Senator Dick Durbin’s plan to introduce a bill to tax goods purchased over the Internet could be a disaster for Internet retailers and consumers alike. The bill aims to change the rules for retailers operating over the Internet, forcing them to comply with a labyrinth of state and local tax laws, regardless of where the retailer is located. As anyone who’s ever shopped at Amazon or Zappos knows, retailers operating over the Internet are currently not required to collect sales taxes. Durbin’s bill would enable states to raise taxes to the tune of $23 billion, while doing nothing to simplify the tax code and the regulatory maze that would arise if retailers were forced to report to over 8,500 different tax jurisdictions. As Americans for Tax Reform rightly points out, it would give a small group of regulators the ability to write tax code for all 50 states.
Of course, we would love to see the tax moratorium on Internet purchases continue. Consumers save hundreds of dollars every year taking advantage of Internet shopping, which encourages the purchase of goods. This is good for the market. But putting aside those reasons, there’s another problem with this legislation: It may actually put Internet retailers at a disadvantage to bricks-and-mortar stores.
Sales taxes are a state tax, not federal. So the federal government imposing rules and regulations over state taxes could cause instances of double taxation. For instance, where does one state’s jurisdiction end, and one begin? Which state will collect the tax? And what’s to stop two states from demanding sales tax from a retailer on the same purchase? If a retailer is headquartered in California and sells to someone located in Illinois, do both California and Illinois get to collect taxes? These issues, if not settled in a congressional bill, could cause great harm to the consumer, and could hinder the explosive growth in Internet commerce we’ve seen over the past decade. The simplification of the tax system should be a goal in any bill that would impose a tax on Internet sales.
Some supporters of an Internet sales tax might point to Amazon’s potential support for the bill. Of course they’re in favor of it. As Tim Carney often points out, big business (of which Amazon most certainly is with over $9 billion in the 4th quarter of last year alone) is usually in favor of regulations. They can afford the high-priced lawyers it takes to navigate these complicated schemes. Small businesses more often can’t. As we mentioned before, there are more than 8,500 tax jurisdictions in the US. Small businesses trying to compete with Amazon likely don’t have the resources to comply with each one. So in the end, this bill hurts consumers in more ways than one–both by raising taxes and limiting their choices.
The best bet is for Congress to leave this issue alone. Slapping a tax on a fast-growing sector of the economy is completely backwards. If Senator Durbin is worried about his state competing with Internet retailers, he should consider measures to lower his states exorbitant sales tax (Chicago’s is the one of the highest in the nation at 9.75%), rather than handicap others through a maze of taxes and regulations.
Zack Christenson blogs for the American Consumer Institute on tech policy, and is a digital strategist at The Heartland Institute.