Internet sales taxes are just another government money grab

The government is coming for your money. Again. House Republicans and Democrats are considering a bill by South Dakota Congresswoman Kristi Noem which would force online businesses to charge an Internet sales tax and force states to adopt online sales tax rules. The Republican’s proposal, which has dozens of co-sponsors including known free marketers John Conyers and Jan Schakowsky (note sarcasm on the term “free marketers), would also set an online threshold at $10M for year one and $1M by year three meaning it would start taking cash from giants like Amazon and quickly make its way down to smaller businesses. The legislation stems from a lawsuit involving South Dakota and retailer Wayfair over online purchases, and an attempt to basically kill the 1992 Quill v. North Dakota Supreme Court ruling where justices found states could not force businesses to collect a sales tax on online purchases.

Noem is defending her bill by saying it would keep small businesses operating.

“The reality is that brick-and-mortar retailers, which provide thousands of jobs in our hometowns, have been closing at an alarming rate. State and local governments are similarly imperiled. Facing budget crises due to out-of-state retailers avoiding sales tax collection, states and localities are forced to raise taxes or consider levying new taxes, even after dramatically reducing spending. My legislation would remove the out-of-state retailer’s competitive advantage and level the playing field for our Main Street businesses. Moreover, it would protect small businesses and citizens alike from aggressive audits by out-of-state governments. The time for action is now.”

University of Richmond School of Law associate professor Hayes Holderness opined in The Hill people should be “concerned” when sales taxes aren’t collected. His reasoning? Schools and roads:

As a result, the quality of state services such as roads and schools suffer, or other taxes go up to cover the losses. The legislated tax policy of the state is frustrated. Needless to say, it would be a lot easier on the states if they could require internet retailers to collect the taxes. And to do that, the physical presence rule needs to go.

The question is whether or not this is really something which needs to be done. Statista reported e-commerce made up only 10% of all purchases in 4th Quarter 2017, which was stagnant with 3rd Quarter 2017. Their February 2017 breakdown of online vs. in-store purchases is also enlightening because it shows e-commerce has a majority in only three categories: books, games, and entertainment.

Statistic: Online vs. in-store shopping preferences of consumers in the United States as of February 2017, by product category | Statista
Find more statistics at Statista

South Dakota also saw sales tax revenues steadily increase, and sales and use taxes from 2017 to 2018 are also rising. Texas is enjoying a rise in sales tax revenue, as is Illinois.

So why even do this bill? The answer is simple: money and elections. The government wants to soak as much cash as it can from consumers and businesses as possible. Politicians want to show they’re fighting for the little guy, even if the little guy may end up being hurt more than helped. The Wall Street Journal is correct in pointing out most people don’t necessarily shop online to skip out on sales taxes, but simply for convenience. It’s a lot easier to go online for goods, instead of hopping from brick and mortar store to brick and mortar store in hopes of finding the right item, especially for those of us who enjoy buying authentic Viking products from Sweden versus a business which makes knockoffs. It’s also easier to buy books from online retailers versus hoping the local bookstore may somehow have the genre we’re looking for, especially if it’s not a bestseller.

The real kicker on all this is the fact Noem is apparently trying to get her bill added to the $1T omnibus bill, because what better way to sneak odious legislation into law than a massive spending bill. WSJ is correct in calling this a scam because there won’t be debate on this. Congress isn’t interested in holding up a spending bill, especially if they want to go home to their constituents and say, “See…I did this…I care!” Noem’s move to attach this to the omnibus bill is ridiculous, especially for someone who championed last year’s tax cuts. Congress should listen to Senators Ted Cruz and Steve Daines and reject this attempt to do more regulations, and stop trying to force states to collect taxes they either don’t need or don’t want.

Edit (Taylor): University of Richmond has reached out saying Holderness doesn’t actually support the bill. The suggestion he does has been removed.

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