Congress is Considering a Bill to Make Internet Firms Collect Sales Tax. Here's Why They Shouldn't Pass It. - The Daily Beast

Congress is Considering a Bill to Make Internet Firms Collect Sales Tax. Here's Why They Shouldn't Pass It. - The Daily Beast

For years, states have been trying to collect sales taxes from Internet retailers, particularly Amazon. They’ve been stymied by a 1992 Supreme Court ruling, Quill v. North Dakota, which held that under current law, companies could not be forced to collect sales tax unless they had a physical nexus in the state: a warehouse, a production facility, or a sales representative.

Teri Antognazzi, a safety administrator, oversees book stockings in the Amazon warehouse in Fernley, Nevada, in 2004. (Candice Towell/AP)

(Fun fact: the defendant in Quill v. North Dakota was ... Heidi Heitkamp, then a state official, now the woman that Maureen Dowd thinks should have voted for tougher gun control because, er, she’s a mother.)

Now Congress is riding to the rescue, with a bill that will force Internet companies to collect sales tax on their transactions. My colleague Dan Gross is enthusiastically in favor. I’m ... less so.  

To be sure, there are reasons to like broader sales tax collections. Economists favor consumption taxes—which is basically what a sales tax is—because they are relatively efficient, and they may encourage people to save and invest more. If states can collect more revenue from Internet companies, they may rely less on income taxes.

There's also a question of fairness: local businesses are essentially competing with Internet firms that offer a 6 to 12 percent discount because they don't collect sales taxes.

But there are also reasons to be wary of forcing out-of-state companies to collect your sales tax. For one thing, it erodes the healthy tax competition between states and localities. Right now, the fact that it’s hard to collect sales tax from other states keeps those taxes to reasonable levels; they currently top out around 12 percent. If states and localities didn’t have that competitive restraint, they might well start to rise.

(And before those who want higher taxes cheer, take note: a 20 percent state sales tax would probably make it difficult for the federal government to impose a VAT. And without a VAT, most budget wonks think that in a decade or so, your favorite federal spending programs will probably have to take some deep cuts. It’s just not possible to fund a huge welfare state solely on income taxes. Functionally, high state sales taxes buy you generous pensions for public-sector workers at the expense of entitlements.)

Sales taxes are also regressive. My colleague points out that Internet consumers skew affluent, because you have to have a credit card. Sort of. The rise of prepaid credit cards is actually rapidly changing that, bringing even unbanked consumers online. Of course, the very poorest—the welfare mothers and people on disability—are not buying much. But those people don’t buy much anyway, since they generally have a cash income of less than $1,000 a month.

Besides, Internet consumers also skew young, and, of course, young people don’t have as much money.