Internet Sales Tax

Every so often, someone re-raises the issue about whether or not state sales tax should apply over the Internet. Threats have been levied, government debates have been raised and, a few times, some large online retailers have been pushed into testing out ways in order to make it practical. However, it's all come for naught.

Let's just hope that it stays that way.

Because even though almost no tax can be considered a good thing, this tax is especially insidious because it's an impractical tax that has come about for all of the wrong reasons. Long story short, this has nothing to do with the government getting what it feels it deserves and everything to do with unfair competition and trying to shut down a system that is seen by millions as progress.

The main problem is the reason the Internet sales tax ever became an issue in the first place. It wasn't because politicians felt that their states were being deprived of revenue from Internet sales, but because bricks and mortar store owners felt threatened by Internet businesses.

Indeed, it was traditional business owners who first banded together to complain about the lack of a state sales tax on Internet-purchased goods. They felt that they were being put out of business by Internet stores and that the only reason for that was the price break that online shoppers got by not paying a sales tax.

This is, of course, complete malarkey. Not only does it overlook the true advantages of online shopping such as never having to leave your home, no lines, reduced prices, easy searching and to your door delivery, but it ignores the fact that online shoppers usually get stuck paying for shipping which is almost always more than or comparable to sales tax.

The bitter truth is that a lot traditional stores either can't or won't compete in the digital age and, rather than updating their stores or getting their own Web shop (like Best Buy and countless other stores), they seek to hurt online business with an unnecessary and probably illegal tax.

Because even if one discounts the financial impact of an Internet sales tax, the application of such a law would be almost impossible.

First, there's the issue of the global nature of the Internet. Despite what the American government seems to think, the Internet is a world-wide phenomenon and can be found in nearly every country on the globe. Even if the United States manages to pass a sales tax initiative, retailers in other countries can not be held to it. Furthermore, what's to stop United States Internet businesses from simply moving overseas, or at least incorporating their business overseas, to avoid having to deal with the inconvenience of a sales tax. The first could rob the United States of precious jobs and both would deprive the government of far more in taxes than it would ever have hoped to gain considering store owners still pay income taxes.

Second, even if you discount the global nature of the Internet, a sales tax is impractical. Theoretically, the sales tax would be based upon the buyers own local sales tax. However, determining that isn't as simple as looking at a shipping address or having the user select what state they're in. In many cases, it gets much more complicated.

For example, take a look at where I live in New Orleans, Louisiana. Here the state tax is 4%, but on top of that I have a county tax, a city tax and even a school district tax that raises it up to 9.5%. If I lived a few streets one way or the other, it could go up or down. In fact, I pay a different sales tax depending on what store I go to. I can save as much as 4% by just crossing a street.

So all of this raises the question of how is an online store supposed to deal with that? Someone who's never been to New Orleans would have no idea about this, map programs frequently get confused when trying to navigate my area and there's nothing to stop users from lying about how much tax they owe.

Long story short, it won't work right now and probably will continue to be impractical for a long, long time. That is, at least until government catches up and creates a more uniform system.

The best solution that has come up is being executed in states like South Carolina where individuals, when filing their tax returns, have to identify how much they've bought off the Internet so that they may pay a “use tax” on them. However, it's a completely unenforceable tax since the government has no way of knowing how much you bought online, if anything, and whether or not it's taxable in the first place. In fact, though I had to file South Carolina taxes this year, my tax preparer didn't even ask the question, not that it would have mattered.

The end result is that the Internet is a new frontier that a centuries-old idea of taxation can't keep up with. As much as it frustrates traditional businessmen and women, taxing the Internet is impractical and would be a self-inflicted wound for the government. Business owners would be better off using their physical leverage to create online shops to expand their market rather than fighting the times with attempts at passing senseless legislation.

Long story short, it's time for both government and traditional business to grow up and get with the time. Whether the Internet is here to stay is beyond question. However, whether the outmoded idea of a sales tax is, well, that's a completely separate question.

However, I know which side I'm rooting for.

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3 Responses to Internet Sales Tax

  1. Bran. says:

    I'm seeing parts of that whenever I go browse at eBay. Some sellers have a state tax that's applicable only to that certain state. Some say for example: Sales tax 6% (Only in VA) … So I interpret it this way: if you live in that state and order off the internet, you gotta pay the sales tax applied there.

    ANY kind of taxes give me a headache…

  2. Tom says:

    Even if they want to force it and upset millions of consumers and "wound" the government… like Raven said the internet is worldwide. They are having the same troubles with privacy issues on the net. Unless there is some world governing body in the future… the United Nations is a joke and can't count here… taxation on the internet, if charged, will just be a bomb waiting to explode as someone somewhere starts protesting and gains followers. Businesses will lose customers in and outside of countries because of unimportant price increases. Other countries may even end up banning foreign business.


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