New “Fairness Act” Anything But Fair

So, now it comes.

Driven by the insatiable need for new revenues, dressed up in language designed to appeal, and reflecting a total misunderstanding of how business works, “The Mainstreet Fairness Act” was introduced in Congress July 29th by Senator Dick Durbin, a Democrat from Illinois. The bill would require on-line retailers to collect sales taxes.

I’m sorry to say that the bill is supported by the organized jewelry industry, including Jewelers of America.

The “fairness” aspect of the bill is that main street retailers, retailers with brick and mortar establishments already pay sales tax. So why shouldn’t internet retailers?

There are a number of reasons.

Mainstreet retailers typically serve local communities. They collect sales tax and remit it to the state in which they do business every quarter. In other words, they’re a conduit through which consumers remit money, money that is used for street and road repairs and other state services that benefit the citizens in that state, including those Mainstreet retailers which benefit from state, city and county services.

The administrative load is not especially onerous. Merchants collect a flat fee and remit the entire amount to the state which in turn remits portions to other taxing entities. In Texas, for example, the total sales tax is .0825 or 81/4%. The state gets .0625 or 61/4%, the city gets 2% or .02, the county gets .015 or 1.5% and Transit get 1% or .01. (These rates vary slightly depending upon the specific local rate, but they add up to 81/4% on all goods and many services.)

An internet sales tax, however, would require the retailer to collect varying amount of fees reflecting the sales taxes of 50 states and the taxing entities within those states.

Suddenly, the “Mainstreet Fairness Act” looks a lot less fair. The retailer, in this case, an internet retailer doesn’t benefit in any way from the services provided by the state or taxing entities within that state. Moreover, the administrative load increases fifty times.

The bill also reflects a total misunderstanding of how small business works. Most, not all, but most, internet retailers are very small businesses. Men and women selling on the internet as a part-time activity to supplement incomes or to eventually to develop a full-time job for themselves. This means they have little time and fewer resources. To impose an administrative burden this great presents a barrier to entry that they may not be able to overcome. In a flat economy¬† this just doesn’t seem to be a wise policy direction. In addition, many of these new internet retailers are baby boomers whose ranks are swelling the Social Security rolls by 10,000 a month. With means testing and a push-back in the age for which people quality for Social Security on the horizon, these efforts should be encouraged..

News reports about the “Mainstreet Fairness Act” say that small business will be exempt from the bill and that a governing board will determine what is a small business. But it’s worth remembering that the government insists that payments to independent contractors over $600 be reported. And, in Texas, you must file a report with the State even if you’ve had no sales during the quarter. In other words, even if you’ve had no sales, there is no reduction of the administrative costs.

So, the Mainstreet Fairness Act would:

  • Insist on collection of sales taxes from which retailers derive no benefit, the traditional justification for sales taxes;
  • Impose new and costly administrative burdens on small business; and
  • Create new barriers for entrepreneurs.

In a flat economy on the verge of a double dip recession, I frankly don’t understand how this makes any sense. But, then one needs only to look at the nearly bankrupt condition of Illinois, from which Senator Dubin hails, to see the wisdom of the economic choices of that state’s political leaders.









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