill had no stores, warehouses or staff in North Dakota, but the state argued that the retailer had to collect the prairie states’ sales taxes anyway.

The Supreme Court soundly rejected North Dakota’s claims, ruling that unless a firm has some physical presence, or nexus, within the state, North Dakota couldn’t require Quill to collect its taxes.

At the time, the decision hardly seemed monumental, attracting the attention only of a few mail-order junkies. But the principle it established became critical to electronic commerce in the Internet age. Internet sellers could not be required to collect taxes unless they had some physical connection to the taxing state.

The legislation now pending in Congress would overturn Quill Corp. vs. North Dakota and open up e-commerce providers to mandates imposed by tax authorities in other states. The argument for such tax mandates is temptingly simple. Why, argue supporters, should old-fashioned physical stores pay sales taxes while their competitors in cyberspace get off scot- and tax-free? The rule is unfair, some non-digital retailers argue, favoring one type of business over another.

Their argument is not without merit. Ideally, taxes should not distort the marketplace. But it this case, the proposed solution — allowing state tax collectors to force remote merchants to collect their taxes — would do more harm than good.

First, the idea that Internet retailers are exempt from taxation is false. In fact, 17 of the 20 largest Internet vendors pay taxes in 46 or more states. Many of these, such as Staples and Office Depot, have extensive brick-and-mortar operations nationwide, making their sales fully taxable. And the biggest e-commerce player,, is collecting taxes for a growing number of states, as it builds out a network of warehouses nationwide.

Of course, that stills leaves thousands of nexus-less Internet retailers who don’t collect out-of-state taxes. But forcing them to do so would come at a cost. Most obviously, expanded tax collection would provide a windfall to state treasuries, increasing consumer costs by billions.

But that’s only the start. Collecting and keeping track of payments for the 9,600 some sales tax jurisdictions in the U.S. would be a significant burden for smaller vendors, even with the help of computer programs. And the prospect of tax audits from the 45 states with sales taxes would be even more daunting. Moreover, vendors in the five states without sales taxes would be forced to collect for the states that do levy sales tax.

There’s also a potential cost in lost privacy, as vendors collect and store residence and purchase data on their customers.

If states wish to impose such costs on their retailers, that’s their prerogative. States can regulate businesses within their borders. But the Marketplace Fairness Act would allow states to regulate the businesses of other states. Retailers would be subject to edicts and mandates from states with which they have no connection. And because they have no connection, state politicians would have little reason to worry about the effect of their taxes on the retailers.

Economically, the costs — ranging from job losses to reduced investment — resulting from the burdens imposed on retailers would be borne by the home state, not the taxing state. And politically, there would be little reason for out-of-state politicians to care, as the owners and employees wouldn’t vote in the taxing states elections.

This is the sort of harm the Founders — and the Supreme Court in Quill — feared. By abandoning the protections of federalism, we’re all left worse off. Congress should not open the gates to that dangerous path — even in the name of fairness.

JAMES GATTUSO is senior research fellow in regulatory policy at The Heritage Foundation. Readers may write to the author in care of The Heritage Foundation, 214 Massachusetts Avenue NE, Washington, D.C. 20002; He also may be contacted online via

Text Only
  • St. Louis Post-Dispatch: Why poverty across the world matters to Americans

    A child starving in South Sudan should matter to Americans. That was the message delivered last week by Nancy Lindborg, whose job at the U.S. Agency for International Development is to lead a federal bureau spreading democracy and humanitarian assistance across the world.
    That world has reached a critical danger zone, with three high-level crises combining military conflict with humanitarian catastrophes affecting millions of innocents in Syria, the South Sudan and the Central African Republic.
    But back to that child.

    April 18, 2014

  • Government leadership complicit in overfilling prisons

    One of the thorniest problems facing any society is the question of what to do with transgressors. Obviously, the more complicated a culture becomes, the more factors come into play in trying to figure out what to do with those who choose not to “play by the rules.”

    April 18, 2014

  • My best days are ones normal people take for granted

    It is a weekend for working around the house. My fiancee, Erin, and I have the baby’s room to paint and some IKEA furniture to assemble. I roll out of bed early — 10:30 — and get into my wheelchair. Erin is already making coffee in the kitchen.
    “I started the first wall,” she says. “I love that gray.” Erin never bugs me about sleeping late. For a few months after I was injured in the Boston Marathon bombings, I often slept 15 hours a day. The doctors said my body needed to heal. It must still be healing because I hardly ever see 8 a.m. anymore.

    April 18, 2014

  • Instead of mothballing Navy ships, give them to our allies

    A bitter debate has raged in the Pentagon for several months about the wisdom of taking the nuclear aircraft carrier George Washington out of service to save money. The Washington, at 24 years old a relatively young vessel, is due for a costly refit, a routine procedure that all of the 11 large carriers in service undergo regularly.

    April 18, 2014

  • The pessimist’s guide to grizzly bears and Earth Day

    This coming Friday, to “celebrate Earth Day,” the Walt Disney Co. will release one of those cutesy, fun-for-all-ages, nature documentaries. “Bears” is about grizzly bears.
    The trailer says, “From DisneyNature comes a story that all parents share. About the love, the joy, the struggle and the strength it takes to raise a family.”
    Talk about your misguided “Hollywood values.” I previously have acknowledged a morbid, unreasonable fear of grizzly bears, stemming from a youth misspent reading grisly grizzly-attack articles in Readers Digest. This fear is only morbid and unreasonable because I live about 1,500 miles from the nearest wild grizzly bear. Still. ...

    April 16, 2014

  • Digging out of the CIA-Senate quagmire

    Last week, the Senate Intelligence Committee, led by Sen. Dianne Feinstein, D-Calif., voted to declassify parts of its report on the CIA’s rendition, detention and interrogation program. The White House, the CIA and the Senate still have to negotiate which portions of the report will be redacted before it is made public. But this is an important step in resolving the ugly dispute that has erupted between the intelligence committee and the intelligence agency.
    The dispute presents two very serious questions. Was the program consistent with American values and did it produce valuable intelligence? And is effective congressional oversight of secret activities possible in our democracy?

    April 15, 2014

  • Los Angeles Times: Congress extend jobless benefits again

    How’s this for irony: Having allowed federal unemployment benefits to run out in December, some lawmakers are balking at a bill to renew them retroactively because it might be hard to figure out who should receive them. Congress made this task far harder than it should have been, but the technical challenges aren’t insurmountable. Lawmakers should restore the benefits now and leave them in place until the unemployment rate reaches a more reasonable level.

    April 14, 2014

  • Many nations invested in Israel

    Former Israeli Ambassador to the United States Yoram Ettinger recently spoke to a gathering at the Chabad Center for Jewish Life and Learning in Oklahoma City. The event began with a presentation by Rabbi Ovadia Goldman, who told the attendee that the  upcoming Jewish holiday of Passover was an occasion for them to embrace the children of God, which is all of humanity.

    April 14, 2014

  • Coming soon: More ways to get to know your doctor

    Last week, the federal government released a massive database capable of providing patients with much more information about their doctors.
    The Centers for Medicare and Medicaid Services, the government agency that runs Medicare, is posting on its website detailed information about how many visits and procedures individual health professionals billed the program for in 2012, and how much they were paid.
    This new trove of data, which covers 880,000 health professionals, adds to a growing body of information available to patients who don’t want to leave choosing a doctor to chance. But to put that information to good use, consumers need to be aware of what is available, what’s missing and how to interpret it.

    April 14, 2014

  • HEY HINK: Hateful bullies attempt to muffle free speech

    Hopefully we agree it should be a fundamental right to voice criticism of any religion you wish. And you should have the right to sing the praises of any religion you choose. If criticism of religion is unjust, feel free to make your best argument to prove it. If criticism is just, don’t be afraid to acknowledge and embrace it. If songs of praise are merited, feel free to join in. If not, feel free to ignore them. But no American should participate in curbing free speech just because expression of religious views makes someone uncomfortable.

    April 11, 2014


Do you agree with a state budget proposal that takes some funds away from road and bridge projects to ramp up education funding by $29.85 million per year until schools are receiving $600 million more a year than they are now? In years in which 1 percent revenue growth does not occur in the general fund, the transfer would not take place.

     View Results