The return of the online sales tax wars

posted at 1:01 pm on September 21, 2013 by Jazz Shaw

While I originally thought it looked like one of the most dry, wonkish subjects of political discussion imaginable, the Marketplace Fairness Act and the idea of expanded online sales taxes turned out to be among the more hotly contested and debated subjects we’ve covered here in a while. (It also proved a very educational experience for me, largely through the contributions of our readers.) But when the dust settled this summer, the entire debate seemed to result in little more than an exercise in futility. The MFA passed the Senate by a rather wide margin and then promptly ran into a brick wall in the House. Since then it was seemingly forgotten.

But this week the Wall Street Journal raised that ghost from the past and predicted that new life was being injected into the project by the head of the House Judiciary Committee.

Supporters of federal Internet sales-tax legislation see new momentum for the bill, as a key committee chairman prepares to release principles for crafting the House version, possibly as soon as Tuesday…

Now, House Judiciary Chairman Bob Goodlatte (R., Va.) is preparing to release principles to guide his committee’s drafting of its own version in the coming months, according to lawmakers and lobbyists. Rep. Steve Womack (R., Ark.), a proponent of the measure, said last week that Mr. Goodlatte told him he would be releasing those principles “very soon” as a “roadmap” to formulate the House version of the legislation.

Sure enough, Goodlatte published his seven principles for consideration of any such legislation a few days later. And here they are:

1. Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States.

2. Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.

3. No Regulation Without Representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement.

4. Simplicity – Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.

5. Tax Competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors.

6. States’ Rights – States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens.

7. Privacy Rights – Sensitive customer data must be protected.

At first glance, I’m not sure if this really allays the completely valid concerns that so many people have expressed over the MFA. Even keeping in mind that this is not legislation being pitched by Goodlatte, but rather a general set of guidelines to follow if there is to be a new bill, it would seem that there are still questions to be answered. Then again, if the editorial board of the LA Times is against the idea, maybe it’s not all bad. Their chief complaint seems to center on the idea of states’ rights listed in principle number six.

This principle alludes to an idea advanced by some libertarians, which is to have the sales tax rate set by the seller’s locale, not the buyer’s. In such an “origin-based” sales tax system, the seller would have to know only one jurisdiction’s rates and remit taxes just to one state, and face the prospect of only one state audit.

That idea is wrongheaded on so many levels, though, it’s hard to know where to start.

Most important, it misconstrues why states impose sales taxes. The point is to spread out the public’s tax burden so that it also falls on consumption, not just labor and investment. That’s one reason sales taxes are imposed on buyers, not sellers, and on goods instead of services. (Note that many of the folks arguing for origin-based taxation also want to replace income taxes and capital-gains levies with consumption taxes because they’re less damaging to economic growth.)

With that in mind, it makes no sense at all for buyers to pay sales taxes to the states where they shop, not the states where they live. Such a shift would rob the buyer’s state of taxes that were intended to support the government services the buyer receives, such as schools, police and street repairs.

While that sounded good on paper at first – even to me – many of you have pointed out the inherent flaw in that argument. In order for the “spare the pain of other taxes” theory to pan out, we are left to trust the states to actually lower (or at least fail to raise) their other taxes once the online sales revenue is in hand. To say that conservatives view that prospect dubiously would be an understatement.

So, given the experience that many of you bring to the table on this subject, what do you think? Does Goodlatte have something to work with here, or is it just the same wolf in a different sheep’s clothing? Obviously it’s tough to say for sure without seeing some final legislative language, but is there anything there which would allay your chief concerns, or is this idea just pretty much dead on arrival?


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Whenever a new tax is discussed, no matter the justifications: the people lose and the government wins

Jeddite on September 21, 2013 at 1:11 PM

Oddly enough, it was just this morning that I was thinking to myself “It’s been a couple of months since Jazz last pushed for higher taxes!”.

And here we are.

MTF on September 21, 2013 at 1:12 PM

I just went back and looked at my on line orders and so far it appears that if it comes from within my state, I’m paying taxes.

Cindy Munford on September 21, 2013 at 1:16 PM

With that in mind, it makes no sense at all for buyers to pay sales taxes to the states where they shop, not the states where they live. Such a shift would rob the buyer’s state of taxes that were intended to support the government services the buyer receives, such as schools, police and street repairs.

So every time I shop, the store cashiers must ask me what state I live in so they can charge me Nebraska’s sales tax. And then the store must report and remit those sales tax funds to the state of Nebraska.

catsandbooks on September 21, 2013 at 1:17 PM

catsandbooks on September 21, 2013 at 1:17 PM

Sorry. “So every time I shop” should have read “So every time I shop at a bricks-and-mortar store”

catsandbooks on September 21, 2013 at 1:20 PM

Not being taxed online give citizens the option of funding the government, buy local or not funding the government, buy from out of state online.
If the government is providing good services for the money received, citizens will not feel so ripped off and buy more things locally. But if the government is squandering the money and leaving essential aspects of their responsibility undone while performing non essential activities, people can easily revolt and buy from out of state.
Taxes should be flat, absolutely flat. If you are an adult of age of majority, then you should pay the exact same amount of money as any one else in your tax location.

astonerii on September 21, 2013 at 1:20 PM

Muslims take over Nairobi mall. Massacring nonMuslims.
http://www.dailymail.co.uk/news/article-2427892/Nairobi-mall-Gunmen-massacred-22-Kenyan-shopping-centre-targeted-non-Islamics.html

pat on September 21, 2013 at 1:18 PM

Water is wet. Bears defecate in the woods. Muslims kil non-Muslims.

catsandbooks on September 21, 2013 at 1:21 PM

pat on September 21, 2013 at 1:18 PM

I just came into this thread to ask why that has no thread, nor does the shooting of 13 in Chicago or the theft of Grand Theft Auto V from a developmentally challenged man and a few other things, and I am pleased to see I’m not alone.

What’s going on?

dogsoldier on September 21, 2013 at 1:27 PM

Any new tax should be DOA until the Liberty Amendments are passed. too many states are just smaller versions of the Feds. They need to be starved and shrunk, not expanded.

Iblis on September 21, 2013 at 1:28 PM

And what about the hurricane about to hit Hong Kong?

dogsoldier on September 21, 2013 at 1:28 PM

Oh and Enough with the taxes already!

dogsoldier on September 21, 2013 at 1:28 PM

Sure give em more money to piss away. I mean its for the greater good right?

I have to agree with the person that said it would not be such an issue if we knew that the money was going to be spent wisely… sadly its not.

watertown on September 21, 2013 at 1:32 PM

the “internet” store already pays taxes for its warehouses.
this is, for the most part, the same taxes brick and mortar stores pay for their land taxes. these also pay for infrastructure.
brick stores charge a state sales tax to cover road and infrastructure usage from the people traversing roads to get there.
delivery trucks already pay fuel taxes to cover (supposedly) the road and infrastructure wear. and since 1 UPS vehicle can cover (I am just making up figure here) the damage and usage 50 cars driving to stores create that UPS truck is much more efficient.

so the argument to add another tax to equalize the playing field is pure bull**it. Its just a way to take more from people.

dmacleo on September 21, 2013 at 1:37 PM

The Framers intended the republic to have a way that citizens could help each other. One of the prime problems of republics up to that point was that large ones inevitably fell apart due to their size. Examples of small republics could be found where locals could be most agreeable with each other, but larger ones moved towards factionalism and regionalism that led to concentrations of power and the decay of the republican structure. This was a major problem with setting up the US as a republic: it was already large and they had seen what happens in historical examples to large republics.

One way to stop regionalism is to create what we would know internationally as a ‘Free Trade Zone’. Consider that the States are the signatories to the Constitution and would have to live within the republican framework of it. At that point the agrarian South had the most trade due to the estates there and would seek to tax items from other States so as to disadvantage sellers from those States if they did not set up shop in the destination State. That would mean a State at the point of manufacture would have problems competing with other States if it did not also put on a tax on its goods. A trade war would soon end the republic. That was removed at one stroke with a system in which no government was allowed to burden trade between the States, save for items of particular danger which could have an excise tax per quantity of it so as to help mitigate the problems of those items by quantity.

A secondary way that factionalism and regionalism form are by citizens being out of touch with citizens in other States. Trade is a good way to foster familiarity and to help tamp down regionalism, and the best way to foster trade was not to burden it. With freedom of movement individuals could pick up stakes from locales with taxation (and other problems) and move to those that were better suited to them economically as well as socially.

Finally Hamilton describes the hordes of various ‘tax collectors’ in France and could see a time when the US would be like that and wanted a stumbling block placed in the way of such ‘tax collectors’ who would prey upon internal trade at the behest of the National government. Governments have no problem spending money and the problem isn’t a tax problem for States but a spending problem. Reduced tax revenue from local sales is a signal, and an important one, by the CITIZENS that the local taxes are too damn high. That and the high tax States are seeing a demographic decline as people vote with their feet…

If you like the idea of a FTA: the US has an internal one and it works just as all economists would predict it would work if between Nations. It builds a stronger economy and ties between peoples in diverse regions yet sharing common interests and needs.

ajacksonian on September 21, 2013 at 1:38 PM

Whenever you see someone in the GOP doing something really stupid, you can usually guess that he’s from Virginia. Is it any wonder that the VA GOP is moribund?

besser tot als rot on September 21, 2013 at 1:42 PM

2. Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.

Does this neutrality take into account that the online sellers don’t require police/fire/etc. in any states except where they are physically located?

besser tot als rot on September 21, 2013 at 1:44 PM

At first glance, I’m not sure if this really allays the completely valid concerns that so many people have expressed over the MFA.

It doesn’t seem to address them at all.

besser tot als rot on September 21, 2013 at 1:46 PM

So every time I shop, the store cashiers must ask me what state I live in so they can charge me Nebraska’s sales tax. And then the store must report and remit those sales tax funds to the state of Nebraska.

catsandbooks on September 21, 2013 at 1:17 PM

It’s insane. You would have to report and submit to all 50 states.

KCB on September 21, 2013 at 1:48 PM

That idea is wrongheaded on so many levels, though, it’s hard to know where to start.

You’ll have to pardon the LA Times. They missed points #2 and #4.

They refuse to realize that each buyer, living in a different locale, has a different tax rate. Even within the same state or same county. How is a Mom&Pop online store going to know ALL the rates? How will they afford to file tax returns in 50 different states AND HOW MANY CITIES?

Here’s a thought. The Internet sales tax is 4%. Period. EVERYWHERE. The location of the seller receives the tax generated, simplifying tax reporting and collecting. This will encourage states to facilitate on-line businesses.

State DO encourage business, don’t they?

GarandFan on September 21, 2013 at 2:03 PM

There are already appropriate gun control use tax laws on the books. If it is worth complaining about, then enforce existing law.
 
If it’s not worth the cost then stop complaining.

rogerb on September 21, 2013 at 2:07 PM

the “internet” store already pays taxes for its warehouses.
this is, for the most part, the same taxes brick and mortar stores pay for their land taxes. these also pay for infrastructure.
brick stores charge a state sales tax to cover road and infrastructure usage from the people traversing roads to get there.
delivery trucks already pay fuel taxes to cover (supposedly) the road and infrastructure wear. and since 1 UPS vehicle can cover (I am just making up figure here) the damage and usage 50 cars driving to stores create that UPS truck is much more efficient.

so the argument to add another tax to equalize the playing field is pure bull**it. Its just a way to take more from people.

dmacleo on September 21, 2013 at 1:37 PM

Where are the proggies to champion online shopping for being more ‘green’, with a lower Carbon signature?

slickwillie2001 on September 21, 2013 at 2:10 PM

I’m vocally against online taxes.

But this is a better framework to start from than standard, which is Prog SOP.

What Goodlatte is trying to do is turn certain states into online retail havens, and the LAT knows it but won’t say that because it would actually create support.

It’s the Cali/Nevada border wars brought to a national level.

budfox on September 21, 2013 at 2:14 PM

GarandFan on September 21, 2013 at 2:03 PM

What? An online flat tax!?! That’s crazy talk!

budfox on September 21, 2013 at 2:16 PM

It’s insane. You would have to report and submit to all 50 states.

KCB on September 21, 2013 at 1:48 PM

…that’s why they want your zip code

KOOLAID2 on September 21, 2013 at 2:24 PM

That idea is wrongheaded on so many levels, though, it’s hard to know where to start.

No, it isn’t. Frankly it is the only way to constitutionally implement this IMHO. I don’t see how legally the federal government has the power to force a resident of one state to become a tax agent of another. A state has no legal power over the residents of other states. The only thing the federal government can do is implement a federal sales tax which it then redistributes to the states. Taxes which will have to be done at the same rate for all states and redistributed based on population for it to meet equality standards in the Constitution. No extra for those with high sales taxes.

But there is no need for this even as states already have the power to compel all retailers in their state to collect a tax on each sale.

Most important, it misconstrues why states impose sales taxes. The point is to spread out the public’s tax burden so that it also falls on consumption, not just labor and investment. That’s one reason sales taxes are imposed on buyers, not sellers, and on goods instead of services.

This is idiotic. Services are taxed everywhere. Obamacare made a national tax for tanning. States everywhere, especially blue states, have instituted new taxes on services everywhere they can. Just look what Malloy did in Connecticut. And a sales tax is not imposed on either the buyer or seller. It is imposed on the transaction. There is nothing stopping a seller from paying the tax. The state doesn’t care who pays it. Just that it’s paid. If the transaction does not occur within a state the state has no legal right to tax it. When a CT resident buys a soda in FLA is the CT owed money?

With that in mind, it makes no sense at all for buyers to pay sales taxes to the states where they shop, not the states where they live. Such a shift would rob the buyer’s state of taxes that were intended to support the government services the buyer receives, such as schools, police and street repairs.

Rob the state? So someone seeking to avoid onerous taxation is now robbing the state? So when someone moves to Florida from New York are they robbing the state of New York of the income taxes they would have paid over their lifetime?

What this legislation does is to legally make a resident of a state a slave of that state. Unable to make any effort to avoid onerous taxation. A resident of a town can avoid property taxes by owning no property in that state. The town I live in can’t charge me property taxes on my cabin in the woods I own in another state. Why should a resident of a state have no way to avoid their states sales tax within the entire country?

This all traces back to “Use” taxes. How these things were even considered legal and allowed to stand I have no clue. A state can tax me for using something? If I grow my own sugar and make soda do I know owe the state a tax with every cup I drink? I don’t owe the state sales taxes if I make a hammer out of a old piece of steel I have instead of buying it at home depot.

The idea of a Use tax is the most evil thing I have ever heard of.

Rocks on September 21, 2013 at 2:25 PM

With that in mind, it makes no sense at all for buyers to pay sales taxes to the states where they shop, not the states where they live.

Sure it does. If the tax were based on where the business is, that would give businesses an incentive to locate in states with no sales tax. California, of course, would raise their taxes thinking to raise revenue, and more businesses would relocate to Montana.

Oh wait, the politicians want to rig it so that taxes inevitably go up. So I guess that’s not going to happen.

Fenris on September 21, 2013 at 2:29 PM

I still can’t figure out how Iowa has a claim to make me collect Iowa tax here in Texas just because I sell something to a guy in Iowa. I’ve never been to Iowa. I have no presence in Iowa. If they want money, let them go to the guy who lives there.

trigon on September 21, 2013 at 2:34 PM

Raising taxes anywhere in this frail economy is anti-conservative and this particular idea is not about fairness, but will result in killing internet businesses.

Why can’t our representatives focus on the spending issue?

The things they spend their time on all cost money: healthcare, immigration, green energy, bombing syria.

What will it take to get them to focus on the real issue?

virgo on September 21, 2013 at 2:43 PM

A State may not require a remote seller to file sales and use tax returns

That is from the Senate bill. How is it in any way possible that a seller in Texas is now a “remote seller” for the state of New York? He’s not a remote anything for New York. The state of New York can’t require a thing from him. New York has no legal power over anything he does which does not occur in New York. If a New York resident buys something from a business legally resident in Texas the only sales taxes owed are to the state of Texas for the transaction which has clearly occurred in Texas. Remote seller. What a sick idea.

I don’t even see how the Federal government can compel this. The Feds can regulate interstate COMMERCE. Taxation does not suddenly become commerce simply because it’s levied on commerce.

Rocks on September 21, 2013 at 2:56 PM

So every time I shop, the store cashiers must ask me what state I live in so they can charge me Nebraska’s sales tax. And then the store must report and remit those sales tax funds to the state of Nebraska.

catsandbooks on September 21, 2013 at 1:17 PM

It’s insane. You would have to report and submit to all 50 states.

KCB on September 21, 2013 at 1:48 PM

And it’s just as insane to require on-line merchants to report and submit to all 50 states.

catsandbooks on September 21, 2013 at 3:00 PM

they could stop all this bs, just treat the internet just like any other sales tax, tax it at the point of sale, e.g. if you order from a store in california you pay that state and local sales tax

RonK on September 21, 2013 at 3:01 PM

I don’t even see how the Federal government can compel this. The Feds can regulate interstate COMMERCE. Taxation does not suddenly become commerce simply because it’s levied on commerce.

Rocks on September 21, 2013 at 2:56 PM

I’m sure the Supremes will fix that.

catsandbooks on September 21, 2013 at 3:01 PM

I don’t even see how the Federal government can compel this. The Feds can regulate interstate COMMERCE. Taxation does not suddenly become commerce simply because it’s levied on commerce.

Rocks on September 21, 2013 at 2:56 PM

You’re confusing authority with the naked power to do it.

Fenris on September 21, 2013 at 3:09 PM

they could stop all this bs, just treat the internet just like any other sales tax, tax it at the point of sale, e.g. if you order from a store in california you pay that state and local sales tax
RonK on September 21, 2013 at 3:01 PM

But think of all those poor children in the states with high sales tax that can’t get any revenue because of the big mean companies that sell from states with lower sales taxes.

/

happytobehere on September 21, 2013 at 3:11 PM

I missed some the eariler discussion on this issue.

Don’t some states already have laws requiring tax collection (ie if I order from CA they have to charge CA tax on the online order even if they don’t have a physical presence there)? If so, why is the Fed getting their noses in – let the states that want tax convince their citizens and pass the law. Otherwise, leave us alone.

batter on September 21, 2013 at 3:22 PM

batter on September 21, 2013 at 3:22 PM

Not just some, I think practically all states do. But they have no way to enforce it. For example, here in Ohio the state income tax requires you to report all out of state purchases you didn’t pay sales tax on. But they don’t have any records of what you bought from, for example Amazon. So it’s unlikely many people honestly report it.

States could make a bunch of agreements with each other to get that information, but it’s easier to place the compliance burden on businesses and individuals. Compliance costs money.

Fenris on September 21, 2013 at 3:28 PM

There are already appropriate use tax laws on the books. If it is worth complaining about, then enforce existing law.

If it’s not worth the cost then stop complaining.

rogerb on September 21, 2013 at 2:07 PM

“Use tax” is of itself of questionable constitutionality. By penalizing citizens for spending money in other states, states are in effect setting a tariff that impedes interstate commerce.

By what logic or right does a state have the authority to tax a transaction outside its borders?

Adjoran on September 21, 2013 at 3:48 PM

Screw this. Tiny two man business’ done entirely over the Internet don’t have the resources to pay tax agents to figure out how to comply with thousands of tax justifications nor do many have the time or skill to do it themselves. If brick and mortar stores feel unfairly burdened, then they need to lobby their state legislators to do away with sales taxes all together.

jawkneemusic on September 21, 2013 at 4:05 PM

With that in mind, it makes no sense at all for buyers to pay sales taxes to the states where they shop, not the states where they live. Such a shift would rob the buyer’s state of taxes that were intended to support the government services the buyer receives, such as schools, police and street repairs.

This would work for me as I live in Montana, and there is no sales tax. I’m guessing that means Montanans would be exempt from sales tax in all 50 states.

In fact, Seattle exempts me from paying sales tax there if I show them my MT driver’s license. It’s part of their incentives to encourage tourists to spend money in Seattle.

It will be unfair to those who don’t live in Montana, though.

jix on September 21, 2013 at 4:12 PM

I can’t believe the states that want this have thought it through. They are suddenly going to have tens, if not hundreds, of thousands of new accounts to handle. Many of them aren’t going to be worthwhile. I do maybe 80% to 85% of my business overseas. So, I collect no sales taxes. The 15% to 20% left over is split between 50 states. Low population states may have few or no sales in a given year. Does Wyoming or North Dakota want to worry about my filing every year if I maybe owe them $6.23 once every two or three years? The cost to monitor my compliance can’t be worth the money. Maybe for Florida or California, but I doubt it would be worth even that.

trigon on September 21, 2013 at 4:18 PM

Has always been and will always be a stupid idea that has nothing to do with “leveling the playing field” and everything to do with the government wanting more money and the giant businesses wanting to kill their smaller competitors off.

Even if it made the slightest bit of sense to force a business to pay a tax to a state in which they have no physical presence of any kind, good luck enforcing it.

CrankyTRex on September 21, 2013 at 5:44 PM

There are already appropriate use tax laws on the books. If it is worth complaining about, then enforce existing law.
 
If it’s not worth the cost then stop complaining.
 
rogerb on September 21, 2013 at 2:07 PM

 
“Use tax” is of itself of questionable constitutionality. By penalizing citizens for spending money in other states, states are in effect setting a tariff that impedes interstate commerce.
 
By what logic or right does a state have the authority to tax a transaction outside its borders?
 
Adjoran on September 21, 2013 at 3:48 PM

 
Don’t misunderstand. I’m not arguing for a use tax, just noting that legislation already exists covering these “we’re losing money and need new laws!” concerns.
 
FWIW, my first instinct is to say “the Tenth Amendment” (or what’s left of), but I’d be willing to entertain other ideas.

rogerb on September 21, 2013 at 6:53 PM

Seriously, we should just get rid of all sales taxes. And property taxes, tariffs, and corporate taxes.
Just one income tax, with basically all the credits and deductions removed — except maybe a personal and dependent deduction. Let the states and municipalities tack on their own rates, but don’t let them set any other taxes.

Count to 10 on September 21, 2013 at 7:05 PM

When I lived in Virginia I did not get charged sales tax on my Amazon orders. I moved back to Texas and was shocked to start getting hit with sales tax every time I order from Amazon.

There are a few things, not many but a few, that are not better in Texas…

Roads? Where we're going we don't need roads. on September 21, 2013 at 7:50 PM

I own a small internet business (mailorder company). It does nothing to alleviate my concerns.

We would still be required to send tax returns monthly to every state, city, municipality that has sales taxes. For example, many years ago, I lived in Jersey City, NJ. They were an enterprise zone so their sales tax was 3%. However, New Jersey’s sales tax was 6%. This different tax structure happens all over the country.

It is unworkable and would put us our of business.

ukgoods on September 22, 2013 at 9:01 AM