Taxing the Internet

The Senate recently brought the prospect of taxing Internet sales a step closer to reality. You probably know that you’re supposed to remit sales tax for your online purchases when you file your state return. Some tiny number of people really does that. But most of us consider our Internet purchases to be tax-free as long as the seller isn’t located in our state. I dutifully collect $10 or $20 a month from Massachusetts residents, but everybody else gets off scot-free.   

Traditional bricks-and-mortar (b&m) stores bitch about this situation more loudly as more and more retail sales move online with each passing year – not because we’re a nation of tea party tax evaders, but because shopping online is always more convenient, usually cheaper, and more secure than traipsing around from store to store carrying money or handing out credit cards. Traditional retailers think that they can delay their inevitable decline if online sellers have to give up their most obvious price advantage.

Seeing the tens of billions of potential tax dollars left in consumers’ wallets each year, many states sided with the retailers whining about a “level playing field.” Those retailers, after all, are their constituents, whereas Internet shoppers are anonymous people “out there”. Plus hey, free money!

The Senate bill enables states to collect sales tax on all purchases made by their residents. Each state has to provide retailers with software that automates collection, and the state is liable for any lawsuits or challenges relating to sales tax collection errors (every state has different rules about exemptions, for example). Retailers will remit just one payment per participating state, leaving it up to the state to divide it among its internal jurisdictions. Most importantly, companies with less than $1 million in annual sales are exempt.  

Will the House go along? On one hand, government-hating zealots who have sworn to oppose all tax increases of any kind for all time still have enough power to gum up the works. OTOH, the law would merely enforce the collection of existing taxes, not impose new ones; red states face the same budget and b&m lobbying pressures as everybody else; and the reddest states could opt out to preserve their ideological purity. So some version of an Internet sales tax might squeak through the Chamber of No.

Consumers, from what I’ve seen, seem resigned. They’ve enjoyed the tax-free loophole for decades, but the party is over.

So how does your favorite online retailer – other than Amazon, I mean – feel about all this?

As a company that would be thrilled to ever reach even 10% of that $1 million threshold, Curio City will remain tax-free. Big online retailers currently enjoy bulk shipping rates that are far, far lower than what you and I pay. These sweetheart rates enable them to offer free shipping. Outbound shipping eats more than 15% of my gross sales; if I didn’t charge for it I’d die quickly. Forcing the big players to tack sales tax onto your purchases gives Curio City a small advantage – or at least helps to offset my biggest disadvantage. Professionally, the Internet tax won’t harm me and might even help me a little bit. 

My own meager disposable income goes mostly to beer, which is already tax-exempt (as are life’s other necessities – food, clothing, and medicine). Restaurant meals, my biggest indulgence, obviously aren’t affected by the Internet tax. I don’t spend more than a couple hundred bucks a year on luxuries. Even though I do all of that shopping online, the tax hit to my wallet would be negligible. So I have no personal objection.  

Anything that helps to hold down other state taxes or improve services is a good thing when it comes out of other people’s pockets. As a low-income almost-senior citizen with no kids, I’m going to expect more government services in my old age than most people do. Philosophically, I support higher revenue to strengthen government programs if it doesn’t stifle the real driver of tax revenues: economic growth. And because online sales are still a small percentage of overall retail activity, this tax probably won’t put a dent in consumer spending.

I'm going to gloss over the questions of whether sales taxes are progressive or regressive and how the law affects states without a sales tax. I'm also unsure if this law would supersede my existing requirement to collect tax from Massholes. Those arguments seem tangential to me. 

Taxing Internet sales could be good for Curio City and for state services with negligible impact on my personal finances or on the economy. Therefore, Curio City endorses the Internet sales tax proposal as long as that small business exemption is in place. It would put me out of business overnight otherwise.