The $1.3 trillion omnibus spending bill is full of waste, but one thing it thankfully does not include is the Internet Sales Tax.
This is a welcome development, as Rep. Kristi Noem pushed hard to have her Remote Transactions Parity Act (RTPA) included as a rider in the spending bill, and the White House sadly is onboard with the effort.
This isn’t the first time that internet sales tax supporters have tried to slip their legislation into a “must-pass” spending bill, and we can probably count on it not being the last.
Current law says that a state can only compel a business to collect sales taxes if it is located within its borders. As Dan Mitchell notes, this makes the internet sales tax fight really one about whether tax authorities should be constrained by borders.
Proponents, however, frame the issue as one of “fairness” between online sellers and brick-and-mortar shops. It’s true that customers in states with high sales taxes may often choose to buy online from retailers located out of state to pay less tax. But this is not fundamentally different than the ability to travel out of state to buy from physical stores in lower tax jurisdictions, it’s just a more widely available option.
But even if this is an undesirable distortion in the tax code, it is not a sufficient argument for the proposed remedy. RTPA and other efforts to expand state sales tax authority would introduce greater unfairness by subjecting businesses to significant compliance burdens from jurisdictions in which they have no vote or other political recourse. It would also lead to higher taxes thanks to the erosion of tax competition and the ability of states to compete with their neighbors by offering more favorable business climates.
If the chief concern is that high sales taxes disadvantage brick-and-mortar stores, then the better solution would be to lower state and local sales taxes. This could be challenging in jurisdictions that derive a significant portion of their revenue from sales taxes, but that also is not a good argument for granting extra-territorial taxing authority.
Politicians are determined to undermine tax competition and will grasp at any justification that can be used to achieve that end. Internationally, through organizations like the OECD, they use tax evasion as the excuse. Domestically, they use online commerce and unfair competition. But make no mistake, the end result of these initiatives would be the same: higher taxes and bigger government.
While we’ve so far fought off each effort to enact an online sales tax bill, the unfortunate reality is that they only have to succeed once. It’s not enough to win 9 battles out of 10 because once they put the system in place it will be extremely difficult to undo. We must remain vigilant and ready for the next legislative opportunity they will seek to exploit.
