Senator Durbin’s recent “Main Street Fairness Act” (S. 1452) could begin nationwide sales tax collections on Internet sales. “Fairness” speaks to the competitive disadvantage bricks and mortar retailers shoulder compared with competing Internet retailers who are beyond the reach of sales tax collection obligations – except when selling to a consumer in the Internet retailer’s state. So far, state and local governments have merely encouraged Internet buyers to report purchases and pay applicable tax to their state and local taxing authority. Such voluntary tax payments have been puny, as Internet shoppers know they can avoid paying sales tax. Missing tax payments are estimated at $24 billion per year, and will grow.
Durbin’s bill advises state and local tax authorities of principles they should use when enlisting Internet vendors as tax collectors – a role legitimately resisted for many years. There are thousands of taxing jurisdictions in the US, and across those there is thick chaos of product definitions, tax levels, exemptions, price thresholds, and of course, forms and deadlines for reporting. Nationwide sales taxes are an excessive burden to impose on a retailer. S. 1452 admits as much because it: calls for uniform product descriptions; nixes value thresholds; allows different tax levels across taxing jurisdiction; and, says retailers should be paid for applying the correct rate and remitting/reporting to a single point in each state.
But S. 1452 is far from complete. Most specifics needed to make a workable system are undetermined and await committee work. But the larger question of “is this the right approach” has not been settled. One alternate proposal is to base sales tax on the location of the retailer – irrespective of the buyer’s location. This “sourcing” scheme would cause states to compete on taxes against each other — if they want to attract Internet retailers. That would disadvantage states that eschew income tax and instead rely on sales tax (e.g. Florida). We should not encourage adoption of income tax schemes. A shadow risk in this legislation is that tax-hungry Congress may find this a convenient platform for introducing its own consumption tax. Regardless, if the bill passes, consumers will experience higher taxes than they pay today.
Alan Daley is a retired businessman living in Florida. He follows public policy issues from the consumer’s perspective