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'Net Taxes: Deal with the Devilby
Peter J. Sepp Feb 12, 2003 Recently a group of America’s major retailers, including Wal-Mart and
Target, came to a “voluntary” agreement with 38 states plus the
District of Columbia to begin charging sales taxes for purchases all customers
make through their online websites. Previously, the U.S. Supreme Court had
ruled that a state cannot force a firm to collect taxes on an out-of-state
buyer (unless the firm has a “substantial physical presence” in
that state). It is worth noting that all the named parties to the current
deal, while selling online as separate entities, do indeed have a “substantial
physical presence” in virtually every state.
This seemingly modest concession has fiscally lethal fallout: a “symbolic
victory” (in the words of the Washington Post) that will give
momentum to the state-sponsored Streamlined Sales Tax Project (SSTP). This
much more ambitious scheme, which would need approval from the U.S. Congress,
seeks blanket of taxation on all Internet purchases, even from firms
that do business solely online or through catalogues. Both state officials
and the National Retail Federation are praising the SSTP as a way to treat
companies more equitably, and raise revenues for cash-hungry governments. Unfortunately, a broader tax cartel could have devilish consequences for consumers,
taxpayers, and businesses.
For one,the price of every good sold over the
Internet reflects the income, property, payroll, and other taxes that the
online seller is now paying. The shipping costs that customers pay for these
items often include fuel and other levies that deliverers pay in the course
of fulfilling an order. On top of all this, web-based businesses and their
customers, who rely on phone lines for their transactions, pay telecommunications
taxes – often at higher rates than conventional sales taxes – that may not burden traditional retail operations as heavily.
The real fairness question comes down to this: why should a merchant collect
taxes for a government whose services he may never need? Where would the taxable
event occur in a sale involving a firm headquartered in one state and a buyer
in a second state, which was facilitated by a server in a third, and shipped
from a warehouse in a fourth?
This is not a matter for idle speculation. A spokesman
for Amazon.com, which is partnered with participants in the new voluntary
collection scheme, said that the purely-online book-selling giant will find
it “incredibly difficult and incredibly expensive” to figure out
the proper rate to charge customers (there are an estimated 7,500 sales taxes
in place across the U.S.). The compliance headaches would only multiply for
large and small businesses alike, if greedy governments push harder for the
SSTP.
And, far from ruining “Mom and Pop” stores,
many new small retailers have set up in cyberspace instead – reaching
millions of potential customers with specialty products in a way they never
could before. The U.S. Department of Commerce predicted that by the end of
last year, “85% of small firms [would] be conducting business over the
Internet.” Why should entrepreneurs who have adapted to the New Economy
be punished with tax hikes?
The SSTP could be further fueled by the desperation of huge budget deficits.
Yet ironically, state receipts grew far faster than inflation or the population
during the 1990s tech boom, only to be squandered on massive new spending
programs. Even today, the politicians’ poverty pleas are unconvincing:
state and local governments took a higher share of the nation’s economic
output in 2002 than they did in 2001. Taxpayers shouldn’t be forced
to reward this fiscally irresponsible behavior.
According to a study by economist Steve Moore, the ten lowest-taxing states
had better job creation, personal income growth, budget reserves, and bond
ratings between 1990 and 2000 than the ten states which increased taxes or
kept them high. Another analysis from Austan Goolsbee estimated that online
expenditures would fall 30% if blanket sales taxes were applied to Internet
purchases. Taken together, this research suggests that leaving the e-commerce
structure alone could very well mean a windfall to governments because of other, non-sales tax revenues
that “dot-coms” generate.
Instead of pointing fickle fingers of “fairness” at each other,
members of the business community should unite and demand lower taxes across
the board. Congress should also put an end to the states’ extortion
racket, by passing legislation to explicitly prohibit additional taxes on
Internet purchases. No firm in America should have to sell its soul in order
to sell products online.
Pete Sepp is Vice President of Communications with the National Taxpayers Union. |
