Marketplace Fairness

By Matthew Dugandzic
June 5, 2013

1_photoIt was the decision of the drafters of our Constitution to allow the Federal Government to regulate interstate commerce. From the adoption of the Constitution until today, the Federal Government has consistently held the position that taxing interstate commerce would be undesirable since it would be over-burdensome for such commerce, which is understandable in light of the settings in which interstate commerce has taken place throughout American history. Imagine if flatboats flowing down the Mississippi in the 19th century were required to pay a tax every time they crossed a state border!

Recent times, however, have seen the advent of the internet and the new commercial possibilities that have been brought with it. While it has long been possible (thanks to catalogues) for merchandise to be bought in one state and sold in another, the internet has made such sales far more common. Today in the US, when a customer buys a product on the internet, she will only pay sales tax if the company selling the product to him operates in the same state from which she is ordering it.

Clearly, this has provided internet vendors with a huge advantage over more conventional venders who sell items on location. Taking note of this, the Senate voted to approve the Marketplace Fairness Act which, if it passes in the House, will require vendors who sell things out of the state(s) in which they operate to collect sales tax based on the shipping address of a customer. There has been much opposition voiced against this bill (here’s one example), and surveys have shown that the new legislation is likely to affect shoppers’ habits.

Despite the fact that this legislation is likely to hurt internet sales and the companies that provide them, I nevertheless support it. In fact, I would even say that the proposed legislation does not go far enough.

Purchasing products on the internet affords an unprecedented convenience. A person can browse through an array of items, choose the one (s)he wants, pay for it, and have it shipped anywhere all without leaving the house. Furthermore, one can even acquire items that are unavailable in one’s locality.

However, these conveniences come at a cost. Throughout the entire process, buyers and sellers never interact personally. Not only does this deprive them of the habitual pleasantries exchanged when sales are made in person, but it also prevents them from building personal relationships with one another. Such relationships can allow customers and vendors to build trust – or not – in one another which may, for example, lead a vendor to allow a longtime customer a higher-than-usual credit rate. Furthermore, such relationships can encourage friendships between customers and vendors, which are an important part everyone’s psychological health.

On top of the negative effects that the proliferation of internet-based commerce would have on individuals, it is also not difficult to predict the harmful effects that it would have at the societal level. Small stores, being unable to compete with the cheap, tax-free prices of companies which sell their wares on the internet, will gradually wink out of existence under such conditions. The current advantage that internet-based companies have over those small business which form integral parts of communities will eventually lead to a world in which the majority of purchases are made impersonally and towns will be left without the businesses that formed a crucial part of their social atmosphere.

I therefore contend that, in order to encourage sales at small businesses that build personal relationships and foster a community atmosphere, the Marketplace Fairness Act should be renamed the “Marketplace Promotion Act,” since sellers such as Amazon can hardly be said to operate in a “marketplace.” In order to live up to its name, it should go further than to endeavor to place interstate sales on par with intrastate sales; it should endeavor to promote the latter at the expense of the former. Internet sales should not be wiped out of existence, since they can be used to purchase things to which one would otherwise not have access, but customers should be given an incentive to conduct their business in person. The means through which to accomplish this are debatable, but perhaps a federal tax on interstate sales would not be out of the question. Such a tax would incentivize local commerce and would increase the Federal Government’s revenue in a way that does not involve the legal complexities of income tax revenue.