The Real Reason Wall Street Is Fighting the Online Sales Tax

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It’s rare these days to find a bill that garners bipartisan support, but members of both parties in the U.S. Senate are getting behind the Marketplace Fairness Act, which will enable states to collect sales taxes on products sold by online, out-of-state vendors. The goal of the bill is to level the playing field between online retailers — which don’t have to collect sales taxes on items sold to customers in states where they have no physical presence — and brick-and-mortar vendors.

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Predictably, the bill has the support of big brick-and-mortar retailers like Walmart, and is being fought by online outfits like eBay. More surprisingly, Wall Street jumped into the fray yesterday, with one industry group — the Securities Industry and Financial Markets Association (SIFMA) — coming out against the measure. Needless to say, SIFMA probably isn’t concerned about you paying sales tax the next time you buy a blender on Amazon. Here’s what SIFMA had to say:

We believe the impact of this legislation on trade in services has not been adequately explored by Congress. The bill could lead to unexpected costs being passed on to consumers of financial services, including sales taxes on services or state-level stock-transaction taxes.

So while the bill’s stated goal is simply to force online retailers to collect sales tax that is now going uncollected by states, Wall Street sees it as a Trojan horse that will allow state governments far away from New York City to soak the financial-services industry with new sales taxes on financial transactions. This strikes me as a rational fear given Wall Street’s unpopularity, and the fact that, though it has the ear of Washington and Albany, its lobbyists are far less influential in most state governments across the country.

And if there’s anything the financial-services industry is opposed to, it’s a financial-transaction tax. The industry is currently trying to beat back a European financial-transaction tax that is being implemented in 11 countries in the E.U. The E.U. tax would charge a 0.1% tax on transactions involving equity or debt and 0.01% on derivatives transactions, and while these amounts may seem trivial, it is expected to raise tens of billions of dollars from the large volume of such transactions that occur every year.

Many in the U.S. are eager to implement a similar tax. In February, Senator Tom Harkin and Representative Peter DeFazio introduced a bill that would tack a 0.03% tax on financial transactions, while Representative Keith Ellison introduced a more robust version last week, which he claims will raise more than $1 trillion over 10 years.

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The logic behind such a tax is not only that it would raise much needed revenue, but that it would be a disincentive to the sort of overzealous speculation that contributed to the financial crisis and the high-frequency trading that has swept Wall Street in recent years.

But none of these proposals has actually gained much ground. Though a tax aimed at Wall Street might be preferable to most Americans when compared with, say, the recent hike in payroll taxes, it isn’t entirely clear we need to raise taxes in the short term, given the economy’s weakness. On top of that, there would most certainly be negative effects of such a tax on the economy that need to be carefully weighed beforehand.

Law professor (and New York Times DealBook columnist) Steven Davidoff summed up these concerns recently, citing studies that showed that financial-services taxes actually increases stock-market volatility rather than decrease it, and that poorly designed taxes could actually encourage the use of more exotic financial instruments that could increase instability in capital markets.

SIFMA isn’t currently opposing the Marketplace Fairness Act out of fear of a federal financial-transaction tax, but out of a fear that states and localities will start imposing them. The case against allowing a proliferation of different state-level financial-transaction taxes is probably more robust, as such a system could be easily abused by wealthy taxpayers, leaving the middle class to shoulder the burden.

But this latest twist in the Marketplace Fairness Act could be a nice test for those of us interested in just how much sway Wall Street has over Washington. If special dispensations for financial services begin cropping up in later iterations of the bill, we’ll know whom to thank.

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21 comments
MrBenGhazi
MrBenGhazi

"Level the playing field" here means "destroy countless businesses." Nice jobs bill Congress, keep at it and I'm sure one day you'll draft a bill that doesn't hurt the American people.

esunderland98
esunderland98

There should be NO new tax on anything until government balances the budget for 10 consecutive years with the money it gets now. Why in hell would we want to expand taxes when our government is completely incompetent and unaccountable with the money they get now? I say cut up the government credit cards and start over with a flat tax. 

Watch out because Obamatons have been calling into Public Broadcasting and C-SPAN extolling the virtues of a value added tax. The value added tax does nothing to add value to the tax debate but cause another layer of regulations, rules, exemptions, loop holes, federal employees, and who knows who will decide what to tax. I did some work across the border with Canada and they have one. It is a problem and the biggest problem is the taxpayers are not asking for an online tax so this is a top down scheme and not a ground up as it should be tax scheme.   

tomdavis2020
tomdavis2020

The French introduced their own FTT about six months ago. It's a huge flop, raising only about 25% of the projected revenues, increasing capital costs and driving investment capital out of France. It's a net negative tax (the total costs are greater than the revenue raised). This is exactly what Berkeley Economics Professor, Barry Eichengreen, predicted would happen.

While 11 of the 27 EU countries are attempting to put an FTT in place, a majority of EU Nations (16 of 27 countries) have said they will not participate because it will damage their economies and harm ordinary working men and women. The  Secretary General of the European Federation for Retirement Provision says the FTT is not a tax on Wall Street, but rather a tax on retirement savings and other “innocent bystanders.”

A study by the Dutch Central Bank showed that 40% of the FTT would be paid by pensions and retirement savings, 10% would be paid by insurance companies (driving up everyone's insurance costs), 25% would be passed on to customers, and only 25% of the FTT would be paid by banks and financial institutions. 

roknsteve
roknsteve

Let's see, Ebay charges me twice to sell things and then the Post Office gets there's for shipping.  And then they want to add on a tax???  I used to make a couple hundred bucks a month before the resession.  Now it's almost not worth it because people won't buy anything much over 20 bucks.  I feel like a tiny 99 cent store.   

Hermione
Hermione

The only thing the 2-party political system can agree on is making more money for themselves and their financial backers.  And people wonder why nothing gets accomplished in Congress, this article explains it pretty clearly - it is all about "show me the money".

AsadPatel
AsadPatel

this is cool, as a retailer, i dont have to listen to the "I dont have to pay no taxes online how come you charge taxes" anymore. or i don't want to pay no taxes because i dont pay them online. plus it would bring in the lost revenue for the govt. because a grand majority of the online sales has caused this great loss. as far as shipping is concerned the govt. doesnt get any of that shipping revenue directly so they care about their money. 

RoccoJohnson
RoccoJohnson

An additional problem with this is that while the politicians claim that the tax will only be .03% we all know that it will increase over time. The problem is in giving the tax supporters a foothold, which allows them to raise the rate over time.

ia89ia
ia89ia

Here's the thing.  The "playing field" is already more level than people realize, because people buying things online have to pay for SHIPPING.  Shipping costs are generally far higher than the cost of driving to your local big-box store.  If state sales taxes get added to shipping costs, the entire online commerce section of the economy is going to get a very painful kick in the gut.  This would be a disaster.  Our economy needs stimulation, not further hamstringing.

Cis
Cis

my question is..... if they are going to collect taxes for online purchases for the state that the buyer lives in....

What about the people who live in bordering states? 

We live in Idaho.. we go to Spokane Wa. and buy things.

We are charged Wa. tax but not Idaho tax.... So why would it be different for those online? 

I could understand if they were going to collect taxes for their own state.. but not ours.. After all each state has their own type of taxes, and they are even talking about the local taxes as well. Sound like a can of worms to me.  

Buying online at a warehouse, or store... isn’t

any different than buying across the state border at a store or warehouse there...

auronlu
auronlu

WalMart and Target lobbied hard to get this tax passed, because they don't want smalltime bookstores, eBay sellers, or those struggling to keep their heads above water by selling items online to be able to compete. 

After all, WalMart and Target get all kinds of tax breaks and benefits, from special consideration by police and utilities to traffic signals, signs and roads. 

Whereas a smalltime eBay seller is probably not even writing off his/her computer or IKEA desk as a work expense. Why shouldn't the smalltime eBay seller get nickeled and dimed by another state entirely for selling that old Fernando Bobblehead? 

RealityIsNotOptional
RealityIsNotOptional

Plus the only way to circumvent unnecessary and unfair taxes is to stop purchasing goods and services.    I am getting to the point where even though I make a good salary I am sick of paying for these worthless politicians scams and mistakes.    I am looking forward to their complete failure!

tschorr
tschorr

The Marketplace Fairness Act only applies to online retailers that have more than $1,000,000 in sales outside of their home state a year. I sell on ebay also but don't come anywhere near 1 million in sales a year. This will have no affect on small ebay seller like us.

Hermione
Hermione

As an Independent voter, I admit, I do take a more conservative stance when it comes to excessive government spending.  Overhauling our justice system alone would save billions.

RealityIsNotOptional
RealityIsNotOptional

Gubermint could careless how and who they shake the money from as long as their perks are taken care of.

Hermione
Hermione

Very true, these taxes will go up over time.

Not only that, but the additional amount of paperwork, by not only the government, but everyone else will go up astronomically.  What little cha-ching that will be collected in taxes will be eaten up with all the oversight and red-tape that our government is so good at.

S_Deemer
S_Deemer

@ia89ia I almost never order anything from Amazon.com that requires paying shipping. Either the item costs more than $25, or I combine orders to create a total more than $25. Taxes plus convenience (I don't have to drive around town looking for something) are compelling reasons to shop online. I'm expecting delivery of a $25.97 order from Amazon tomorrow.

lk312
lk312

Technically, depending on your state and the value of the item, you are allowed to deduct the out-of-state sales tax from your state income tax return, but you are also supposed to pay sales tax to your home state on the item bought out of state. 

This almost never happens, and when it does, it is almost always on vehicles, since cars, boats, etc., have to be registered and licensed within a state.  If you use an out of state title to do so, then your home state will convert it to a title for your state.  This makes the out of state purchase visible and recorded by your home state and thus, why it is one of the few cases where the above scenario about inter-state tax rules applies.

lk312
lk312

WRONG!!! 

I have been a consultant to these companies on distribution logistics and sales tax issues and you are sooooo way off base.

Mom & Pop book stores are NOT the threat the Target/Walmart (more like the other way around).  Instead, Target & Walmart support this legislation because so many people come into their stores to physically check out items before going home and buying them online from Amazon.com and similar websites.  These chain stores, as well as Best Buy and others, have lost billions in sales over the past 10 years due to this rapidly growing consumer practice. 

RealityIsNotOptional
RealityIsNotOptional

If you use Paypal the sales tax for your state will automatically be added to your final total.