The Unfairness Of The Marketplace Fairness Act

This week, the US Senate is considering a bill known as the Marketplace Fairness Act that has the stated purpose of “restoring States’ sovereign rights to enforce State and local sales and use tax laws, and for other purposes.” The bill would allow states to require all Internet sellers with out-of-state sales exceeding $1 million per year to collect sales taxes for the state and local governments of the buyers. State governments would be required to provide software free to Internet retailers to calculate sales taxes. The bill passed a vote to take up the legislation for debate and amendment by a 74-20 margin on April 22.

If enacted, the legislation would cost online shoppers an estimated $22-24 billion in tax payments.

The Obama administration has endorsed the legislation, saying that it “will level the playing field for local small business retailers that are in competition every day with large out-of-state online companies.”

“We think this is inevitable, with states looking for revenue, with the growth of e-commerce,” said Stephen Schatz, a spokesman for the National Retail Federation.

“What it means is a lot of money for states and localities,” Sen. Richard Durbin (D-IL) said on April 22, 2013. He is supporting the legislation.

From a philosophical libertarian perspective, however, this bill is a disaster. Taxation is a violation of the natural rights of property ownership and voluntary association, and by current legal statutes, it meets the definitions of the crimes of armed robbery, possessing and receiving stolen goods, slavery, felony trespassing, communicating threats, and conspiracy to commit the aforementioned crimes. The Marketplace Fairness Act seeks to solve the problem that some businesses are victimized by the crimes of the state by attempting to victimize all businesses.

Let us also consider the practical implications of the bill. Online merchants larger than a certain size would have to become tax collectors for every jurisdiction in the United States, which is not a burden that is placed on brick-and-mortar establishments. Then there is the case of the owners of large businesses who wish to use the violent monopoly of the state to bring down smaller competition. For retailers that have sales in the billions of dollars, such as Amazon ($61.09 billion in 2012) and Walmart ($5.28 billion in 2011), compliance costs of such regulations are hardly noticeable. But for smaller retailers who barely meet the $1 million threshold, having to correctly apply and calculate thousands of tax rates depending on the jurisdiction of the buyer could cost enough to sink a business. The CEOs of larger companies know this and want to use this to their advantage to stifle free market competition for their own private gain. The $1 million threshold is of no concern, as companies smaller than that cannot mount an effective challenge to the market share of the largest retailers.

Next, there is the existential problem of the state. The state does not exist in the physical sense; only its constituent parts, such as people, buildings, and guns, have physical existence. As the state is only an idea in the minds of people that has no physical existence, it is impossible for it to have rights. Thus the claimed objective of “restoring States’ sovereign rights” is nonsensical.

Finally, there is the historical argument. “No taxation without representation” was one of the major grievances of British colonists in America in the 1750s and 1760s that contributed to the American Revolution. Since that time, it has been generally accepted that requiring merchants to collect taxes in places where they have no physical presence is even worse than the basic criminality of taxation, because even the political recourses of those inside a jurisdiction are denied to those who exist and do business outside of it. A desire for the expansion of statism is not a justification for forgetting this.