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Tax the net

July 08, 2005

As far as free lunches go, the sales-tax exemption for Internet purchases lasted a good long time - more than a decade. But it doesn't look like it's going to last much longer. Cash-starved states are joining forces to overturn the exemption, and editorial writers are banging the tax-the-net drum. On Sunday, it was the Philadelphia Inquirer saying "e-commerce doesn't deserve a free ride." On Tuesday, the New York Times declared that "sales tax collection by online retailers is an idea whose time is way overdue." On Wednesday, the Fort Wayne Journal Gazette applauded the move "to end the unfair tax advantage e-tailers and their customers enjoy."

The argument that Internet commerce needed to be shielded from the taxman in order to nurture its growth was always pretty lame. Government-imposed advantages don't make businesses stronger - they make them weaker. And now, with online retailing a massive industry, that argument is just plain ludicrous. A more compelling reason to exempt Internet sellers - the reason that won over the Supreme Court - is that collecting taxes for dozens of different states with different tax rates and procedures would be too onerous, especially for smaller retailers. But that argument, too, is getting weaker all the time. E-commerce is built on sophisticated software, and adding some code to track and file taxes wouldn't be a big deal - plenty of retail chains with online stores already do it. At least some of the states, moreover, seem to be making a genuine, if belated, effort to bring some consistency to their tax schemes.

Nobody likes to pay taxes - or collect them - but it's now time to level the playing field between Web retailers and their bricks-and-mortar counterparts. Unfair advantages aren't just unfair - they distort competition and skew investment decisions. The Internet's sweetheart tax exemption should be repealed. I have to admit, though, that I'm going to miss it.

Posted by nick at July 8, 2005 12:04 AM

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Comments

Sure, imposing a sales tax on the internet levels the playing field for the brick and mortar gang, but consider the issue of soverign control. If I want to escape the sales tax on a new washing machine in Massachusetts, I skip over the border into New Hampshire, buy it there, and to hell with Massachusetts. Buy a car in New Hampshire and then try to register it in Massachusetts and the Registry of Motor Vehicles hits me with the tax before handing over the plates. That is sovereign control.

So, project what happens if you impose a sales tax on internet transactions. Just like online gambling, the merchant moves offshore -- to Nauru, Antigua, Liechtenstein -- where ever, fulfills the order, sticks it into a global delivery provider and off it goes. Where's the tax imposed? Customs? Does legislation get passed that forced me to report my transaction and pay tax or face the consequences?

Sorry, but sovereign power is nuked by the Internet. Imposing a tax on net commerce will just lead to a boom in offshore merchants, build the bureaucracy (as you point out), and turn us all into scofflaws.

Posted by: David Churbuck at July 8, 2005 07:30 AM

Maybe it's time the US legislated to impose a single, federal decision on one defined sales tax rate across all states? How would that go down with your consumers?

Posted by: Lynne McA at July 10, 2005 07:37 PM

Tax the net

July 08, 2005

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