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Commentary


Tax-Grabbers Must Be Stopped

June 13, 2008
By Kristina Rasmussen

New York State's attempt to force Amazon.com to collect sales taxes on purchases shipped to in-state residents has opened a new chapter in government's obsession with squeezing ever-more revenues from the Internet.

Just as if you were at the cash register, an Internet-based seller can charge you sales tax when you buy from a firm that has a physical presence in your own state (such as when a New York City resident orders online from an upstate winery). Your home state can also demand a "use tax" come filing time if you didn't pay sales tax on an out-of-state transaction. But administrators complain that compliance with this individual requirement isn't high enough, and so they seek to shift the collection burden to sellers who may be located clear across the country from where you live. Thankfully, one thing stands in their way: the U.S. Constitution.

In 1992, the Supreme Court ruled that "remote sellers" (at that time, mail-order firms) didn't have to collect taxes on purchases made by inhabitants of states where the businesses had no "bricks-and-mortar" establishments.

Ever the creative types, Empire State tax authorities argue that Amazon.com, which conducts business strictly online, does have a bricks-and-mortar presence if any Web site linking to the selling behemoth is rooted in New York. Amazon.com is challenging this end-run around the Court's decision -- and rightly so. Overstock.com has since filed suit too, and is even severing ties with affiliates in New York.

Remember that each state has a homegrown tax system with differing rates, definitions, and applications. Five states have no sales tax, 30 don?t tax food, and 11 exempt non-prescription drugs. What one state considers food, another may tax as candy. Some states base taxes on where shipments originate, others on destination. Different rates and rules for 7,500-plus local jurisdictions add another dimension of complexity to the mix.

The cost to online retailers to calculate, collect, and remit these taxes could very well force higher prices or even business closures during this time of economic uncertainty.

Even if the state loses in court to Amazon.com, New York's tax grab isn't the only forced-collection movement afoot. The so-called Streamlined Sales Tax Project (SSTP) is being peddled by officials who want to create a multi-state cartel to process tax payments.

If the SSTP truly were the magic bullet as some claim, all states would have implemented the plan a long time ago, voluntarily. Online retailers -- big and small -- wouldn't continue to oppose it. Promoters wouldn't be taking it to Congress to get a federal blessing for the program, a mandate that would sweep away the constitutional barriers now keeping them at bay.

Boosters are also seeking top-down imposition because of disillusionment with the SSTP's increasingly byzantine rules. According to Steve DelBianco of the NetChoice Coalition, what started with an "original simplification vision of one-rate-per-state" is now morphing into a "dual-sourcing scheme to accommodate both origin and destination based taxes at the same time." It's enough to make your head spin -- and make your wallet lighter in the process.

One way out of the SSTP's rules thicket would be for states to harmonize toward a single sales tax rate. Yet, given historical trends, it is likelier that states with low rates would have to move up to meet high-tax states' rates, rather than vice versa. Don't like the idea of paying California's 7.25 percent sales tax wherever you shop? I don't either. Tax competition among states is a direct and valuable benefit of our federalist system.

Online consumers can and do make the right choice to pay their use taxes at filing time. However, taxpayers should oppose any scheme that would make life easier for the Tax Man in exchange for higher-priced consumer goods or increased tax rates.

This article appeared in McClatchy newspapers nationwide.