Monday, April 22, 2013

Senate vote on the "Marketplace Fairness Act"

Today the Senate voted by 74 to 20 to allow the Marketplace Fairness Act to come to the Senate floor for an up-or-down vote.  This is a bill that would extend states' power to require large, technically out-of-state businesses to collect and remit sales tax on Internet sales to state residents.  The vote probably implies a significant probability that the legislation will eventually pass, as it also apparently has a high level of support in the House.

Both the Act's name, and its large margin of victory, reflect that the underlying politics here are unusual for tax-associated legislation.  Given that in-state bricks-and-mortar businesses must collect and remit sales taxes, they generally support the legislation, so that their Internet business rivals won't have a competitive advantage.  Indeed, Amazon apparently supports the Act, presumably reflecting that it already collects and remits sales taxes in much of the country anyway.

A number of Republican governors also support the legislation, as it would significantly aid their states' budgetary situations.  As we've seen more than once recently (for example, with regard to Medicaid), Republican governors, unlike members of the House and Senate, actually do have to govern, and this can positively affect their incentives and behavior.

The likes of Grover Norquist  oppose the Act (what a surprise), as do Internet businesses that want to keep the competitive advantages they currently enjoy.  Norquist and his allies like to call the Act a tax increase, but all that it actually does is improve collection of taxes that are owed under present law.  The currently tax-favored businesses argue administrative burden, but this is an age of computers, and the legislation exempts businesses with annual sales below $500,000.

The relevant prior history starts in 1967, when the Supreme Court decided, in a case called National Bellas Hess, that sales tax compliance would be too burdensome on out-of-state businesses (as well as in tension with due process doctrine at the time).  Perhaps, at the time, they were right about burden.  The opinion noted that there were more than 50,000 distinct sales tax jurisdictions in the country, including mosquito abatement districts (a detail that I have always found memorable).

Then in 1992, in a case called Quill, the Court, while agreeing that much had changed since 1967, nonetheless declined to alter the legal status quo from Bellas Hess.  Instead, it said that Congress was free to untie the states' hands under its commerce clause powers.  There may have been an element in this decision of the Justices' wanting to stay out of the political crossfire by putting the burden on someone else to actually "raise taxes" - a hesitancy that is understandable, whether or not especially judicial or commendable.

Twenty-one years is not a short time to wait for Congressional action, but better slow than never.

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