No Tax Dollars Left Behind

States Scheme to Tax Internet

by John BerthoudPosted Sep 16, 2005

Across America, state politicians of both parties—joined by some strange bedfellows—are seeking to institute the Streamlined Sales Tax Project (SSTP), which would result in Americans paying billions of dollars more in taxes.

The SSTP is an interstate collaborative agreement that would unify state sales tax systems for the purpose of Internet transactions. Currently, if a consumer makes a purchase from a vendor with no physical presence in his state, he pays no sales tax.The SSTP is another money grab by politicians, dressed up in the garb of “fairness.”

The arguments for the SSTP are bogus, and as more citizens learn about it—and confront their elected leaders—let’s hope it will be defeated.

Proponents claim that unless we enact the SSTP, “critical government services” will be cut. The National Governors’ Association (NGA) has long agitated for the SSTP and has claimed if it’s not adopted, “America would have 200,000 fewer teachers and police officers educating our children and keeping our communities safe.”

But what the NGA and other pro-tax groups don’t tell you is that states are already flush with money. From 1994 to 2004, total state receipts rose by 63%. This is before the large revenue spurt that most states have experienced in 2005. State governments may need many things, but they don’t need another source of money.

The pro-taxers also claim that without SSTP, businesses selling products on the Internet are “escaping their obligation” to fund government. This is false.Businesses, on and off the Internet, are already overtaxed through a great variety of levies. These include: corporate income taxes, personal income taxes, sales taxes, use taxes, property taxes and literally hundreds of different types of fees.

When you buy a book on Amazon.com, it is not coming to you tax-free. There are dozens of taxes embedded in its price. But that’s not good enough for the pro-taxers. Hence, SSTP.

Fake ‘Fairness’ Coalition

Finally, the pro-SSTP crowd rolls out the “fairness” argument. They argue it is unfair that the sales-tax burden imposed on “brick and mortar” stores is not also imposed on “click and order” establishments.

But the playing field is currently quite level for traditional businesses as well as those born on the Internet: Any vendor can do business on the Internet, if it wishes, and there is no requirement for anyone to collect sales taxes on out-of-state vendors.So if the arguments for SSTP are all wet, how is it moving forward? An odd-ball coalition is behind it.

Public employee unions, who always want governments to have more cash, are for it because more government money means either more pay for their current members or more public employees who can become members.

Some retailers who haven’t been particularly successful in Internet commerce are also for it. They hope SSTP will slow the growth of their competitors who have been more successful online.

Instead of improving their own web presence, these retailers are trying to use the tax system to beat down their competition.Together, unions and self-interested businesses have formed a politically powerful coalition that has spent enormous sums lobbying on this issue. Those dollars have paid off. The SSTP is already coming partially into effect. This fall, 13 states will be requesting online sellers to start abiding by the rules of SSTP (see below).

There will soon be a major push in Congress to enact enabling legislation allowing states to require sellers to collect taxes under SSTP.

Instead of creating new tax burdens, Congress and the states should be focusing on ways to lower old ones.