Crony Capitalism Enters the 21st Century
The Internet is the great frontier of American free enterprise. While government subjects small businesses to an ever-growing list of regulations, the Internet has become the closest thing to a truly global free market, revolutionizing commerce to the advantage of sellers and buyers alike. But by pushing an Internet sales tax in the name of “marketplace fairness,” Congress threatens to restrict consumer choice and bury small online retailers under a mountain of costs and regulations.
Supporters of an Internet sales tax argue that it’s in the interest of “fairness” to make online purchases subject to the same sales tax as in-store purchases. What they’re leaving out is that this is already the case: under current law it is the responsibility of buyers to report all out-of-state purchases, including online purchases, to their state so that sales taxes may be collected. It’s true that many consumers fail to pay the taxes they owe on online purchases, but shifting that burden to the sellers threatens their ability to do business.
Our Constitution protects state sovereignty, and the Supreme Court has consistently reaffirmed the right and responsibility of each state to collect its own taxes. In 1992, the Supreme Court ruled that businesses were only responsible for collecting state sales taxes in states where they have a physical presence. This decision means that business owners need only be familiar with their own state’s tax code, and that states can’t force out of state or online businesses to collect taxes on their behalf.
If Congress has its way, online retailers will have to collect taxes for each of the 9,600 state and local jurisdictions in the country. This means that a businesswoman who uses eBay to sell goods from her shop in Maine, for example, will have to familiarize herself with every state sales tax from Alabama to Alaska, not to mention the local sales taxes that thousands of cities and counties levy. She would be so buried under an avalanche of paperwork that it would no longer make sense for her to sell online--reducing her profits, and depriving out-of-state customers of her goods.
In fact, the businesses pushing for the “fairness” of an Internet sales tax are corporate giants that already operate in the majority of states, and thus are already required to collect sales taxes from most of their customers. The new law would barely affect these big corporations, but would drive Main Street businesses from the online market, reducing competition and driving up prices for consumers.
The sales tax burden ultimately falls upon consumers, not retailers. States looking to collect taxes from Internet sales should enforce the laws they already have on the books, and not create new ones that will only drive retailers from the market. The Supreme Court’s decision to protect small businesses from out-of-state tax collectors was logical and well-reasoned, and there’s no reason for Congress to overrule it now.
