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October 21, 2011

Opinion: Change in law would hurt small businesses

When something sounds too good to be true...well, you know the rest of that adage.

The stated purpose of the Main Street Fairness Act is to “level the playing field” between online sellers and traditional bricks-and-mortar retailers by requiring online sellers to collect sales taxes on purchases from states where the seller has no physical presence.

The reality of the bill is that it would impose unfair and disproportionate collection burdens on exactly the sort of small businesses that lawmakers say are vital to the economic recovery.

And the real kicker? The proposal would generate a paltry amount of revenue, adding less than three-tenths of a percent to total state and local taxes.

According to a study by the Streamlined Sales Tax Project, small businesses spend 17 cents of their own money to collect and file every dollar of sales tax they send to their home states. This bill would force small online retailers to collect sales taxes for two dozen states, requiring expensive software updates, inviting exposure to an army of auditors, and cutting into resources they’d rather spend on building businesses and creating jobs.

So if the bill isn’t a revenue generator, and it’s not making things any more “fair,” what exactly is the purpose of it? Do big-box stores really need more help steamrolling small and midsized sellers, by undercutting their ability to compete?

Of all the problems with the Main Street Fairness Act, one of the worst is that it fails to define “safe harbors” for small businesses that could be crushed by its onerous, multi-jurisdictional collection regime.

Past attempts to pass similar legislation included a specified safe harbor that protected small businesses from the cost and complexity of this new Internet tax. Today’s legislation leaves the job of defining such safe harbors up to the unelected tax administrators on the Streamlined Sales Tax Governing Board. That’s like letting the foxes run the hen house.

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