Internet sales should be taxed

new shoes!The Washington Post reports that the Senate is soon to vote on the issue of sales taxes on goods sold over the internet:

The Senate is planning to vote on a bill as soon as Monday that would give states the authority to collect sales taxes on all Internet purchases, handing local governments as much as $11 billion per year in added revenue that they are legally owed — but that hasn’t been paid to them for years. …

As states have become more strapped for cash since the recession, local officials have fought back. New York passed an “Amazon tax” in 2008 that forced the giant online retailer to collect sales taxes from shoppers who live in the state, even though Amazon didn’t have a brick-and-mortar presence there.

Others followed suit. Currently nine states require Amazon to collect sales tax, including California, Pennsylvania and Texas.

The bill introduced by Sen. Mike Enzi (R-Wyo.), called the Marketplace Fairness Act, would grant all states the power to collect taxes from out-of-state vendors selling goods to their residents.

The tax proposal is framed in terms of fairness to brick-and-mortar stores that do have to collect sales tax, and as an extra source of revenue for state and local governments, which could certainly use it.

But there is a better reason. Tax systems work best when they can collect revenues without unduly distorting the choices made by individuals as they go about their business. A tax code that favors entrepreneurs in one sector over another will steer new business into that sector not based on the opportunities that are there in terms of selling a valued service, but because of the tax break. As these distortions multiply we all become worse off; the economy performs less well when government rules skew the choices we make on where to invest, work, or buy. A sales tax system that favors internet sales over local purchases is not healthy – it generates over-investment in internet retailing and under-investment in physical stores.

I like the convenience and choices that come from internet sales of books, cd’s (yes, I still buy those old things), and clothes. But I should pay sales tax on those purchases just as I do at local shops.

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Comments

  1. k leonard says

    First prove to me the goverment or states need more money. They are horrible stuarts of the funds they get right now. Baloney..no more taxes till they get rid of unnecessary spending. Learn to work on a budget like everyone else. Michael stop falling onto the trap of willingly giving these lazy people your money especially when they cant balance a budget.

    • says

      Even if we were to believe that state and local governments have no justification for increased revenues, the point I emphasize is that we are better taxing different means of purchases at the same rate rather than taxing internet purchases differently from in-store purchases. It’s an old line in tax policy debates about “broaden the base, lower the rates,” but it’s a correct one.

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