It’s time for an Internet Sales Tax

David Cortriss of Revenue magazine recently interviewed me about the Streamlined Sales and Use Tax Agreement, a project that intends to make it easier to calculate sales tax in various venues, including online. While it’s not news that people are trying to simplify pieces of our incredibly byzantine tax codes, it’s worth noting that the Streamlined Sales Tax agreement is already winding its way through quite a few state legislatures.
David’s question to me about the Streamlined Sales Tax has led me to reconsider one of the sacred cows of the Internet, taxation of Internet purchases.
In a nutshell, I believe that it’s high time for us to reconsider the Internet Sales Tax with the triple whammy of the war in Iraq and the widespread devastation left in the wake of hurricanes Katrina and Rita. But there are even more important reasons why it’s time for us to enact taxation of Internet purchases…


Let me start by quoting myself, from the interview:
Q: Are Internet taxes a good thing or a bad thing? What will the overall impact be? Who benefits and who loses?
A: I’d like to see Internet taxes, actually. At this point in the evolution of the Web and online shopping, it’s hard to truly justify that online companies need special advantages to continue growing. A flat tax, perhaps at the 5% rate, that applied across all in-state and interstate commerce would be the most logical, truly simplifying the tax burden while generating tens of millions of dollars in city, county, state and national revenue.
Who will benefit? All of us. Not only will the government see a new and significant revenue stream, but government agencies will be better funded and traditional retail businesses will be able to compete more effectively, helping slow the gradual erosion of retail areas in this country.
And the impact? I honestly don’t believe that there’ll be a significant impact in the world of online commerce. Prices will move up a bit, but that’ll be true across the board so no one online company will have an unfair advantage over any other.
Consider, by contrast, how companies with retail outlets are unfairly penalized in the online world. Buy a pillow from Bed, Bath and Beyond or a package of socks from Target and if they have a retail store anywhere in your state, they have to charge you state sales tax (and the current sales tax calculations are phenomenally complex because they need to take your city and county into consideration, but that’s another discussion entirely and one of the motivations behind the Streamlined Sales Tax movement). If I make that same purchase from an online-only vendor, a company that might well have zero US-based employees, they can sidestep sales tax and therefore gain an unfair price advantage online.
When Internet commerce was just starting up I felt that there was value in delaying the addition of Internet-based sales tax collection to allow the medium to become fully entrenched. But it’s hard to accept that as a justification today when there are many multi-million-dollar businesses and even some billion dollar online businesses, all of whom have shied away from “brick and mortar” and are still operating without the playing field leveler of charging sales tax.
There’s a really important economic point here too, as I watch traditional brick and mortar companies declare bankruptcy or lay off thousands of employees, too: a company that has both retail and online sales employees more people than a pure-online company, and more of its revenue trickles into the local economy through lease payments, insurance on retail storefronts, membership in Better Business Bureaus, and, of course, its employees spending their income. If for no other reason than that, it’s time we allowed companies with retail storefronts to compete on a level playing field in the digital world, and that can only happen by expanding sales tax online.
To wrap up my argument, let me just summarize that I believe it is time for an Internet Sales Tax to be levied because of the following reasons: 1. Internet businesses no longer need to be sheltered from taxation to be competitive, 2. The U.S. Government needs additional tax revenue and usage taxes are easier to accept than income taxes, and 3. Businesses with retail establishments need to stop being penalized in the online world so that they can compete effectively.
It’s time for an Internet Sales Tax.

14 comments on “It’s time for an Internet Sales Tax

  1. I am really sorry to read your comments.
    You seem to be intelligent, are you ? Why do you want the internet to be taxed ? So that the government can make more money ? So they have more money to spend in stupid megaprojects ? What was next…? Oh yes, Mars! Oh how wonderful, we are all going to be much richer with such projects! What ? 5 % ? let’s make 10, why not , let make 15% tax!
    Your friend, this guy Robert Kennedy.. just helped introduce universal healthcare in Taxachussets, lets see how their taxpayers feel in 10 years from now….probably they will regret it.
    But they will not be able to backtrack it. Do You know why ? Because the bigger the government grows and the fatter it is, the more it needs to feed.
    But they create new tools to excuse themselves of their glutony, now they blame the inmigrants from Mexico, and they think about fencing the Canadian border…. Motherland security is worried…
    Meanwhile you keep giving away the freedoms and liberties your forefathers gained with sacrifice,
    Do you remember the Boston Tea Party ?
    Anyway, a better argument would have been to explain that in order to level the playing field, the governments at all levels should start decreasing taxes on mortar and bricks businesses so they could compete better with the internet. Better yet, they could really cut spending and start streamlining themselves, why only the private enterprises have to play by market economics ?
    Finally, the goverment/s could stop bailing themselves out with bonds emission, and start saving on interests, eliminating debt and reducing inflation, how about that ??
    Good luck America, I fear for you. The enemy is within, not outside

  2. In all the writings and articles about ‘Taxing sales on the internet’ I fail to find see anyone saying what this tax would be used for? Would the proposed internet sales tax help maintain and upgrade the information ‘Super Hi-way?’ with net routers, switches and software patches? Would this proposed tax go towards virus protection on the internet? Would this tax go to prevent internet predators from learking in the back ground stealing our identies, and credit card numbers?

  3. If a business does not have a physical presence in a state, isn’t it required to collect sales tax for sales from customers in that state or it is.

  4. There’s another side to the ‘fairness’ argument. Not all businesses that would be affected by interstate taxation are huge corporations — most are small businesses.

  5. Hi
    I am UK based: I believe Taxation on NEW goods bought over the Internet is a great idea and 5% sounds good. We retailers in the UK are suffering big time as cheap goods are drawing people out of our towns and retailers are going broke. I too, will be amongst them. Levying a 5% Tax will bring ‘net sales a little more in line with the High Street and allow fairer competition.
    Because Bricks & Morter sellers pay rent/rates/local council tax, we need the money to come back to the town and to Tax people away from the Web is the best idea I have heard for ages. Anyone who disagrees with this cannot be a High Street retailer!
    E-Sellers work on very small margins and make a profit by selling by sheer volume. This won’t work forever as E-commerce becomes more and more cut-throat and only companies with huge captials will survive. There will be many casualties both on and off-line. It is reasonable to say that to achieve a fair trade split, that we can all do some good business if the balance of trade is fair to one and all. This way many more Shop keepers will be able to earn a living and besides, when something goes wrong and the ‘net company has disappeared, as they will, at least you have the protection of a proper gaurantee and a face behind the counter to help you. In many cases the ‘Contact us’ tab rarely generates a quick response, or you just cannot get anybody to reply to your plight. There are no phone numbers! All this hassle has worn thin the few Dollars/Pounds you have saved, so TAX THE BLOODY THING!
    Cheers
    Chris

  6. This unfair competitive advantage has driven billions of dollars of sales tax revenues out of state economys, creating the following: cancelled music, art, and sports programs in schools, libraries closed, state infrastructures (roads, services) gutted, and community services (like fire district protection) severely cut back — for example, fire department response time( in my community) to my business was pre-internet under 6 minutes — now, it is 18 to 24 minutes. And Carlos is concerned for America?
    Hey — these are not NEW taxes — they are existing state tax revenues that would become enforced. This ‘loophole’ is costing more than quality of life — in my music instruments and equipment business, brick & mortar establishments have become showrooms for the internet — customers check out the products in our stores and then purchase online to avoid paying sales tax. Retailers are going out of business because not only can’t we compete and stay in business, but because the use of our resources to showcase and service products that are being purchased online is like the abuse of a natural resource by companies uninvested and unconcerned for the well-being of
    our communities. It is clearly exploitation.
    As to the argument that small business are involved, and we shouldn’t create a tax structure that harms them — if EVERYONE is paying sales taxes, then there is a net zero impact on any particular market segment. Finally, it is clearly EBAY, Amazon, and dozens of huge internet sales corporations that are fighting with their influence and bucks to continue this unfair internet advantage. Big corporations gain the advantage while children, education, public services and our communities suffer the loss — does that sound like a good way to run things? Time to end this unfair sales tax inequity situation.
    Frank

  7. Why is it you keep hearing that state and local governments are losing money because of online sales not being taxed? Local and state governments are not losing money, they just want more and are eager to start a new tax. We pay enough taxes already like: property, home, sales, gas, alchohol, cigarettes, car tags, social security and I am sure you could name many more. Local and state governments get plenty of money and need to make due with what they have instead of trying to find ways to take more of Americans money. People should start looking online at politicians voting record and if they are for more taxes and raising taxes, vote them out of office.

  8. Re Fester’s comment.
    I seem to think you miss our point. It is not a question of bending over backwards to give the government extra Taxes, but just a different way of distributing it to ensure that the big divide between online E-commerce and Bricks & Morter retailers (especially B&M guys), gives all of us a chance to stay in business. None is worse that squandering the Taxpyers money than the wretched Government of the UK. Would you guys in the States agree to around $6 per gallon Tax? There would be a revolution! At nearly $9 a gallon, it’s an absolute rip-off.
    I digress: The retail Street Traders are losing out by over 50% to Online trade. If a 5% tax on new goods was implimented, the balance of trade would be fairer and more B&M stores would survive.
    Frank is right; The shops are becoming Free Advisers for people to buy online. One couple spent over half an hour talking to a local TV & Radio dealer just a hundred yards from me. When the salesman had done, they said thanks, but we can get it cheaper online and walked away. The salesman could have quite easily broken the noses of both parties.
    Many dealers such as the above mentioned can offer second to none After Market sales and advice for goods brought from us. People come in with goods bought from the ‘net and expect free advice. WRONG! Anyone who comes in to me for advice will a.) be told to politely “Go forth and mulitply” or b.) For the benefit of the trader, still be equally polite and say that we can help you but for a $10 0r $20 fee.
    We cannot and will not be mugs to these people as we have living to make. They are taking the mickey. It is when people have a problem that the shop keeper becomes ‘The nice Guy’ and answer to all their problems. Not any more. Goodwill advice won’t pay the bills, neither will it in the future, that’s all gone. A few may wander back and say how helpful we were and MAY even buy something, but I doubt it.
    This is why the Internet Tax should be levied. The government don’t get any more Tax, it’s just that if one was going to bu something anyway, the Government get the tax just the same! sometimes a bit more, sometimes less.
    All we want is fair trade, and the Internet is construed without any reasonable doubt that this cheap trading is unfair. Sour grapes? Yes, exactly. The local Council shoud off-set our losses with our rates, etc. to help compensate for our own losses.
    Season’s greetings to all from the UK.

  9. I agree. I run a samll business here and am at the verge of closing. E-Sellers work on very small margins and make a profit by selling by sheer volume. This won’t work forever as E-commerce becomes more and more cut-throat and only companies with huge captials will survive. There will be many casualties both on and off-line. It is reasonable to say that to achieve a fair trade split, that we can all do some good business if the balance of trade is fair to one and all. This way many more Shop keepers will be able to earn a living and besides, when something goes wrong and the ‘net company has disappeared, as they will, at least you have the protection of a proper gaurantee and a face behind the counter to help you. In many cases the ‘Contact us’ tab rarely generates a quick response, or you just cannot get anybody to reply to your plight. There are no phone numbers! All this hassle has worn thin the few Dollars/Pounds you have saved, so TAX THE BLOODY THING!

  10. All I hear is people taking the side of whatever benefits them the most !!!
    Hey I’m losing all the chicks to good looking guys this isn’t fair we should have a pretty boy tax since they have and advantage and don’t have to put out near as much revenue to impress, and get dates.
    5% sounds good it would even the playing field for us uglies.
    You see how stupid the above sounds !!! Well thats what you sound like. It’s not fair so let’s charge taxes. So when did the world begin to give a shit about being fair ? Some sayings that come to mind are the strong survive, and survival of the fittest, and to finish it off which I think fits this perfect.
    IF YOU CAN’T BEAT THEM JOIN THEM… wink wink shop owners….

  11. When I think of internet taxing the first thing that comes to mind is, “More money out of my pocket”. Its hard for us to get past this, but the virtual world has grown tremendously since the Internet Tax Freedom Act was put into place. There was a reason for the time limit on that act, and that is due to the fact that we needed to allow for cyberspace to mature before taxing. Now we have a giant that is stable and capable of being taxed and still grow and prosper day after day.
    I say set a flat tax rate! Something that will provide our government with more funding, and still allow revenues to rise, which in return is going to decrease inflation, provide U.S. citizens with more benefits, and possibly bring us just a smidgen out of debt!
    Its hard to say where this extra funding will go, our strongest economists do exist in the government! Even if these tax dollars go towards the war in Iraq, then that means less debt, less inflation, no recession!
    Sort of a Broad Subject for one short article….

  12. Any business, regardless if internet-based or not needs to follow their state laws on sales & use tax. No internet tax needed!!
    Judi, CPA in PA

  13. So I’m listening to both sides and I haven’t made up my mind yet, but 2 things come to mind as I read.
    1) Fester – you are missing the point when you say “Local and state governments are not losing money”. They are in fact losing money because their local buyers are skipping the local purchases to buy online. That is lost tax revenue.
    2) John Montgomery – you are a funny guy. But it IS unfair if the uglies (brick and mortar) don’t have access to the free hairstylists, manicurists, trainers, dentists and doctors that the pretty boys (internet sellers) are getting.
    Having states manage this mess is going to be confusing and complicated. So 1 of 2 things should happen. 1) States don’t collect no taxes are charged, or 2) There is a universal flat tax that is easy to integrate into e-commerce software.
    Just my thoughts…….

  14. It is time to tax the internet sales. The most fair way would be to have sellers calculate the sales tax for the state and county the purchases are delivered to. That shouldn’t be too difficult for an internet business. If it were a federal law they could make software available for free. It would require a bit of book keeping. When the internet was a bunch of small businesses trying to get off the ground it made sense to temporarily suspend the taxes, but now the e-retailers are dominated by the big boys like Walmart and Amazon. And Ebay has come a long way from the guys who were selling stuff they picked up at garage sales. Maybe taxing folks who gross more than $75,000 would make the little guys who are selling the stuff they pick up from attics and basements a little less nervous.

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