Have you bought anything online lately? If you’ve bought something from Amazon or Zappos or any other number of online-only retailers, you didn’t pay any sales tax. Chances are also good that you made your purchase online because of that fact—you knew you could save a good chunk of money by making your purchase online. This online commerce has spurred the economy in untold ways by creating jobs and enabling entrepreneurs to start their businesses at a low cost. Now, some want to end the practice of a sales-tax free Internet.
Imposing a sales tax on one of the youngest industries in the economy could have far-reaching consequences. The Internet is a medium which allows entrepreneurs with a dream and few resources to build small businesses, and eventually, into thriving large businesses. The Internet is full of innovators, who are helping spur the economy by creating value for their customers, and in turn, creating jobs and contributing to the economy. The sales tax would burden these innovators in a few ways. First, a sales tax on goods could dry up a lot of business. Consumers flock to the Internet to save money, to be unrestrained from the burdensome taxes of their states. Internet retailers take advantage of this and provide a valuable service to consumers looking to save money. Second, the process of collecting sales taxes from consumers who come from all 50 states would become a harsh burden on small companies trying to start a business from scratch. The paperwork and “red tape” associated with that task would be enough to put any small business into a tailspin which would be difficult to recover from.
It’s precisely because of these burdens that some big box Internet retailers are beginning to come around to an Internet sales tax. Amazon is potentially supportive of an Internet sales tax. Why would they do something that would potentially cut into their business? Because they can afford to handle the red tape that comes with more regulations. Their competitors, the small and medium sized businesses, can’t. This plays into the myth that big business doesn’t like government. Big business loves more government and regulation—they use it to create obstacles for smaller companies looking to encroach on its market. Unfortunately for us, small and medium sized businesses are the primary engine for job creation and economic growth.
And now, policymakers who you would normally expect to be against new taxes and regulations, including some very well known Republicans, are beginning to jump on the Internet sales tax bandwagon. This is a desperate—with state coffers running dry because of overspending and over-taxation of other industries, they’re looking for new gimmicks to plug the budget holes. The problem is that when you raise taxes you put up barriers for new entries to the market, stifling innovation and job creation. You introduce a disincentive to produce and purchase, thus driving a stake through the heart of the industry.
The argument sometimes goes that Internet retailers should have to play by the same rules as those with storefronts. This is a good argument. Internet retailers should play by the same rules. Perhaps a way to make the playing field more even is to make all Internet sales tax a thing of the past. If the Internet could remain tax-free for all retailers, companies like Best Buy or Wal-Mart would have no problem competing with the likes of Amazon or other smaller retailers. Cutting taxes on goods purchased over the Internet could unleash a wave of spending, economic growth and job creation (and another plus—e-commerce is much more environmentally friendly as well!). Some might worry about the loss of revenue this might create, but perhaps for once legislators could look towards shrinking the footprint of government, rather than taking from creators to finance government’s largesse. If policymakers are concerned about fairness and plugging budget holes, imposing new taxes most certainly is not the way to go.
Zack Christenson writes on digital tech issues for the American Consumer Institute