Senator Dick Durbin (DEMOCRAT, Illinois) will soon introduce a bill requiring internet vendors to collect sales tax even if they have no physical presence in the state in which a buyer resides. A line of Supreme Court cases going back 40 years has consistently held sellers without a substantial nexus in a state have no obligation to collect sales taxes for that state simply because a resident of that state has purchased something from them. A substantial nexus would be having a store and employees in the state. Thus, orders placed over the internet to Amazon, for example, do not require Amazon to collect taxes except in those few states in which it has a physical presence.
Merchants complain this gives internet sellers a competitive advantage they cannot meet. Jeff Jacoby begs to differ and points out certain advantages that stores with facilities in a state have over internet sellers, such as not charging for shipping and offering consumers the opportunity to see and touch the merchandise before buying.
There is another very good reason not to allow states to tax internet sales from vendors with no physical presence in their state. Sales tax rates have been creeping higher and higher in most states over the last twenty years or so. States like New York and California already have combined state and local sales tax rates exceeding 10%. Even Arizona’s sales taxes are almost 10%. The highest sales taxes across the country used to not exceed 5%, now no state has sales taxes that low (except New Hampshire which has no sales tax). Even with shipping costs the ability to purchase over the internet and avoid sales taxes acts as a brake on how high states can raise those taxes without seeing their revenue decline rather than increase. This is so because the higher the taxes the more incentive consumers have to avoid them by buying on the internet from vendors with no physical presence in the state.
It’s always a good thing when some barrier exists to temper the excesses of politicians trying to squeeze taxpayers. If Senator Durbin’s internet tax bill ever becomes law we will see combined state and local sales taxes rise sharply above their already excessive level. We will also see internet sellers charging more to compensate for the mountain of paper work that will be required to comply with 50 different state sales tax laws, and thousands of different sales tax schemes of cities and counties.
Raising any sort of tax during an economic recession is a boneheaded move anyway.
UPDATE: Inflation is ramping up and it is in reality a tax, the cruelest sort of tax because silently and unseen, it eats away at the value of your money. Like a sales tax, you first notice it at the point of purchase. Everything costs more. Adding to that burden with new sales taxes increases the damage. Citizens have to tighten their belts during economic hard times, so why can’t government tighten its belt? Senator Durbin should be told to go pound sand.