Should states tax Internet sales?
By Ben Boychuk and Joel Mathis
Should states tax Internet sales? There's a movement in several states to levy a sales tax on all purchases made from online sources ― including, in some states, digital downloads from companies like Amazon and Apple. The National Conference of State Legislatures says such taxes could raise as much as $23 billion a year.
But companies say that figuring out the tax rate of every city and every county in every state in the nation is an impossibly complicated task. And online companies may lose their price advantage over "brick-and-mortar" rivals.
Should companies like Amazon collect and pay sales tax? Joel Mathis and Ben Boychuk debate.
MATHIS: They say if you want less of something, tax it. And in the late-1990s heyday of the Internet, that was a very good reason not to tax "e-commerce": The sector was young and fragile enough that throwing a tax bill at it might have been enough to make a number of young companies collapse.
That was then, this is now. Borders went out of business last year, but Amazon is still standing ― delivering physical books in the mail and e-books over the transom. Tower Records shut down all of its stores at the end of 2006, but Apple's iTunes service is doing brisk business.
Online commerce is now a mature, normal, even preferred way of doing business for most Americans.
And it's time to tax it.
Brick-and-mortar retailers, of course, have never had the option of not paying sales taxes. They've been put at a disadvantage to their online rivals when it comes to pricing their products, as a result.
That disparity is unfair.
And there's another question of fairness. Online companies do take advantage of amenities made possible by government: Their workforces are mostly educated in public schools, their products are delivered by vehicles running on public streets, and so forth. Even where the commerce is purely digital, in many cases the signals are exchanged via fiber-optic networks where the government secured the rights-of-way for cable to be laid.
Few, if any, online businesses would exist without that government-created infrastructure.
Congress is apparently moving toward passage of the Marketplace Equity Act, a bill that would smooth out the rough details of online sales tax collections and empower states to proceed. The Internet isn't new and novel anymore: It's time that online businesses start supporting the communities that enable their profit.
BOYCHUK: Online retailers do pay taxes, of course, on their corporate income and profits. So it's not as if Amazon or Overstock.com got all that fiber for free.
Then what is the renewed push for online sales taxes really about? "Equity" can't explain everything.
A more compelling reason is that many states are desperately seeking new revenue to cover not only current programs and expenses, but also to help fill the ever-widening maw of unfunded pension and entitlement obligations.
That would explain why several Republican governors, current and former, have jumped on the Internet sales tax bandwagon.
"It seems to me there has to be a way to tax sales done online in the same way that sales are taxed in brick-and-mortar establishments," wrote former Florida Gov. Jeb Bush in an e-mail to current Gov. Rick Scott last year. "My guess is that there would be hundreds of millions of dollars that then could be used to reduce taxes to fulfill campaign promises."
Bush guesses wrong. A study by the Tax Foundation in Washington, D.C., found, contrary to claims of supporters left and right, that Amazon taxes "do not provide easy revenue" and, in fact, "the nation's first few Amazon taxes have not produced any revenue at all" because the online retailer simply discontinued its affiliate programs in those states.
Amazon actually supports the federal solution. Again, "equity" has nothing to do with it. If the states can impose a legal and effective means of collecting taxes from online sales, Amazon would be poised to help its third-party vendors overcome the hassle ― for a fee of 2.9 percent, according to a plan Amazon announced last year.
Turns out, tax collection can be a profitable enterprise.
In the end, however, the case against Internet sales taxes is straightforward: State government spending is unsustainable, and new revenues ― assuming they appear ― won't suddenly jar elected officials back to reality. Fiscal responsibility begins with controlling spending, not imposing new tax burdens.
Ben Boychuk is associate editor of City Journal; email@example.com. Joel Mathis is a writer in Philadelphia; firstname.lastname@example.org.