Fomer ND Gov: Marketplace Fairness Act Is First Step To Federal Sales Tax

North Dakota occupies a unique position in the debate over the so-called Marketplace Fairness Act, which would allow states to apply their sales and use taxes to online retailers. It was the Quill vs. North Dakota, a Supreme Court case litigated by then-Tax Commissioner Heidi Heitkamp and Attorney General Nick Spaeth, which set the current rules for applying sales taxes to businesses which exist outside the state. That case, which dealt with catalog and mail-order companies since online retail didn’t exist at the time, held that a business must have a physical presence in a given state before it can be asked to collect that state’s sales tax.

Which is why in North Dakota companies like Amazon and Barnes and Noble collect the sales tax. They each have a physical presence in the state.

But the Marketplace Fairness Act would go beyond that, requiring that all businesses doing over $1 million worth of total business collect the sales tax for the states. The supporters of the law say that it will end the advantage online retailers have over brick-and-mortar retailers, but former Governor Ed Schafer isn’t so sure. Pointing out that online retailers account for only a small sliver of national retail sales, and that they already operate at a disadvantage given that they have to ship to the customers they’re serving (and charge for that shipping, he says the Marketplace Fairness Act is anything but fair.

“Let’s leave this the way it is,” he told me in an interview.

I asked Governor Schafer about North Dakota officials, including members of his own party like Tax Commissioner Cory Fong and Senator John Hoeven, supporting the law. Schafer says they’re looking more for revenues than fairness.

“He talks bout fairness,” Schafer said of Fong specifically, “but in the end he talks about revenues.”

Schafer also expressed fears that the MFA would open the door for a federal sales tax. He said the Act “sets up for a national collect system for the sales tax,” and warned that passing the law is “fraught with danger.”

An interesting point Schafer brought up, one I hadn’t considered before, is just how important mail-order and online shopping is to rural states like North Dakota. He reminded me of my grandmother, the daughter of homesteaders who set up in North Dakota around the turn of the century, talking about the importance of the Sears & Roebuck catalog to their family. It opened up a whole new world of goods and services to them that hadn’t been available before.

It’s not hard to see online retail as serving that same function to rural communities. A big factor in the decision to leave a smaller community is the easier access to commerce in larger communities. Things like internet shopping, and internet banking, allow greater access to commerce for people living in rural America.

Here in North Dakota a lot of money gets expended on economic development projects, among other things, to keep the state’s smaller communities alive. Yet, by making online commerce more expensive, the Marketplace Fairness Act would deal a blow to one of the most important aspects in rural living.

Given the danger for increased federal taxation, and the headaches this would cause for online commerce, it’s hard to see how the Marketplace Fairness Act is right for America. Or North Dakota.