Internet Sales Tax Won't Happen in Lame-Duck Session, But Should It Ever?


Well, this is encouraging.

A bill granting states the ability to force out-of-state websites to collect Internet sales tax is dead, according to the Ohio Republican's spokesman.

"The speaker has made clear in the past he has significant concerns about the bill, and it won't move forward this year," said spokesman Kevin Smith. "The Judiciary Committee continues to examine the measure and the broader issue. In the meantime, the House and Senate should work together to extend the moratorium on internet taxation without further delay."

A bipartisan group passed the Marketplace Fairness Act out of the Senate last year on a 69-27 vote, led by Sens. Richard J. Durbin, D-Ill., and Michael B. Enzi, R-Wyo., but it has languished in the House.

More here.

Hat Tip: Generation Opportunity.

As it stands, internet retailers generally don't collect sales tax on purchases sent to states in which the retailer has no physical presence. So, for instance, my Amazon purchases sent to my home in Ohio are gloriously cheaper than ones sent to 23 other states.

It's a certainty that at some point internet retailers will be forced to collect state and local sales taxes on all sales, regardless of physical presence. That's partly because lawmakers will eventually demand it—there's just too much untaxed money out there and expecting pols not to pounce on it is like expecting a dog to ignore a pile of hamburger meat that's right under its snoot. It's also partily because giant retailers such as Walmart will demand it in the name of a "level playing field" between bricks-and-mortar ops and mail-order companies. Indeed, after many years of opposing levying of sales tax on all purchases, even Amazon has been playing along, partly because it can absorb the extra costs more efficiently than smaller online retailers. 

There are strong arguments against forcing internet retailers from collecting such taxes (see below), but realpolitik being what it is, good luck with prevailing due to logic and fairness. A very good solution would be to have retailers collect the sales tax due in their home jurisdiction rather than what might be due in the purchaser's. That approach would foster tax competition while simplifying compliance costs.

Here's a 2009 interview with Patrick Byrne, the CEO and founder of Overstock.com, who remains the most vocal and principled opponent of internet sales tax legislation. The whole 10-minute interview is worth a listen (Byrne did a Ph.D dissertation at Stanford on Robert Nozick's libertarian philosophy), but the sales tax talk starts at 1.10 minutes: