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INTERNET SALES AND INVISIBLE TAXES

Home - by Cardigan - August 9, 2012 - 18:00 America/New_York - 6 Comments

Human Events

One of the arguments deployed by proponents of taxing Internet sales is that such taxes would not be “new.”  No one is paying the tax right now, so the observable real-world effect upon consumers would be a new tax bill, after state governments were given the authority to make online retailers collect and remit state and local sales taxes.  The value of these new taxes has been estimated at roughly $125 per year for the average consumer.  All together, it’s about $23 billion in new tax revenue, which is why state governments – including a growing number of Republicans – are so eager to collect it.

But the argument goes that these wouldn’t really be “new” taxes, because Internet sales were not explicitly meant to be uniquely exempt from taxation.  Things have worked out that way, because state governments cannot establish a Constitutionally-required “nexus” for taxing online merchants.  If an online retailer has no physical presence in a given state, the state cannot tax its sales, because the company derives no direct benefit from the state, and casts no votes in its elections.

Subverting this requirement would be a very literal exercise of “taxation without representation.”  However, we are told that the taxes themselves wouldn’t be “new.”  It would be a matter of collecting existing taxes that are currently – and in the opinion of many brick-and-mortar retailers unfairly – avoided.

Deconstructing this argument reveals the troubling issue at the heart of Internet taxation… because those who make the argument are completely wrong-headed about who is avoiding these taxes.  It’s not the Internet retailers, it’s the consumers.

Every state has different tax laws, but many of them actually do require consumers to total up the amount of tax-free interstate purchases they make, calculate state sales tax, and remit those taxes to the local authorities.  This applies not only to Internet sales, but even to people who drive across the state border to shop in low-tax adjacent states.  Of course, very few people actually do this.

Thus, if Internet tax enthusiasts really want to talk about collecting existing taxes, what theyshould be advocating is the enforcement of existing laws: force individual consumers to calculate state and local taxes on all of their remote purchases, and send a check to the appropriate government agencies every year, or every quarter.  This would, of course, be extremely unpopular.  I think the phrase “howls of protest” would not be hyperbolic to describe the reaction.

It would also impose immense enforcement costs upon the government, which would have to develop a method for tracking online purchases and auditing individual consumers.  This would require quite a few new IRS agents, plus state and local personnel.  Big Government types might relish this prospect, but in this era of wild deficit spending, fiscal collapse, and tight budgets, the American people probably wouldn’t be eager to pay for it – especially since it would be a massive new government expense designed to make their lives more difficult.  A lot of the money harvested from increased tax collection would be consumed by enforcement costs.

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