September 7, 2016


Our Online Sales-Tax Loophole : A new proposal to close it is promising. (ROBERT VERBRUGGEN • September 6, 2016, American Conservative)

Our online sales-tax system has relatively few defenders, aside from those in the hardline anti-tax crowd who'd support anything that made it harder for the government to collect revenue. If you buy something from a local store, the store collects any applicable sales tax and sends it to the state. If you buy something online, and the store has no physical presence in your state, a tax still applies--but the business doesn't have to collect it or tell your state how much you spent. To avoid the tax, all you have to do is "forget" your online purchases when you fill out your tax forms at the end of the year.

Not only does the system facilitate tax evasion, but it twists economic incentives, giving online retailers an unfair advantage. Until now, federal lawmakers have struggled to find a solution. But a new proposal from Rep. Bob Goodlatte (R-Va.) might point the way forward.

Unfortunately, the issue does need to be handled at the federal level. Online purchases that cross state lines are pretty much the textbook definition of "commerce ... among the several states," an area the Constitution gives to the national government. The Supreme Court has confirmed this, forbidding states to unilaterally tax businesses that lack a physical in-state "nexus." Such taxes can be collected only if Congress explicitly authorizes them.

Decades into the internet era, lawmakers haven't managed to do so. "Tax increases"--which in this case, of course, just means shutting down a tax-cheating scheme--are always unpopular, and e-commerce giants like Amazon long fought any attempt at reform. But the tide may be turning. Many states are facing budget crises, and others are taking matters into their own hands, passing laws of dubious constitutionality in an attempt to force the Supreme Court to revisit the issue. And in a hilariously brazen display of crony capitalism, Amazon itself switched sides a few years ago.

Just offset consumption taxes by reducing/eliminating income taxes.

Posted by at September 7, 2016 2:33 PM