Republican Governors Warming to Internet Sales Tax
There has been a troubling trend in state governments over the few years. As legislatures seek to fill holes in their budgets, they’ve turned to the Internet as a way to raise revenue. My home state of Georgia recently passed an Internet sales tax as a part of a broader tax “reform” law (even though it’s really not tax reform).
But the Wall Street Journal notes that the move to tax Internet sales through websites like Amazon.com is gaining more steam among Republican governors eager to find a new revenue stream:
Republican governors, eager for new revenue to ease budget strains, are dropping their longtime opposition to imposing sales taxes on online purchases, a significant political shift that could soon bring an end to tax-free sales on the Internet.
Conservative governors, joining their Democratic counterparts, have been making deals with online retail giant Amazon.com to collect state sales taxes. The movement picked up an important ally when New Jersey Gov. Chris Christie—widely mentioned as a potential vice-presidential candidate—recently reached an agreement under which Amazon would collect sales taxes on his state’s online purchases in exchange for locating distribution facilities there.
Mr. Christie called taxation of online sales “an important issue to all the nation’s governors” and endorsed federal legislation giving all states taxing authority.
The newfound support among Republicans is a dramatic change from just a few months ago. In February, at the Republican Governors Association meeting in Washington, one agenda item was online sales taxes. The reaction was decidedly cool, with Louisiana Gov. Bobby Jindal worried that the effort sounded like a new tax, according to two attendees. Mr. Jindal’s office didn’t return a call seeking comment.
Seizing on the recent political shift, Sen. Lamar Alexander, a Tennessee Republican, and co-sponsors from both parties are attempting to speed up action on a bill they wrote to give states authority to compel online companies to collect sales taxes.
The bill being pushed in Congress is the Marketplace Fairness Act. The angle from supporters is that small businesses are taking a hit due by customers going online to Amazon.com or Overstock.com to purchase goods and avoid sales taxes. This is, much like we here in protectionist arguments against free trade, a move to “level the playing field.”
Despite these arguments, Sen. Jim DeMint (R-SC) explains why the taxing Internet sales is a bad idea — not to mention one that is unconstitutional — and that how it would be just another mandate on taxpayers:
At issue is whether a state should be able to force a business located in another state (a so-called “remote seller”) to collect its sales taxes on products destined for that state. To illustrate what’s wrong with this idea, consider a shop on Main Street in Greenville, South Carolina. We would rightly never expect this shop owner to sell something in their store to a tourist from Chicago, add the Illinois sales tax to the purchase price, and then send that tax to the Illinois Department of Revenue. Yet, that’s exactly what proponents of the misleadingly named Marketplace Fairness Act want remote sellers – that are increasingly online retailers – to start doing.
The only thing stopping big-spending politicians from making remote sellers do this is the Constitution and Supreme Court precedent. Retailers cannot be forced to collect sales taxes on behalf of states where they have no physical presence – or what’s known as “nexus” in legal circles.
In the 1992 Supreme Court case Quill Corporation v. North Dakota, the Court upheld this clear protection of interstate commerce. It makes sense. States that have sales taxes may use the revenues to pay for roads, sewers, and other government services. Businesses should not have to collect taxes for, and consumers should not owe them to, a state government that provides them no representation or services in return.
Congress and the President would need to give their blessing to upset this status quo.
Make no mistake: the online sales tax would be another unconstitutional mandate. If MFA becomes law, politicians in Washington would give California the right to force a business in another state to collect and pay California sales taxes.
Keep in mind, that all states imposing sales taxes today also have “use taxes” which require their citizens to remit sales taxes owed on purchases they make from out-of-state retailers. But, instead of doing the responsible thing – enforcing their own use tax laws – they would rather have remote sellers do the dirty work of collecting taxes for them.
Ben Domenech also explains that the “Amazon tax,” as it has been dubbed, will eventually be added on to purchases from iTunes and other online music sites. Domenech also drives home a great point. He writes, “If [Republicans] were really interested in shrinking government, they’d be closing avenues to taxation, not opening up new ones.”
Bingo. You don’t create “fairness” or “level the playing field” by raising taxes — and make no mistake, that’s exactly what this is. You do it by lessening the tax burden, making it easier for businesses in your state to attract customers. Sadly, the arguments they’re giving fly in the face of the less government, less taxes rhetoric we often hear from Republicans.