By Wayne Harper
Utah Senator, District 6
This week, the United States Congress will vote on a critical piece of legislation: S.743 – Marketplace Fairness Act of 2013 (MFA).
Simply stated, the measure will remove a government endorsed tax situation that puts local retail businesses at a competitive disadvantage. I have spent my 16 years in the Utah Legislature pressing for lower taxes. Over that time, I have led Utah’s charge in support tax reduction and this legislation so that state and local governments can lower the sales tax rate by expanding the sales tax base. Simply stated, Marketplace Fairness keeps taxes low and eliminates existing unfairness in the tax code.
The Marketplace Fairness Act and Utah
The Marketplace Fairness Act is a state sovereignty and budget issue. It is not a federal budget issue.
Tommy Burr’s article in April 24’s Salt Lake Tribune correctly states that
“Utah is missing out on $180 million in sales tax revenue annually through online purchases, although Senate legislation under debate could provide a simple tool for Internet retailers to collect the already due tax from consumers. The proposed change, which the Senate should vote on Wednesday, would affect Internet retailers who do more than $1 million in business a year. . . the legislation would allow states that now charge a sales tax to require online businesses elsewhere in the United States to charge and remit the tax . . . .”
The Utah Legislature has on multiple occasions and over several years spoken to this issue. We adopted the Streamlined Sales Tax Agreement, and passed multiple Resolutions in support of a federal solution. The states have been waiting and working for over 20 years for Congress to respond to the directive issued by the Supreme Court to address this tax inequity problem and return control of sales tax policy to each state.
Last month, both the Utah House and Senate passed HJR 4, a Resolution in support of the MFA. We specifically called for Utah’s delegation to support S. 336 (which is identical to the current bill, S 743).
Utah is passionate about our support for all businesses and business owners. Absent of the Marketplace Fairness Act, there is no mechanism to collect taxes that are already due. Under the Supreme Court’s Commerce Clause decisions, states may require in-state retailers to collect sales tax from their customers, but states may not require out-of-state retailers to do the same. Instead, states impose a “use tax” on purchases from out of state retailers. Use tax is identical to the sales tax, except that there’s no meaningful way to collect it. Thankfully, no one source tracks what each consumer has purchased and where they’ve purchased it. Therefore, there is no way for a state to know how much a taxpayer owes. In theory, taxpayers calculate the amount of use tax they owe, and submit it as part of their state income tax filing. Unsurprisingly, almost no one does.
With no solution to this ‘use tax problem’, the explosive growth of e-commerce will create pressure to increase other taxes. As ever more people use e-commerce to purchase from out of state retailers goods that they have historically purchased from brick and mortar stores, and therefore owe use tax instead of paying sales tax, states lose tax revenue, creating pressure to raise other taxes. By making use tax as easy to collect as sales tax, the MFA will allow state and local governments to lower sales tax rates.
Opposition to Marketplace Fairness
The arguments against Marketplace Fairness are misguided. Some critics have compared Marketplace Fairness to Obamacare – a misguided comparison at best.
First, the Obama Care legislation was thousands of pages long, while the Marketplace Fairness Act is a scant 11 pages long.
Second, Congress has considered previous iterations of Marketplace Fairness. In fact, the current version of Marketplace Fairness is in nearly all respects identical to the 2011 edition (S. 1832). The differences between the two bills have occurred precisely because the public has had two years to evaluate the proposal. That’s a far cry from Speaker Pelosi’s infamous dictum that we have to pass Obama Care to find out what’s in Obama Care. Likewise, the Senate Finance Committee discussed this Act in two difference committee hearings in 2012 and the Senate Commerce and House Judiciary Committees held full hearings on the Act in 2012.
Other critics object to Marketplace Fairness because, they aver, Marketplace Fairness creates new burdens on out of state retailers. Frankly, it’s hard not to dismiss this argument. Out of state retailers have gamed the sales tax system for decades. These retailers sell identical goods as in-state businesses, but they enjoy a roughly 7-10% price advantage, because their customers don’t have to pay state and local sales taxes at checkout. Marketplace Fairness eliminates this systematic and inappropriate preference.
Utah’s Congressional Delegation
In many meetings over the past decade, businesses owners, constituents and elected officials from Utah met with Senator Hatch in Utah and in DC to discuss this important bill and to seek his support. Much dialogue has occurred with his staff to clarify questions and discuss the opportunity and benefits this bill offers to all taxpayers in Utah.
Two days ago, a cloture vote on S. 743 was taken. It is apparent that both of our Utah Senators are opposed to the MFA. Two similar votes have recently been taken on the issue, and each time, our DC Senators have voted against Utah’s long-standing precedent of supporting this legislation. Frankly, I do not understand it.
As mentioned, the Utah State Legislature has repeatedly taken a strong position in favor of this bill. So do tens of thousands of local businesses in Utah. Governor Gary Herbert also supports the Marketplace Fairness Act.
We’re all on board. Why aren’t they?
It seems that Mr. Hatch’s primary argument as to why he voted “nay” on the cloture vote is because of the process by which the bill was brought before the Senate – namely, that the measure did not go before the Senate Finance Committee.
The Senator’s press release calls for vetting of this issue and the opportunity to present amendments:
“Despite the good intentions of those backing this bill, it just isn’t ready yet. Bringing legislation of such far-reaching consequences to the floor of the Senate when the Finance Committee hasn’t even held a hearing or a markup on it isn’t the way we should be doing business around here. I’ve heard concerns from Senators on both sides of this issue that we need more time and this bill needs greater scrutiny before moving ahead. One thing is certain, however, this legislation must be subject to a thorough open debate and amendment process.”
I respect the Senator’s desire to support legislation going through the proper processes. However, I would remind all that in two Senate Finance Committee hearings in 2012, the MFA and remote collection of due sales taxes was part of the Committee discussion and hearings. Likewise, last fall, full hearings were held on the MFA in Senate Commerce and House Judiciary Committees.
The Marketplace Fairness Act
At this point, I am incredibly disappointed in our U.S. Senators’ apparent position. I cannot fathom why they would choose to not support this legislation. (This is the email I sent to Senator Hatch’s Office last week.)
Congress needs to approve Marketplace Fairness. If they don’t, the tax system will continue to discriminate between market competitors, and pressure to raise state income taxes will continue to mount. In a time of mounting global competition, we simply cannot afford to raise taxes, and we should never let the tax code systematically discriminate against market competitors.
This bill has had congressional hearings and has been fully vetted. The Marketplace Fairness Act is now ripe for floor debate and passage.
I call upon on our congressional delegation to support the bills and respect the votes of the legislature and Utahans. I passionately request that the good Senators from Utah listen to the businesses and elected officials of this state, and support this important bill.
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[Update, 5/3/13]: Utah Retail Merchants Association’s’ op-ed piece on the MFA in the Salt Lake Tribune.