Let’s level the playing field by imposing sales tax on Internet merchants

The Wall Street Journal is always quick to ignore the wrongs to the many to protect the rights of the few—in this case the few being Internet merchants located in New Hampshire, a state without sales tax, who would have to collect sales tax on items sold to people living in other states, while those undeserving New Hampshire brick-and-mortar wholesalers would not have to collect taxes for in-store purchases by tourists just traveling through. To ensure that this unfair situation doesn’t come to pass, a Journal article wants us to urge our Senators to defeat the latest attempt to make Internet merchants collect sales tax.

The Journal forgets that in the current situation, Internet merchants have a tremendous advantage over brick-and-mortar stores because they don’t have to collect local sales tax, either for the jurisdiction in which they have their official “office,” or in the jurisdiction of the buyer. The new bill, as so many like it that have gone down to defeat in recent years, would level the playing field between Internet and brick-and-mortar businesses when it comes to taxation. It would end a subtle regressive element of the current situation—rich folk are more likely to buy on the Internet and so less likely to pay sales tax.  And it would increase much needed state revenues in virtually every state.

The Wall Street Journal is not the only big player pushing to defeat a bill that would require Internet merchants to collect sales tax. Over the weekend, John Donohoe, the Chief Executive Officer of eBay, sent email missives to millions of eBay users asking them to oppose the legislation.

As usual when defending the business prerogatives of the few, both eBay and the Journal hide behind the patriotic flag of small business. Both want a bill that exempts small businesses. In Donohoe’s case, that means firms with fewer than 50 employees and less than $10 million in sales.

  • Donohoe appeals directly to eBay sellers: “This legislation treats you and big multi-billion dollar online retailers—such as Amazon—exactly the same.  Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer.”
  • The Journal sees a conspiracy against small business: “So big business and big government are uniting to pursue their mutual interest in sticking it to the little guy. Any Internet seller with more than $1 million in annual sales would be forced to serve all of the nation’s tax collectors.”

The argument is built on the fiction that the burden of collecting and paying sales tax is greater on the small business than a large enterprise. Can’t you just visualize thousands of plucky Internet merchants in their home offices slaving away with ballpoint pen at hundreds of tax forms, then licking the stamps and envelopes to mail hundreds of different checks each month to different state and local taxing officials?

Didn’t these people ever hear of automated software or third-party payment services such as PayPal?  Did the opponents to collecting sales tax in a consistent manner ever think that maybe the vendors who have automated Internet purchases will also quickly develop software that handles everything involved in collecting and transmitting sales tax to the various taxing bodies—that is, if the software doesn’t already exist.  The technology can’t possibly be very hard to develop, considering that industry has already developed software that helps the little Internet merchant sell thousands of items with constantly changing prices and specifications, just like small brick-and-mortar merchants do.

I certainly believe that the little guy should be protected from the predatory practices of large corporations.  But that’s not what this proposed new law is about. It’s about raising revenues in a fair and equitable manner.


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