Taxing Internet sales is the right thing to do

The fight to keep brick and mortar commerce subsidizing e-commerce is in a crucial stage today.

You never heard of that fight? It also goes under the guise of fighting "Internet sales taxes". A bill (the "Marketplace Fairness Act") is moving along in the Senate that requires merchants with $1 million or more in revenue to collect any sales taxes due in the state of the buyer.

The buyer is already responsible for such taxes, called "use taxes" when paid by the buyer. Real businesses actually pay these taxes, but only a small proportion of consumers, sometimes known as "suckers", pay them. It's rare for anyone to get in trouble (although I did once in 1986).

I am, by inclination, a small-government type, a quasi-libertarian. A new way to tax people for engaging in commerce is not what I'm usually looking for. That's not the issue here: sales taxes are applied at stores with physical presence in the state but not those selling remotely. This is inherently unfair to the brick-and-mortar businesses. I'm probably all for cutting sales tax rates to "starve the beast" but I'm not for taxing commerce sold one way and not the other.

Would online sales taxes help or hurt small business? Some would be helped, some would be hurt. Small businesses operating in the venue of big businesses like eBay would be hurt because the auctioneer clearly does more than $1 million in revenue. For this reason, eBay has started a "spam your congressman" campaign to oppose the legislation. Amazon.com, on the other hand, actually supports the new law. Amazon and its local affiliates have been the target of states for not collecting such taxes from out-of-state customers and perhaps company execs think that they're well-positioned to benefit from an environment where everyone has to collect them.

The main complaint about such taxes used to be based on the legal reason why, back before e-commerce, courts found that out-of-state merchants were not obligated to collect them: It was too great a burden. There's no credible case left for the substantial burden argument. Software and Internet services are very capable of determining sales taxes owed based on an address.

Now the complaint is the burden to small business. Well, if you're doing your own e-commerce collections and have under $1 million in revenue it's not a problem for you. The $1 million ceiling for the exemption is likely to create some perverse incentives for companies near that number, perhaps to split into multiple businesses so as to stay under the limit. Personally, I wouldn't even support the limit. Everyone who does e-commerce above the level of emailing "send me a check and I'll mail it you" uses outside services which are, or should be, perfectly capable of collecting such revenues.

I've seen some really lame complaints about this: "Local businesses use the local services that the taxes pay for; a business out of state doesn't". True, but sales taxes are consumption taxes. The buyer pays, not the merchant. That's why the buyer has to come up with the money. And the buyer is in the state where the taxes are due.

Lame complaint #2: "Internet buyers are already paying for shipping, why should they also have to pay taxes?" They should pay for shipping because they are getting the item shipped. Taxes have nothing to do with this. And there are lots of circumstances, more and more lately, where shipping costs are not directly charged. I'm an Amazon Prime customer and one of the things I get is 2-day shipping included on most of the items I buy.

I would respect the arguments of businesses and Republicans organizing against sales taxes for remote Internet sales if they showed some concern for the injustice that the system creates for local businesses. Is there a better solution? I'm willing to listen.

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