Nothing is “Fair” About Congress Changing the Rules on Businesses After Twenty-One Years

Guest Post by David Addington, The Heritage Foundation

To hear the brick-and-mortar businesses complain of the need to enact S. 743, the so-called Marketplace Fairness Act, you would think that the Constitution entitled every brick-and-mortar store to a successful business model in perpetuity.  The legislation, on which the Senate will act shortly, authorizes states to order out-of-state businesses to collect their state’s sales tax on sales over the Internet.  The legislation overturns the existing rules in the free market, to the benefit of the brick-and-mortar businesses over their competitors.

The rules concerning sales by catalog, telephone, or Internet by out-of-state businesses that have no facilities or employees in a state have been clear for 21 years.  In 1992, the U.S. Supreme Court decided in Quill Corporation v. North Dakota that states cannot force such out-of-state sellers to collect the state’s sales taxes on those remote sales. The proponents of S. 743 want Congress to change the rules that have existed for 21 years so that brick-and-mortar companies have a new government-provided advantage over the Internet-oriented companies.

Millions of business decisions have been made in the free market over those 21 years by businesses of all kinds, choosing whether and to what extent they would rely in their sales of goods and services on physical facilities such a stores and showrooms and whether and to what extent they would rely on catalogs, telephone solicitations, or sales over the Internet.  Many companies have chosen one model or the other, or combinations of the two, to sell their products and services. All those companies have had the opportunity to compete in the marketplace under that stable set of rules set forth in Quill. Apparently, many of the businesses that chose the brick-and-mortar business model are now feeling the heat of free market competition, so they want government to change the rules to favor the brick-and-mortar business model.

For the U.S. Senate to seek with S. 743 to change the rules after 21 years have passed is a misuse of the constitutional power of Congress to “regulate commerce . . . among the several states.” The purpose of S. 743 is not to remove a burden from interstate commerce. The purpose of S. 743 is to put a new burden on some of the participants in interstate commerce — namely, the Internet-oriented companies — to the advantage of the market participants who decided to stay with stores or showrooms.   Government should not intervene to change the rules after 21 years’ worth of business decisions have been made in reliance on existing rules.

Make no mistake: In the free market many brick-and-mortar businesses serve consumers well, just as many Internet-oriented businesses serve consumers well. Both should continue to compete under the existing, stable rules in a free market. That way, the companies that best serve the consumers in the marketplace will survive and thrive, and the consumers will receive the best goods and services at the best prices, as they should. To advance that objective, the U.S. Senate should leave competition to the free market under the existing rules of 21 years and not, as S. 743 would do, add a new tax collection burden to the Internet companies that form an important part of our economic future.

David S. Addington is the group vice president for research at the Heritage Foundation.

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