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Lt. Gov. Ron Ramsey claims that the Internet sales tax mandate is not a new tax. Nor, according to Ramsey, is it an unfair tax.

Ramsey is wrong on both counts.

Currently, thanks to the 1992 Supreme Court decision Quill Corp. v. North Dakota, states are prohibited from forcing out-of-state retailers to collect sales tax on their behalf. For this reason, sales taxes are not applied when you make a purchase from an out-of-state online retailer that has no physical presence in the state to which the order is shipped. The Internet sales tax mandate, known by its misleading title as the Marketplace Fairness Act, would change that. For the first time, many of your online purchases will be subject to state sales tax.

States with sales tax also have a complementary tax called a “use tax.” You are supposed to pay a use tax on a product if you buy the good without paying sales tax on it. So, for instance, if you buy a product in New Hampshire, which has no sales tax, and then bring that product back to Tennessee to use or consume, you are supposed to pay a use tax — equivalent to the sales tax rate — to the state of Tennessee.

This is the reason that Ramsey is claiming that an Internet sales tax is not a new tax. Technically, you are supposed to report Internet purchases made from out-of-state retailers to the state of Tennessee and then pay a use tax on them. However, use taxes are generally unenforceable, i.e., the state relies on the consumer to report them, which most folks seldom do, probably due to ignorance that the use tax even exists.

The Marketplace Fairness Act would shift the burden of collecting this tax on to Internet retailers. Thus, it becomes a sales tax. This tax, despite Ramsey’s claims to the contrary, is a new tax. Sales tax would now be embedded in the final price of any product purchased online from out of state. So perhaps Lt. Gov. Ramsey would like to explain to surprised Tennesseans that “this is not a new tax” when they see the cost of their Internet purchases increase by almost ten percent

Because Internet retailers will now be tax collection agents for a multitude of tax jurisdictions–the US has nearly 10,000 such jurisdictions–the compliance costs of an Internet sales tax will be a nightmare, especially for small businesses. An Internet sales tax will not “level the playing field” as its supporters claim. It will, in fact, slant the playing field in favor of big businesses–who can much more easily absorb the compliance cost–at the expense of smaller retailers.

The barriers to entry for an Internet business are virtually nonexistent. While it is true that out-of-state online retailers hold a sales tax advantage over local brick and mortar retailers, there is nothing stopping a brick and mortar store from selling its wares to consumers in other states on the Internet, thereby negating the tax advantage enjoyed by its online competitors. As with all economic barriers to entry, an Internet sales tax would protect big Internet retailers like Amazon–one of the largest advocates for an Internet sales tax–by making it more difficult for the little guy to start and grow an Internet business.

Millions of Americans have discovered the path to prosperity by starting their own business. That’s why our country has been dubbed “the land of opportunity.” In the twenty-first century, the Internet has provided a rich environment for entrepreneurs and businesspeople to pursue their own path to wealth by starting a business. This is the American dream. This proposed legislation will crush an untold number of Internet startup businesses, dashing that dream for countless deserving Americans who want nothing more than the opportunity to pull themselves up by their own bootstraps.

University of Tennessee economist Bill Fox, one of the authors of the most widely cited study on projected Internet sales tax revenue, says that many people use brick and mortar retailers as “a museum or library” to research products before going online to make their purchases. However, a recent Price Waterhouse Coopers survey of 11,607 consumers shows that the majority of respondents use physical storefronts for both researching a product and for buying the good. This survey also revealed that Fox’s hypothesis works in reverse. In the category of consumer electronics, for example, 23% of the survey’s respondents said that they did their research on the Internet but bought the product at a physical store. In this particular category, only 2% did the reverse, using physical stores as showrooms before buying the product online. Thus, it appears that Internet based consumer research benefits brick and mortar stores more than it does online retailers.

Ramsey says that revenue generated by an Internet sales tax could be used to lower or eliminate other taxes such as the “Hall” tax on interest and dividend loans. While this is an admirable sentiment, governments tend to spend additional revenue, not to use it to eliminate existing taxes. The much more likely outcome is that an Internet sales tax will end up be levied on top of the taxes that we already pay.

In predicting the revenue that an Internet sales tax will generate, Ramsey should look to states which have already imposed sales taxes on large Internet retailers within their borders–the so-called “Amazon taxes.” In California, for example, the first full quarter of Internet sales tax collection–which began last year–took in $96.4 million. This is about 1/4 of the revenue implied by Fox’s study. New York has seen similar results. So we should take the $748 million figure that Ramsey claims that an Internet sales tax will generate for Tennessee with a grain of salt.

No wonder Nita Ghei, policy research editor for the Mercatus Center think tank at George Mason University, says, “the distortions and costs of this tax far outweigh the value of revenues going to state and local governments.”

We should remember that when government officials use the term “generate revenue,” this is not money that just magically appears or is the result of some productive venture by the state. This is money that comes out of the taxpayer’s pocket. Whatever tax boon an Internet sales tax produces will come at the expense of hardworking Tennesseans. The last thing that Tennesseans need is politicians digging even deeper into their wallets.

Finally, many conservative organizations oppose the Marketplace Fairness Act. These organizations include the National Taxpayers Union, Americans for Tax Reform, the Heritage Foundation, Campaign for Liberty, Freedomworks, the Cato Institute, and the Heartland Institute. Why do so many self-proclaimed “conservative” politicians, on the other hand, support a measure which will clearly lead to higher taxes?

By the way, Ramsey has signed the Americans for Tax Reform pledge to never raise taxes, as have many other “conservative” supporters of the Marketplace Fairness Act. Could it be that his assertion that an Internet sales tax is not a new tax is simply rhetorical legerdemain attempting to conceal the fact that by supporting this measure he is indeed breaking that pledge?

If Tennessee’s politicians were serious about leveling the playing field between out-of-state Internet retailers and physical businesses in Tennessee, policymakers would introduce legislation to slash Tennessee’s sales tax rate–which at 9.44% (the state tax rate plus the average local tax rate) is the highest in the nation–not slap additional taxes on Internet retailers. The solution is, as the Tennessee Liberty Alliance motto states, “more freedom, less government.” Not more government, more taxes, and more regulation.

Even more worrisome is the fact that an Internet sales tax could be used as an excuse to get the federal government involved in the collection of sales taxes. Subjecting businesses to the complexity of 10,000 different tax jurisdictions will invariably cause problems, both for the businesses and the tax collectors. Will the federal government use its power over interstate commerce to “solve” those problems by imposing a national retail sales tax? Would Washington politicians, with their seemingly pathological addiction to spending, think twice before sinking their talons into another revenue stream?

At a time when so many middle class families are struggling just to make ends meet, the Marketplace Fairness Act will increase the tax load on average Tennesseans. The poor and middle classes will be hit the hardest by this proposed legislation. Shouldn’t we leave as much money as we can in the hands of folks who really need it, especially when so many are suffering in a stagnant economy that has no end in sight? Or do the needs of politicians trump those of our families, friends, and neighbors?

An Internet sales tax will increase the regulatory burden on Tennessee businesses. It will also make Tennessee businesses tax collectors for all the other states that impose an Internet sales tax, subjecting our businesses to the whims of politicians and bureaucrats in far away states such as New York and California. Why should mom-and-pop online retailers in Tennessee be forced to bow to Illinois or California law? Not only does this undermine the sovereignty of the State of Tennessee, it also creates a condition of taxation without representation which is as unacceptable in 2013 as it was in 1776.

Despite these problems, Lt. Gov. Ramsey insists that an Internet sales tax is good policy. I, therefore, invite Lt. Gov. Ramsey for a policy debate on the issue of the Marketplace Fairness Act in a public forum at his convenience.

My guess is that he will be unresponsive to this challenge further proving the growing disconnect between the current Republican establishment and the conservative grassroots in Tennessee.


Glenn Jacobs, a professional wrestler and actor, is the co-founder of the Tennessee Liberty Alliance. An outspoken critic of big government, Jacobs lives with his family in Jefferson City, Tennessee.

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