Sales Taxes In Cyberspace
The greedy hand of government is at it again. State and local governments want to reach beyond their borders to grab more taxes on sales over the Internet.
Many politicians want retailers in other states to collect state and local sales taxes on purchases made by in-state residents through catalogues or over the Internet. Currently, these revenues are supposed to be collected from residents through use taxes. However, few people, if anyone, actually volunteer to pay use taxes – which makes an obvious case for abolishing use taxes.
There are two basic arguments being put forth by those looking to extend sales tax collections across borders. First, states and localities need these revenues to balance their budgets. Well, in reality, state and local governments have experienced a dramatic run up in revenues in recent years. If these governments are facing budget deficit woes, it’s because they have spent too much money. In fact, from 1992 to 2000, for example, per capita state and local government spending increased by 38%, while inflation registered just 16.4% over the same period. Politicians should focus on tightening their spending belts, rather than hiking taxes.
The second argument for taxing out-of-state sales is fairness. That is, it is claimed to be unfair that in-state businesses have to collect sales taxes on consumer purchases, while out-of-state retailers do not. However, as The Wall Street Journal’s editorial page pointed out on October 21, local retailers receive benefits from those local taxes, such as police and fire protection, garbage pick up, snow removal and filled potholes. Out of-state retailers do not. If state and local sales taxes are too high, then the economically sound decision is to reduce those taxes, not expand their reach.
For good measure, there is the critical point that additional taxes collected on Internet sales by state and local governments would only be wasted. Those dollars are far better left in the private sector where it will be spent or invested for more efficiently by individuals.
In a 1992 case, the U.S. Supreme Court decided that tax-collection could only be imposed on businesses with a nexus within a state. Those seeking to expand the taxing powers of state and local government are pushing for federal legislation to allow for such interstate taxation. Let’s hope that members of Congress do not go along with this effort to increase taxes.
Meanwhile, one positive piece of legislation should be made law. It would make the current temporary ban in taxing Internet use or access – due to expire at the end of this month – permanent. The House has approved it. The President will sign it. The Senate, however, still needs to pass it.
