Friday, April 19, 2013

What is wrong with the Internet Sales Tax

From the Heritage Foundation

Beware the Internet Sales Tax

The Internet sales tax is back, and it could be the next big vote in the Senate.
The proposed law would enable states to force businesses to collect sales tax from customers who live in their state—even when the businesses have no connection to that state.

As Heritage President Jim DeMint has said, this violates the classic American principle of “no taxation without representation” Retailers would be forced to act as tax collectors for states in which they have no voice.

Under current law, retailers are required to collect sales taxes only in states where they have a physical presence. But Senate Majority Leader Harry Reid (D-NV) is pushing for a vote on a new Internet sales tax that would hit all online businesses—no matter where they’re located.
DeMint says:
Consider the absurdity of such a law. When a customer buys a product in a store, does the cashier ask for the customer’s home address? Of course not. The store simply charges the state and local sales taxes applicable for its physical location, no questions asked.
“Brick-and-mortar” stores like Wal-Mart are in favor of the Internet sales tax, because they see these online retailers as competitors. But the other big proponents of the tax are state governments, which would be able to reach into other states for revenue.

States are struggling with their own budgets—but they should have to make the hard decisions to manage their budgets, rather than trying to collect taxes from citizens of other states to help cover their expenses. As DeMint said.
Politicians want this bill passed to raise new tax revenue for broken state governments facing budget shortfalls. But legislators in state capitals don’t want to make the hard decisions to cut spending or raise taxes on their constituents—they fear the voter backlash. So they’d like their allies in Washington to make it legal for them to tax people who can’t vote against them.
This taxation without representation might boost some state tax collections, but it wouldn’t help the economy. Heritage legal expert David Addington has written that “hobbling out-of-state businesses that sell through the Internet or mail order catalogs does not help the national economy .”
Instead, the Internet sales tax would “increase the amount of tax dollars millions of Americans pay, encourage states to increase the size and scope of their governments, favor some states over others in granting federal authority, and discourage free-market competition in interstate commerce,” Addington wrote.

It’s simply another bad idea coming out of Washington at a time when consumers and businesses are struggling to get by.

My comment: 
I oppose this Internet sales tax and am disappointed that it is being sponsored by our own Senator Lamar Alexander.  He has been pushing this initiative for several years. 

Now, if I was to drive to Kentucky and buy groceries, I would not have to pay Tennessee sales tax but I would pay the Kentucky sales tax. If I buy something on-line from a vendor in Kentucky, why should I pay Tennessee sales tax?

While the principle of taxation without representation is most persuasive, there are practical reasons to oppose this bill also. It will place big burden on online vendors who will have to calculate 50 different tax rates and have the expense of accounting for and remitting the collected taxes. Looking further down the road, if the states are successful in requiring the vendor to collect state sales tax, then it is very likely that cities could also require vendors to collect local sales tax. A vendor would have to calculate thousands of different taxes and remit money to thousands of different cities. This bill could cripple Internet commerce and slow this growing sector of the economy.

One of the arguments in favor of this bill is that it creates fairness for brick and mortar store merchants. Brick and mortar stores result in a cost to the government jurisdiction in which they are located and sales tax collections cover these cost. Brick and mortar stores result in a need for police protection, road maintenance, traffic and parking management and numerous other government services; Internet sales do not require these services of local government.

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