Retail: The looming Internet sales tax

“It’s usually hard to make a convincing case for higher taxes,” said Rick Newman in USNews.com. “Online sales taxes are an exception.” The Senate is poised to vote on the Marketplace Fairness Act, which would require online retailers to collect sales taxes on purchases by residents of the 45 states that impose them. If it becomes law, we’ll finally see an end to the obvious injustice that “the majority of e-commerce shoppers pay no sales tax.” Governors say they’re missing out on $23 billion a year in potential state revenue, and physical retailers are being put at a real disadvantage. These days, the Internet is no longer “a fragile bit of new technology that needs the protection of special rules.”

But this is no way to help small businesses “get bigger, spread their wings, and engage in interstate commerce,” said Megan McArdle in TheDailyBeast.com. Every Internet retailer with annual revenues over $1 million will have to file monthly or quarterly tax returns for every state and local jurisdiction it has shipped to. That’s no problem for Amazon; “its staff of crack accountants can probably roll these things out before their Monday-morning coffee break.” But for smaller firms, this law could amount to “death by a thousand cuts (and 9,000 jurisdictions).”

In fact, the bill hits Internet businesses with “burdens that it does not apply to brick-and-mortar companies,” said The Wall Street Journal in an editorial. An e-merchant in, say, New Hampshire, which imposes no sales tax, would have to collect sales taxes for all out-of-state purchasers, but physical stores there won’t have to do so “on the many customers who drive across the Maine and Massachusetts borders.” Besides that obvious injustice, we have a fundamental problem with businesses having to comply with tax laws “created by distant governments in which they have no representation, and in places where they consume no local services.”

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If the Internet sales tax becomes reality, there’s no question but that one major “perk of online shopping will go away,” said Ann Carrns in The New York Times. Even though some states technically require consumers to pay sales tax for items they buy online, none of them actually enforces that. The Marketplace Fairness Act would make collecting that tax the responsibility of retailers. So “we’ll be paying more when buying some things online.” The tax break was fun while it lasted, but its demise will not mean the end of Internet shopping. After all, “there’s still the attraction of shopping online in your pajamas.”