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As seen on TV: The internet sales tax is not dead

Conservative Review

Conservatives beware: despite Speaker Boehner’s insistence that the internet sales tax is dead for the remainder of the lame-duck session, it is likely to resurface next year. House leadership is setting the stage for reconsideration of the so-called Marketplace Fairness Act (MFA) next year as they work to fund the government through September 2015. The details of the omnibus bill have not been released yet, but Congress is likely to include a temporary extension of the Internet Tax Freedom Act, a bill that would permanently prohibit state and local governments from imposing internet access and usage fees. Marketplace Fairness Act supporters have long sought to attach their bill to the Internet Tax Freedom Act, and a temporary extension gives them this opportunity once again.

As a recent TV commercial by the Alliance for Main Street Fairness illustrates, advocates of the so-called Marketplace Fairness Act are still pushing for its passage. The ad argues that current law puts small businesses at risk from competition by giant online retailers. In fact, the Alliance is using Alibaba, the Chinese online retailer that recently went public in the United States, as a distraction to scare the American public into supporting a massive tax increase in order to “save Main Street.”

As the 113th Congress comes to a close, Speaker Boehner is in a position of strength. The American people, just a month ago, demanded a change of course in Washington. Voters across the country want Congress to work for them, not for the politically connected companies that seek to manipulate public policy for their own profit. The public is looking for leadership like that Speaker Boehner demonstrated several weeks ago when he effectively killed the internet sales tax.

Due to time constraints, however, House Republicans are likely to include a temporary extension of the Internet Tax Freedom Act and revisit the issue next year. But that is the wrong approach. Speaker Boehner should use his opportunity now to secure permanent internet freedom, not punt the issue to next year while MFA proponents continue to misinform the public.

A permanent Internet Tax Freedom Act is the only legislation Congress should pass to protect the openness of the internet. Contrary to what proponents of MFA claim, current law does not favor one type of retailer over another. The Supreme Court in the 1992 Quill v. North Dakota decision ruled that states could only exert their taxing authority over retailers that had a physical presence in their states.

Transactions made through retailers with no in-state presence required the consumer to transmit the appropriate sales tax to the state taxing authority. For years, however, states have refused to enforce this area of sales tax law, opting instead to claim their hands are tied behind their backs by a Congressionally created “loophole.”

The cleverly named Marketplace Fairness Act is a deal between big business and big government. It entrenches large corporations and makes it more difficult for entrepreneurs to grow their businesses. It raises taxes on consumers and provides windfall revenue for state governments to grow their budgets. MFA erodes the concept of federalism and allows states to exert their taxing authority beyond their borders. It distorts the free market and discourages state politicians from spending money wisely.

As Congress rushes to pass a $1.1 trillion omnibus spending package, Speaker Boehner would be wise to seriously consider the effects of a temporary Internet Tax Freedom Act extension. Instead of caving and allowing MFA supporters to continue their misleading lobbying campaign, he should play offense. He can give big business and big government one last chance to score, or he can use his position of strength to demonstrate real leadership to the American public. He can respect the 2014 midterm results or bow to special interest pressure. Which path will he choose?

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