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Live From New York
How Not to Tax the Internet
Gov. David Paterson wants tolls on the information superhighway
(Page 2 of 2)
A better approach is origin-based taxation. Companies only collect and pay sales taxes where they have a physical presence. Not only is it more fair, it is more feasible. Companies pay one sales tax, not anywhere from 50 to 11,000.
Origin-based taxation also allows for tax competition, which incentivizes states to rein in their worst impulses. If a state charges excessive rates, companies can leave for another state with more reasonable rates.
Internet retailing is one of the few sectors of the economy still growing during this recession. If destination-based taxation prevails, it will cost precious jobs. Consumers will end up paying more for the same goods; their hard-earned dollars won’t go as far as they would under origin-based taxation.
Governor Paterson’s Internet taxation proposal is unfair unworkable, and bad for consumers and businesses alike. Courts should throw it out.
About the Author
Ryan Young is Fellow in Regulatory Studies at the Competitive Enterprise Institute.
Letter to the Editor View all comments (19) | Leave a comment
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Pete Eyre | 3.24.09 @ 10:17AM
What's the name of the case in NY? Any idea how folks think it'll be decided?
How long until a sizable company takes a principled stand and tells the government "no"?
Dean Vander Linde| 3.24.09 @ 11:49AM
I seriously question the legality of states imposing sales taxes on products that originate in another state. That is interstate commerce, and only Congress has the power to regulate it. God forbid that Congress gets involved in this situation.
I buy books through the Internet, and have bought books from dealers in perhaps half of the states, as well as the UK, Canada, and Australia. Does the government expect these small businessmen to keep accounts for sales tax for each transaction, and then send checks for $1.00 or $2.00 to the respective states to pay for sales taxes? Like so many government actions these day, the Internet tax idea reeks of greed and stupidity by the politicians.
Griff| 3.24.09 @ 1:18PM
Dean,
States impose sales tax on products that originate in other states all the time (think automobiles). I think the issue that started these tax-hungry mongrels on their quest is this: In what state does the purchaser reside? We've already seen this in practice when the "fine print" says, "Residents of XYZ please add x% to your order price."
JD| 3.24.09 @ 5:11PM
Keep it up, pols, you have no clue about the nature of the fire you're playing with.
You have never even conceived of the kind of underground economy that will spring up as a result of your constant overreaching. Everything has a limit; yours is marked by the line where the citizenry finally rejects your ever increasingly-worthless monopoly money. Since it is still so young, and you so short-sighted, you have thus far failed to grasp the fact that the internet is a fundamental game-changer in this respect. So keep on pushing; we will tolerate you for as long as it remains more convenient for us to do so. At some point, however, our patience will have been exhausted. The coming revolution will not be a physically-violent one; it will be purely monetary. Once it gains inertia, and this is ultimately inevitable, you will be helpless to stop it - starved of funding, your conventional means of control will have been rendered utterly useless. Remember, physical military power is a consumer, not a producer, of value.
Somewhere along the line, you have forgotten the most important rule: you need us, but we don't need you.
Joe| 3.24.09 @ 5:54PM
I have a question for the sales tax folks. I live in Kentucky and I buy a gift for a friend in Tennessee. While in a hotel in Indiana, I call an operator in South Dakota that works for a company located in California and the gift ships from a warehouse in Nevada. My credit card issuing bank is in Ohio and the billing goes through Delaware. Who gets the sales tax? When this question can be answered with clarity and consistency, we will know how to tax these purchases.
PJ Doland | 3.24.09 @ 6:22PM
Logistically, this kind of thing is a disaster.
But...you can be sure Amazon and other online retailers would do a lot less business if they didn't have a significant price advantage over brick and mortar stores that have to charge sales tax. The current system basically amounts to a giant subsidy to UPS and Federal Express.
Tom| 3.24.09 @ 8:11PM
Pa. has what is called a sales and use tax. That means that if I purchase something within the state I pay 6% sales tax. If I buy something from another state I am obligated to pay use tax which is 6% Residents of Allegheny and Philadelphia County have to pay an extra 1% tax, sale or use.
So it isn't what it is but what it is called that matters in some cases.
MJW | 3.25.09 @ 12:36PM
"The 1992 Quill v. North Dakota decision confirmed that a state may only collect sales taxes from companies that are actually located in that state."
Mainly because of the difficulties for an out of state company to know what the sales tax rate is. The decision also said that only Congress can change things. Here's the actual ruling: http://www.law.cornell.edu/supct/html/91-0194.ZO.html
Hence this plan: http://www.streamlinedsalestax.org/
I rather like the origin based sales tax plan. Oh wait, my books are shipped & billed out of New Hampshire, one of 5 states without a sales tax.
Sandra| 3.27.09 @ 11:48PM
Sigh.
I enjoy your blog at CEI and the one at inertiawins.blogspot.com.
I really don't know how we're going to stop these rapacious idiots in time.
Disagree| 4.8.09 @ 9:53AM
Sorry, but I think you're off-base here: As I understand sales taxes, the buyer pays; the retailer only collects. Seems fair to me that an out-of-state business shouldn't get a huge competitive advantage over one willing to set-up shop, employ people, etc., in state.