Two-And-A-Half Arguments For An Internet Sales Tax

By Matt Pillar, editor in chief

For years now, there has been some iteration of proposed legislation before the house and senate regarding the states’ rights to collect sales tax on Internet purchases. As you’re reading this, The Marketplace Fairness Act is on the Senate docket, the Marketplace Equity Act is before the House, and the Main Street Fairness Act lingers in both chambers.

Putting aside the redundancy of three separate pieces of legislation that, save for a few nuances seek the same end-game, I can only hope that the creation of an online sales tax passes into law. That end-game would allow states to require large Internet and mail order retailers to collect state and local sales taxes. The premise is best laid out in language from the Main Street Fairness Act: As a matter of economic policy and basic fairness, similar sales transactions should be treated equally, without regard to the manner in which sales are transacted, whether in person, through the mail, over the telephone, on the Internet, or by other means.

There are at least two simple and powerful arguments for the tax.

It should help level the playing field for pure-play brick-and-mortar shops so often plundered by cell-phone wielding customers, who have the audacity to scan an item’s bar code, find it cheaper and tax-free online, and buy it right under the shopkeeper’s nose. By kicking the no-sales-tax price crutch out from beneath the Internet retailer, both online and offline merchants will have to exercise true creativity to woo and retain shoppers.

An established Internet sales tax also closes a laughable loophole by eliminating the consumer’s “burden” of reporting and paying taxes on online purchases. That’s right, if an online retailer doesn’t collect tax on a transaction, the consumer is legally obligated to pay the state tax directly. For the record, this almost never happens. Analysts put the annual uncollected online sales tax figure at north of $24 billion.

But, there’s one more reason I’d like to see the passage of some semblance of an Internet sales tax, and it’s got more to do with principle than it does business outcome. The legislation that’s on the agenda in both chambers this fall has widespread bipartisan support. At 11 pages, The Marketplace Fairness Act is inconceivably short by Senate standards, proof that fat-free legislation is possible. Liberals like it because liberals like it when big government tries to help the little guy. Conservatives see it as a means of developing a stable local revenue base that might even lead to tax cuts in other areas. Consider this: Chris Christie and Dick Durbin will vote in lockstep for the legislation. Have Chris Christie and Dick Durbin ever agreed on anything?

The point is that Internet sales tax legislation simply has to pass. It’s a glimmer of hope that our elected officials can work together efficiently and logically. If one of these widely supported bills can’t make it through in an election year that’s shone a spotlight on both the deep political division and the extreme inefficiency in our government, what hope do we have that Washington can get anything done?