The U.S. Senate earlier this month passed the bill making it easier for individual states to collect sales tax for items bought on line, by phone or through media ads. The bill, which has uncertain prospects in the Republican-dominated House, could squeeze more revenue out of sedentary shoppers, installing another barrier to easy to use ecommerce.

The bill’s supporters point to “lost revenue” from Internet sales of over $11 billion. They point out that it is simply not fair that local merchants must compete with online companies, who can cut their prices because they don’t have to charge sales tax.

The bottom line is that no matter where you shop on line or from where the merchandise is shipped, you pay your local tax at the time of purchase. The vendor must know the amount of sales tax your local government charges, and you pay it. If you live in a state that has no sales tax, you continue to pay nothing.

Arguments against this tax:

  • Taxes should support      infrastructure and not just be predatory

Taxing someone who buys something, but does not travel to the location of the goods, defeats the purposes of sales tax. Think about it: You shop at the local Target or Walmart and pay the sales tax - state and local. That sales tax pays for the traffic control, police and fire protection and plugging the potholes in front of the store.  Sending sales tax money for something bought on line outside the state is collecting a fee for a service not rendered.

  • Hard to implement and      difficult to administer

One convincing argument against the tax appeared on the editorial page of the “Wall Street Journal”:

For the first time, online merchants would be forced to collect sales taxes for all of America’s estimated 9,600 state and local taxing authorities.”

The Journal piece also points out other flaws in the “Marketplace Fairness Act,” which imposes requirements on Internet-based businesses that regular merchants do not have to follow:

  • Ecommerce merchants in states      with no sales tax (New Hampshire, for example) will be forced to do the      same collecting and accounting as states that have the tax.
  • The plan requires yet another      bureaucratic structure - “a centralized tax collector for each state or      for a group of states that would gather both state and local levies from      online merchants.” Superimpose that requirement on about 9,600 tax      authorities, and it becomes extremely complicated. (But, cynics say, it      would be a new way to spend the additional revenue.)

The “big guys” are actually in favor of the tax!

Walmart and Amazon really like the idea of collecting the tax. They are, according to the Journal piece “drivers of this rush to tax.” Why? The irony is that being so large and spread out, the bigger stores already have the tax collection and payment mechanisms in place - and that means that, yet again, they get to put the squeeze on their smaller competitors, who aren’t so agile.

The marketplace will adjust as it always has

Finally, if the tax becomes fact, the playing field won’t become more level; it will most likely result in shifting Internet businesses from U.S. to foreign locations.

In these days of growing government deficits at all levels, it is tempting to view any revenue enhancement as a necessary evil. If that enhancement, however, imposes unfair burdens and costs to business and generates even more government growth, the argument against the Internet use tax becomes strong indeed.

Americans oppose the tax

According to a recent piece in IVN, a big majority (61%) of U.S. voters oppose the Internet Sales Tax Bill. The piece makes the alarming observation that consumers “warn they’ll buy less” if the tax is imposed.

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