“Internet Tax” May Hit Savings Accounts

(Note: Hirono, Schatz voted for the 'Internet Tax' S.336/H.R.684 in the Senate, it has not yet been voted in the House.)

by Alex Adrianson, Heritage.org

Your 401(k) might not be tax free after all if the Marketplace Fairness Act (MFA) becomes law. Described by proponents as a way of leveling the playing field between online and physical retailers, the bill would allow states to impose use taxes for transactions beyond their borders. It’s already been passed by the Senate, and the House may take up the bill soon, too. John Berlau explains how this bill will allow states to tax savings vehicles:

The bill authorizes states to “require all sellers not qualifying for the small seller exception [$1 million in sales or less] to collect and remit sales and use taxes with respect to remote sales sourced to that Member State.” Yet “sellers” and “sales” are never specifically defined, and there are no specific exemptions for certain types of products or services.

Financial experts say this means states tax “sales” such as stock trades in a mutual fund or brokerage account, or even contributions to pension plans such as 401(k)s that were designed to be tax-free until retirement.

The American Society of Pension Professionals and Actuaries, a group of more than 11,000 retirement plan and benefits professionals, warns the bill “would allow states to impose a financial transaction tax that would apply to American workers’ 401(k) contributions and other transactions within worker’s accounts.” The group notes that “over 70 million workers could be affected” by such taxes, which “could significantly reduce workers savings over time, threatening their retirement security.” […]

The Securities Industry and Financial Markets Association (SIFMA), representing securities firms and asset managers, issued a statement urging hearings on the MFA’s impact on financial services. As written, “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,” the group said. [OpenMarket.org, May 6]

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