In September of 1989, Soviet leader Boris Yeltsin visited Texas and toured the Johnson Space Center, after which he stopped at an ordinary Houston supermarket. While his NASA tour might have been more politically important, it was his wide-eyed amazement at the grocery store that made history.
Yeltsin wandered the aisles trying free samples and asking customers about the prices and selection. If the people back home saw this kind of abundance, he said, “there would be a revolution.” Years later, Yeltsin would specifically cite that average store as a critical factor in his rejection of communism.
I can’t quite replicate that amazement when I visit my local grocer, but I do marvel in nearly the same way at online shopping. Maybe I’m showing my age here, but I still find its ease and affordability fascinating. I order stuff like paper towels and trash bags via Amazon’s subscription program, and it shows up at my door each month like clockwork, in bulk, at a discount, and tax-free. The future is now, and I love it.
What I don’t love is Washington’s obsession with developing a national Internet sales tax scheme. This issue is back in the news because Congressman Bob Goodlatte has a new idea for how states can get their pound of flesh from our online purchases. As Jazz Shaw explains at Hot Air, Goodlatte’s plan says “the seller’s home state rules would determine if a sales tax is charged on a given transaction, but the tax rate (if any) of the state where the customer was purchasing it would be collected in that state.”
In just a few days, this idea has drawn support from names as big as House Speaker Paul Ryan and Amazon (Et tu, Brute?). With early backing like that, there’s a real chance Goodlatte’s proposal could move forward.
That would be a serious mistake. It’s not that this plan is worse than any other Internet sales tax proposal. To the contrary, it’s arguably better than an alternative proposal that passed the Senate several years ago. The problem here is the whole terrible idea.
You see, the rationale typically presented for taxing online sales is that it’s a matter of fairness. If brick-and-mortar stores have to charge their walk-in customers taxes, so should online sellers. Otherwise, the Internet gets an unfair advantage.
But this argument is flawed on several counts. First, most online purchases are already taxed. Yes, you can and do find plenty of tax-free stuff online, but purchases from major retailers are frequently taxed because those corporations maintain a national presence with tax-eligible locations in multiples states.
Second, the unfairness story is frequently told in terms of a struggling, authentic, mom-and-pop store getting crushed by the tax burden while an online giant like Amazon skates along tax-free. That’s a compelling picture, but it’s ultimately misleading. For starters, a family-run, brick-and-mortar hardware store is far more endangered by the local Home Depot than by the fact that I can buy a drill online (at least until same-day drone delivery is a thing).
This tall tale also overlooks the fact that there are plenty of struggling, authentic, mom-and-pop stores on the Internet, too. Ever heard of Etsy? Online shopping has its giants, sure, but it’s overrun with independent vendors who will be just as burdened by sales taxes as the small stores on Main Street.
That brings me to my third point, which is that if we did implement a comprehensive Internet sales tax scheme, it wouldn’t level the playing field between online and in-person sales at all. What it would do is make life consistently easier for big business and more difficult for small companies that can’t negotiate the complexities of complying with 50 different sales tax laws. This isn’t fairness; it’s crony capitalism, in which large corporations with political power manipulate the regulatory market to squash the competition.
Don’t get me wrong: I’d love to see brick-and-mortar stores freed from the burden of sales tax, too. Unfortunately, that option isn’t on the table. But we still have a shot at keeping the Internet wild and (at least partially) tax-free.