The American Spectator

On Tuesday, a federal judge agreed with Amazon.com about the unconstitutionality of a 2010 law passed in Coloardo and invalidated what had become known as the “Amazon tax.” District Judge Robert Blackburn, who had placed a preliminary injunction against the rule shortly after its passage, issued a final ruling that “enforcing a reporting requirement on out-of-state retailers will, by definition, discriminate against the out-of-state retailers by imposing unique burdens on those retailers.”

In 2010, one of a package of “dirty dozen” tax increases in Colorado rammed through the state legislature by Democrats and signed by then-governor Bill Ritter (yet another fake “moderate”) was a tax designed to make online retailers either collect sales tax or else report to the state the information of every Colorado purchaser of products from those sites. I offered more details on the tax and regulation here.

It was not only the tax aspect of the law which was objectionable, but that the state intended to force out-of-state online retailers to report to the state all purchases by Coloradans. It was, as I noted at the time, rather Orwellian. Beyond that, it was stupid, as the cost of enforcing the law would probably have been about as much as any sales tax collected.

The “Amazon Tax” caused Amazon to shut down its “Amazon Associates” program in the state. At the time the law passed, Amazon stated their view that the Colorado law was obviously unconstitutional. One relatively prominent technology hedge fund owner and supporter of former Governor Bill Ritter was quite bitter about the Democrats’ passing this tax.

In 2011, after Republicans took control of the State House of Representatives, a bill was passed to repeal the Amazon Tax, with the repeal passing the relevant House committee by an 11-1 vote and passing the full House on a 58-6 vote, including many Democrats. However, the bill was killed by Democrats on the relevant State Senate committee and never got a vote in that chamber.

Now, thanks to Judge Blackburn, the Amazon tax is dead and buried…though zombie taxes are expected to soon be wandering through the halls of legislatures everywhere.

“Brick and mortar” stores complain bitterly about the uneven playing field with their having to charge sales tax while their online competitors don’t. A well-known example is how Best Buy is occasionally called “Amazon.com’s showroom” with people going to the local store to look at products and then going online to buy them, often getting a lower initial price and always avoiding sales tax.

When you’re talking about $100 in sales tax (such as on a $1200 television), it’s easy to understand why people do this…and I admit being one of those who would almost never buy an expensive item at a local store for exactly this reason.

Of course, ordinary stores have the additional overhead costs of large number of employees and real estate costs to recover in sales, meaning it’s difficult for them to match a large online retailer’s prices even separate from the sales tax issue.

But Walmart (admittedly with scale advantages that no other retailer has) does a good job of it, and people would likely be willing to pay a small premium to buy locally, for the convenience (of being able to get a product right away), the ease of returning something, and the availability of support. Of course, buying online has the convenience advantage of being able to get a product without having to leave your desk. In these days of $4 gasoline, avoiding driving certainly helps the online retailers as well.

Let’s say that customers might be willing to pay enough more to buy locally that brick and mortar stores could compete with online retailers on nominal price alone. This would imply that the major factor in consumers’ behavior when it comes to choosing between a local store and an online retailer, especially for high-dollar items is the sales tax.

The only solution ever discussed for this disparity is to try to force online retailers to collect sales tax and hand it over to the states. But following the Supreme Court decision in Quill, states have found that essentially impossible, with Judge Blackburn’s ruling being the latest nail in the coffin. No doubt states will continue to try to collect taxes on everything we buy, and even Amazon has suggested it would not oppose a federal solution to this question.

But another solution seems never to be discussed: lowering sales tax rates.

States, counties, and towns will say that they can’t afford to lose the sales tax revenue that would accompany lower rates, but there must be a Laffer Curve effect for retail purchase decisions just as with federal income tax. In other words, if the sales tax were low enough that people didn’t have such a large incentive to buy online to avoid the tax, local retailers would sell more products, especially high-dollar products.

Another alternative would be to lower the tax rate on products which cost more than $100 or more than $1000.

The left, of course, thinks the opposite way. They always think that expensive items show a rich buyer waiting to be soaked. This is the sort of thinking that gave the nation (with the signature of George H.W. Bush) a 10 percent tax on “yachts”, decimating the high-end boat-building business in America until the tax was repealed about two years later…after which the industry rebounded.

Sales taxes almost never decrease. Instead they stealthily increase over time, “just” 1/8 or 1/4 percent at a time, boiling the consumer frog, until you suddenly realize that you’re looking at adding another $8 or $10 on your $100 purchased, after a combination of state, county, and city sales taxes.

I am not optimistic that this discussion will end up any way other than with consumers being soaked for sales tax on their online purchases. But it says something that nobody, and I mean nobody, involved in the highest levels of such policy discussions ever suggests narrowing the online vs brick-and-mortar disparity by cutting tax rates.