TeeJaw Blog

Democrat Senator Wants To Tax The Internet

Posted in Government and Politics by TeeJaw on Monday, April 18, 2011, 1: 24 AM

Senator Dick Durbin (DEMOCRAT, Illinois) will soon introduce a bill requiring internet vendors to collect sales tax even if they have no physical presence in the state in which a buyer resides. A line of Supreme Court cases going back 40 years has consistently held sellers without a substantial nexus in a state have no obligation to collect sales taxes for that state simply because a resident of that state has purchased something from them. A substantial nexus would be having a store and employees in the state. Thus, orders placed over the internet to Amazon, for example, do not require Amazon to collect taxes except in those few states in which it has a physical presence.

Merchants complain this gives internet sellers a competitive advantage they cannot meet. Jeff Jacoby begs to differ and points out certain advantages that stores with facilities in a state have over internet sellers, such as not charging for shipping and offering consumers the opportunity to see and touch the merchandise before buying.

There is another very good reason not to allow states to tax internet sales from vendors with no physical presence in their state. Sales tax rates have been creeping higher and higher in most states over the last twenty years or so. States like New York and California already have combined state and local sales tax rates exceeding 10%. Even Arizona’s sales taxes are almost 10%. The highest sales taxes across the country used to not exceed 5%, now no state has sales taxes that low (except New Hampshire which has no sales tax). Even with shipping costs the ability to purchase over the internet and avoid sales taxes acts as a brake on how high states can raise those taxes without seeing their revenue decline rather than increase. This is so because the higher the taxes the more incentive consumers have to avoid them by buying on the internet from vendors with no physical presence in the state.

It’s always a good thing when some barrier exists to temper the excesses of politicians trying to squeeze taxpayers. If Senator Durbin’s internet tax bill ever becomes law we will see combined state and local sales taxes rise sharply above their already excessive level. We will also see internet sellers charging more to compensate for the mountain of paper work that will be required to comply with 50 different state sales tax laws, and thousands of different sales tax schemes of cities and counties.

Raising any sort of tax during an economic recession is a boneheaded move anyway.

UPDATE: Inflation is ramping up and it is in reality a tax, the cruelest sort of tax because silently and unseen, it eats away at the value of your money. Like a sales tax, you first notice it at the point of purchase. Everything costs more. Adding to that burden with new sales taxes increases the damage. Citizens have to tighten their belts during economic hard times, so why can’t government tighten its belt? Senator Durbin should be told to go pound sand.


2 Responses

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  1. self defense products said, on Friday, September 30, 2011, 6: 06 PM at 6:06 PM

    I own an e-commerce store and I think the whole concept of an internet sales tax is ridiculous. Brick and mortar businesses say its needed to “even the playing field”. In reality the playing field is already even, with the addition of a sales tax it tilts to the brick and mortar stores favor. The reason…shipping costs. The money that on line shoppers save in sales taxes, they end up spending on shipping. Now they have to pay both online sales tax and shipping cost. This is a clear advantage for brick and mortar stores. I’m glad most shoppers don’t know about internet taxes or refuse to pay them, however I worry that at some point the Gov. may try to force e-commerce stores to collect it for them.

    • TeeJaw said, on Friday, September 30, 2011, 6: 47 PM at 6:47 PM

      As an e-commerce business you are also not using any of the infrastructure that brick and mortar stores depend on. Of course, they pay other taxes such as ad valorem property taxes, but their collection of sales taxes is a huge part of how fire, police, roads and other government provided services are paid for, none of which carry any additional burden from your e-commerce activity. There is another even more important reason for not making e-commerce businesses collect sales taxes. It puts pressure on cities and state to hold their sales tax rates down to a reasonable level so as not to put their local businesses at a competitive disadvantage. I believe any sales tax above 5% is immoral but we see combined state and local sales taxes approaching and even exceeding 10% in many parts of the country. I was recently faced with paying total state and local sales taxes of 11% in Prescott, Arizona. It was for a purchase of several hundred dollars so I decided to have the item shipped to my home state rather than pay the tax. The shipping cost was just as much but it didn’t matter. It was a moral issue.

      If local businesses in Arizona perceive themselves to be losing customers to e-commerce because of high sales tax rates maybe they will put pressure on their politicians to lower them.

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