‘Closing Time’: Semisonic’s Verse Describes Advent of Marketplace Fairness Act
If, as 90s rock band Semisonic put it, every new beginning comes from some other beginning’s end, then it’s appropriate that the Senate began debating the Marketplace Fairness Act this week, just off the heels of the 2013 tax season.
So it is with tearful goodbyes, we bid farewell to the tax season of yore and proclaim a cheerful hello to possibly paying more sales tax.
However, the bill does not propose paying a new tax.
Rather, the Marketplace Fairness Act, often referred to as the Internet tax bill, would give states the power to enforce online businesses to collect sales tax if a product is delivered in their state. Proponents of the bill maintain that the act is simply asking internet businesses to comply with the same tax rules that brick-and-mortar businesses have abided by for years. Furthermore, supporters of the bill state the “internet tax” is not a new tax, but is merely the enforcement of a rule currently in existence.
Opponents of the tax law, Grover Norquist being at the forefront, say the law opens up the possibility for tax brawls.
“There are tremendous abuses that would flow from politicians taxing businesses that can’t even vote against them. That’s why the politicians at the state level love this! It’s ‘free money!’ they think. But by opening it up, the voters in their states will get mugged by 49 tax collectors in the other states,” he told Fox Business News.
Mr. Norquist’s point is an interesting one. If an online business based in one state can’t vote out politicians of a state that taxes them, don’t we have a similar version of “No taxation without representation?”
Furthermore, in addition to new taxes, imagine the volume of legal disputes that states could stir up if the Marketplace Fairness Act were passed. States would be able to investigate the tax history of any business that makes over $1 million annually. The prospect of investigating hundreds more businesses would slow down, to put it optimistically, if not completely overload states’ criminal tax investigatory systems.
Take New York’s state criminal tax system, for example. Thomas H. Mattox serves as Commissioner of Taxation and Finance for the Department of Taxation and Finance. The department investigates suspicious tax activity in conjunction with district attorneys’ offices throughout New York state.
A version of the Marketplace Fairness Act has been in place on the state level in New York since 2008. In March of this year, New York courts voted to dismiss arguments by Amazon.com and Overstock.com, both of which were attempting to have the law repealed. After the businesses were shot down, both online giants said they would consider further appeals processes.
Mattox had this to say about the law:
“Since being implemented, this law has resulted in the collection of roughly $500 million in State and local sales tax. This is equivalent to approximately $6.0 billion of taxable retail sales into New York that were previously made without the sales tax being collected.”
The amount recouped from civil and criminal tax activity will only continue to grow as investigation techniques are refined. On the other hand, the state continues to prosecute large numbers of tax preparers accused of tax fraud.
Recently, the Queens District Attorney charged MD Hyder Alam, Mohammed Khan and Kazi Alamgir of larceny, criminal tax fraud and falsifying business records. The DA accuses the men of preparing 367 New York State Tax returns for 2009 claiming “special addition mortgage recording tax credits” worth a total of $6,103,984.
Allegedly, Alam knew of unannounced mortgage recording tax credits found within the Obama Tax Relief Program because a legislator hinted him off. New York paid $317,010 in the refunds Alam requested before the investigation brought payments to a halt.
Queens District Attorney Richard Brown cautioned that tax filers “be careful when hiring a tax preparer as any unscrupulous action undertaken by them could impact on the taxpayer’s tax liability.”
Criminal defense and tax attorneys with clients who are liable for the actions of their tax preparers could use what is known as the Third Party Defense. Essentially, the Third Party Defense argues that the taxpayer moved forward in good faith with the tax preparer, but the tax preparer chose to break the law. 26 USC § 7201 states “Any person who willfully attempts in any manner to evade or defeat any tax” can be found guilty of tax evasion. Therefore, the Third Party Defense argues that if a taxpayer did not willfully attempt to evade taxes, the taxpayer cannot be charged.