TCS Daily

Tax Attack

By Scott McCollum - November 14, 2002 12:00 AM

A meeting of officials from 31 states convened Tuesday in Chicago and unanimously voted to require participating state and local governments to have only one statewide tax rate for products sold over the Internet. The initiative, known as the Streamlined Sales Tax Project, aims to impose a unified sales tax scheme on Internet shoppers in all 50 states in the US who currently pay no sales taxes on most out of state online purchases.

The backers of the plan include tax officials and governors from 31 states along with anti-Internet business trade groups like the National Retail Federation. Both groups have long contended that state governments are losing out on tax revenues and that Internet-only businesses whose customers primarily purchase from out of state to avoid paying sales taxes have an unfair advantage over bricks and mortar retail stores who must impose sales taxes on their walk-in customers.

But the US Supreme Court ruled a decade ago that customers purchasing goods online from a company in another state were subject to the same law that keeps catalog shoppers from paying sales taxes to states in which they have no representation. Various measures to extend the ban on Internet taxes in 1998 and 2001 have consistently passed with the overwhelming support of American taxpayers. President George W. Bush has asked to keep all Internet commerce permanently free of the stifling regulations that would be placed upon an online retailer if forced to comply with the over 7,500 different state and local sales tax schemes.

Mike Leavitt, the Republican governor of Utah sees the situation much differently. Governor Leavitt claims that the Streamlined Sales Tax Project is about states' tax collectors receiving their fair share of revenues from the booming e-commerce industry. During the meeting in Chicago, Leavitt and the other 30 state officials who support this new tax measure cited figures from the General Accounting Office (GAO) that estimated state coffers lost $13 billion per year on untaxed Internet sales. A study commissioned by the University of Tennessee's Institute of States Studies and trumpeted by the Internet taxation proponents projected a $45 billion per year loss of tax revenue by 2006. Maureen Riehl, a lawyer for the National Retail Federation, applauded the effort to tax all Internet purchases because of its detrimental effect on her group's members. "Our ultimate goal," said Ms. Riehl "is that everybody will have to play by the same rules."

There is one glaringly obvious problem with the argument that the steps are designed to make sure states don't lose money on tax revenues: How can you lose money that you've never had to begin with? It's like saying: "Damn, I lost 56 million bucks on the lottery last night" and you never even bought a lotto ticket. For tax collectors in Utah to address their budget problems by taxing Missourians shopping online (who, as Missourians, have no representation whatsoever in Utah's legislative process) is silly. Utah isn't $411 million in the hole because it wasn't getting its fair share of tax revenues from families in West Jordan buying Veggie Tales books off; Utah is $411 million in the red because it spends too much money.

It should be obvious that the National Governors Association waited until after the November 2002 election to try and push for an Internet taxation scheme. If the committee had met on October 12, 2002 instead, many voters would've thrown the bums out this month.

A version of this article appeared in

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