Where is Federalism in Online Sales Tax Debate?

Most congressional observers believe Congress will address the issue of empowering states to collect sales tax on the purchases of goods bought on the Internet.  The issue is not typical of other tax issues as it finds conservatives like Steve King (R-Iowa), Virginia Gov. Bob McDonnell and others supporting the states ability to collect their sales taxes for online purchases.  A strong argument can be made that they have embraced the conservative position.

 

Make no mistake about it; there is deep division about this issue.  Mom-and-pop small businesses hate the disparity that was created when the Supreme Court ruled that businesses needed a "nexus" within a state for sales taxes to be collected.  That ruling allowed companies like Amazon to avoid sales taxes while small business are forced to collect them.  They argue that the decision, especially in a poor economy, creates economic incentives that hurt their bottom line.  Why should consumers shop in more expensive local stores when shopping online creates built-in no sales tax savings?

Others argue that allowing states to collect sales taxes for Internet purchases is tantamount to a tax increase.  As opponents have noted, America's budget problems are not revenue problems but spending problems.  Government's bring in enough revenue but can't get their spending in control. 

There is tacit acknowledgement of this argument as many supporters of the "Marketplace Equity Act" are governors who are struggling to balance their state budgets.  Billions of dollars in sales are made every year online that have escaped the reaches of the state tax collectors. 

But there is a bigger issue at stake -- federalism.

Allowing online merchants to charge, collect and remit sales taxes based on their physical location would level the playing field with Main Street small businesses and, perhaps most importantly, restore federalism to the issue.  The government should treat merchants equally.  It should not be making it harder for small businesses to compete.  In addition, the federal government should not bar states from enforcing their laws as long as they don't interfere with interstate commerce.

In some ways this is a complicated issue.  But in others it's clear that fairness and federalism should play a role in the final deliberations.   

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Comments

  • We pay enough taxes.  They need to stop the nonsensical spending sprees.  The governments at all levels are too big, too arrogant, what to control everyone, can't keep their noses out of peoples lives, and are sheer pain in the arse. 

    Thomas Jefferson was a genius and he stated it correctly:  "The government that governs least is the government that governs best."

    Look at the havoc that the EPA is doing to the country and of course it is in our best interest.  Is in our best interest to have the cost of gasoline go from under $2.00 when President Obama entered office to almost $4.00 after 3+ years in office.  Wasn't government that stopped the pipeline, the offshore drilling, the discouragement of the use of coal when the U.S. is the Saudi Arabia of coal.  The real question:  Who is getting paid off for the demise of the U.S. or another way of stating it is who is benefiting when the U.S. is being driven into the ground.  It seems to me that a few powerful interests like it this way in lieu of everyone benefiting with across the board properity.

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