Myths of the Internet Sales Tax Legislation

Some opponents of the Marketplace Fairness Act are falsely calling the measure a new tax, when the bill only requires that Internet retailers collect sales tax already owed by their customers under current law. This bill would not only serve as a boost to the economy, but it would also level the playing field for brick-and-mortar businesses by ensuring that Main Street can fairly compete with online retailers.

On March 28, I co-hosted CNBC's "The Kudlow Report," where Grover Norquist, president of Americans for Tax Reform (ATR), called the proposal a "tax increase" designed to get money from successful states to failed states. Larry Kudlow echoed this statement, claiming that Washington is proposing another tax. Debating both of them with facts, I noted that most Republican governors who signed ATR's "no tax" pledge also support the proposal. More, on March 30, the Senate voted 75 to 24 to support this proposal, and some of the Senators supporting the measure included many of those who signed Norquist's "no new taxes" pledge.

To set the record straight, the Marketplace Fairness Act is not a tax increase, or a new tax. It is simply a more efficient way to collect taxes that are already owed to the government. In the 45 states that impose sales taxes, if you buy something from another state and have it shipped to your home, you must pay your home state the applicable tax. The failure to report and pay these taxes could result in jail time.

Rather than subject millions of Americans to jail or other penalties for this type of failure to report taxes due, the Marketplace Fairness Act removes consumers from liability. Instead, it puts the burden on Internet retailers, just as it now sits on their brick-and-mortar brethren, to collect and pay all sales tax due.

Under today's system, millions of Americans are vulnerable to arbitrary enforcement by state tax officials and most don't even know it. More, states and localities have suffered $23 billion in lost revenue as Americans shop on Internet retailer's sites and don't bother paying sales taxes. This puts states and localities in a bind potentially affecting vital government services, like fire and police, as state tax revenues fall. States' options are to start auditing their citizens' Internet purchases, or choose to raise other taxes including income taxes. Indeed, Virginia has a new law that raises gas taxes if the Congress does not pass the Marketplace Fairness Act.

Not only does the bill help those who might not know about tax violations, but it also helps create healthy competition. The fact that Internet retailers aren't forced to collect sales taxes puts them at a 5 to 10 percent advantage over mom-and-pop stores that have to collect sales taxes. Implementing the Marketplace Fairness Act ensures that the government cannot pick winners and losers and all retailers are allowed a level playing field to compete. It's the very definition of regulating interstate commerce to ensure fairness across the board.

At a time when companies are already struggling to hire and survive, it's important that we support them by implementing a measure that will increase competition, help create revenue and prevent unnecessary enforcement. The Marketplace Fairness Act is a necessary and efficient response, which will keep most Americans on the right side of the law.

Gary Shapiro is president and CEO of the Consumer Electronics Association (CEA)®, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling books Ninja Innovation: The Ten Killer Strategies of the World's Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. His views are his own.