Voters are still reeling from tax day in a tough recession, and taking to the streets in protest, but state governments and their allies aren’t listening. In fact, they are gearing up to squeeze more money out of the nation’s workers. Their target is online shopping, and if the pro-tax coalition gets its way, embattled Americans will soon be shouldering higher tax burdens.
Senator Mike Enzi, R-Wyo., and Representative Bill Delahunt, a D-Mass., are set to introduce a bill that will allow states to collect more sales taxes online, according to recent reports. State claims on Internet sales are not new — the debate has been going on for about a decade. The key issue surrounds whether or not states should be allowed to impose taxes outside their borders — an idea that sounds a lot like taxation without representation.
States complain that they are “losing” revenue because their residents are shopping electronically in other states, but such a claim is an assault on important American principles that were upheld by the Supreme Court in 1992 when it ruled that a business doesn’t have to collect a state’s sales tax if the business doesn’t have a physical presence in the state.
Use Tax, Anyone?
States can and do collect the taxes they are grumbling about losing. That’s because residents are supposed to report to their state governments the amount of goods they purchased outside the state, and when they do, they pay what is called a “use tax.” Many reading this article probably reported use taxes on their return this April. States argue that this method is too difficult, but if that’s the case, there is another way they could collect tax that does not require reaching beyond their borders.
Under an “origin based tax,” states could choose to tax all e-commerce that occurs within their borders — essentially what happens in the brick-and-mortar world. That is, when someone crosses the border and shops at a store in another state, they pay that state’s sales tax. The benefit of an origin-based tax over the scheme to make state taxes follow residents wherever they go, is that it would preserve American principles of federalism and tax competition.
Of course, states don’t seem interested in the origin-based option, since such competition would keep their greed in check. Instead, tax-hungry politicians are pushing Congress to overturn the Supreme Court’s decision and hand them a license to collude with each other to ratchet up taxes evenly across the country — an outcome that would significantly shift America away from the federalism that has been a major part of the country’s success. Representatives of the Streamlined Sales Tax Project are planning to lobby members of Congress in Washington on May 13, but despite the rhetoric, their plan does not make taxation simpler or more streamlined.
Tea Party Message
“The states are desperate for new revenue, and I think they realize they’re straying far from the simplification they originally promised,” Steve DelBianco, executive director of NetChoice, a coalition of tech companies, told Cnet. This, he says, “creates an urgency on their part — to get the federal mandate before it becomes clear they have no intention to simplify.”
States are “desperate for new revenue,” as DelBianco said, not to offer taxpayers any new services or benefits, but to repair a fiscal mess largely of their own making.
With a Democratic Congress and president already spending tax dollars as if such money grows on trees, some think it might be easier to persuade Congress to allow states more taxation authority. Such a move would be a huge mistake, however, as new taxes will make it harder to recover from the recession. It would also be especially harmful since the new tax authority targets the tech sector — an area of the economy still performing relatively well.
There were 578,000 tax day tea parties where citizens gathered to voice their opposition to out-of-control spending at all levels of government, according to Americans for Tax Reform. Whatever their party affiliation, members of Congress should take heed and say “No” to state tax collusion.
Sonia Arrison, a TechNewsWorld columnist, is senior fellow in technology studies at the California-based Pacific Research Institute.