On Monday, by a comfortable 69-27 majority, the U.S. Senate passed a controversial bill that will require online retailers with annual sales of more than $1 million to collect state sales taxes. Said Republican Mike Enzi of Wyoming: “This bill is about fairness. It’s about leveling the playing field between the brick-and-mortar and online companies, and it’s about collecting a tax that’s already due. It’s not about raising taxes.”
Wait, isn’t it? Leaving aside the anomaly in today’s world of a Republican sponsoring a bill that raises revenue, the proposed law is entirely about raising taxes. The question, then, is whether these are taxes that ought to be raised, and if this is the way to raise them.
The short answers: yes to the first, no to the second. This bill is precisely the wrong way to raise revenue from a growing stream of business. It applies a tax designed for physical entities to new commerce and does so in ways that will do little to help states or to reinvigorate small businesses that are hurting.
As is, much of the tax system is not fair. We are acutely aware of the labyrinthine quality of the U.S. tax code. The vagaries of state-by-state sales taxes only add to the complication. Five states don’t even have a sales tax (Alaska, Delaware, Montana, New Hampshire and Oregon), and seven states have no income tax, including no tax on dividends and interest (Alaska, Florida, Nevada, South Dakota, Texas, Wyoming and Washington). If fairness is your litmus, as it is Enzi’s, then it is rather unfair to live in New Jersey as opposed to, say, Florida, given the radically higher tax burden.
That much of the code is currently unfair is hardly an argument against making one aspect of it fairer. But the online sales tax bill will place added burdens on those already paying more, whereas those living in sales-tax-free states will continue to feel none. For years, those of us who live in states that levy a sales tax have enjoyed the free pass that comes with shopping tax-free on Amazon, eBay, and any number of online sites. We get to sit at our computers at 1 in the morning and order those much needed gyroscope-equipped power drills without the nuisance of that extra 6 percent tacked on by state legislators whom we’ve never heard of, didn’t vote for and aren’t entirely convinced actually exist.