For the past several years, a small group of companies has been playing an unscrupulous game impeding good public policy. Public choice theorists call it “rent-seeking.” In this game, investments in advocacy drive profitable policies favored by the members of a particular group, protecting market share and hurting competition.
The argument goes something like this: When the government is picking winners and losers, it pays to be one of the winners.
This is exactly what has been happening for the past 20 years between online-only, out-of-state sellers and brick-and-mortar retailers. In its 1992 Quill Corp. v. North Dakota ruling, the Supreme Court invited Congress to end this rent-seeking regime; however, the court left the status quo in place while Congress decided exactly how to address this issue. What we were left with is a special tax exemption for remote sellers allowing them to avoid collecting and remitting sales tax.
More than two decades later, online retail sales are booming and remote sellers want to preserve their safe haven. Some have come to depend on the price advantage that comes from not having to collect and remit sales tax. Others simply have ignored the realities of competing in a free market, arguing that they are entitled to, even expecting, special treatment. So when their decades-old loophole is at risk, they contort the facts to say that their special exemption is actually good for everyone.
Rent-seekers often make the case that they deserve the special benefits they get, or that they should be trusted with a special exemption because, through no fault of their own, they have become dependent on it. Asking them to compete in a free market would be unfair, they say. It would require tough choices in the name of competition, driving reluctant innovation for the sake of survival. But in the free market, fairness requires a level playing field. Otherwise competitive businesses are forced out of the marketplace. The free market treats all businesses equally and uses merit to sort out the winners and losers.
Here are some additional facts about the arguments from the rent-seekers: 1) For those who say that this unfair treatment is too complicated, it’s just not true. The same technology that makes online retail a reality has already simplified sales tax calculation and collection for thousands of retailers collecting today. 2) This is not a new tax or a tax increase. When an online seller doesn’t collect and remit the sales tax from a purchase, the burden falls on the customer to calculate and remit the tax directly to the state. Requiring payment of sales tax for online purchases at point-of-purchase wouldn’t be a new tax; it’s a tax that’s already on the books.
Just because someone doesn’t want to pay the tax doesn’t make it go away. If the law imposes a tax liability on somebody, until the law is changed there is a legal obligation to pay it. It’s not a tax increase just because it results in extra money coming in, because the extra money is already owed and should have been coming in all along.
Rent-seeking is a tactic used to grow market share, not grow the market. It is good for a few businesses and bad for everyone else. But if a few companies are allowed to avoid adhering to free market principles by preserving a loophole or exemption, they will do so. And special interests will often spend big money to keep that loophole in place at the expense of others.
Congress is not beholden to special interests, it is beholden to constituents. Its policies must reflect that. I urge Congress to move forward in passing policies that reflect what’s best for American business and American consumers. It’s time to play fair and enact federal e-fairness legislation before the end of the year.
James L. Martin is chairman of the 60 Plus Association. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions for editorials, available at this link.
