Tuesday, April 23, 2013

The Erroneous Rationale for an Internet Sales Tax

Remember when buying things from internet businesses did not include a sales tax? It comes as no surprise that politicians would soon try and put an end to such a great thing. After all, they could not sit idly by and watch money that would otherwise line their pockets be tragically saved or spent on other things in the economy by the consumer.

White House talking piece Jay Carney said Monday that the wrongly-named "Marketplace Fairness Act," currently working its way through the bowels of the House and Senate before eventually plopping in a steaming pile onto the President's desk for signature, "will level the playing field for local small business retailers who are undercut every day by out-of state online companies."

We have recently seen this argument for a sales tax on internet businesses like Amazon.com play out in a number of states.  California recently added a state internet sales tax for the same reason that the current Federal political class now advocates: the issue is that local brick-and-mortar shops, which are forced to pay sales taxes by their respective states, are losing customers to internet businesses like Amazon.com because the sales tax has not been immediately applicable to websites. Naturally, the fact that a business does not even exist in a physical state has not prevented governments from trying to tax it. Give the government time and they will try to legally plunder anything. The basic argument perpetuated by greedy government officials and competing businesses is that Amazon's ability to charge less for an item because of the lack of a sales tax is unfair to Walmart which is required by law to charge the tax and an online sales tax needs to be put in place to make things even.

This argument makes little sense for a number of reasons but the most fundamental problem with it is that the brick-and-mortar businesses are aiming their frustrations at an incorrectly identified source. It seems as if the problem for brick-and-mortar stores is not their internet competitors but the sales tax itself. The brick-and-mortar businesses should not be advocating for a new tax to be forced upon their online competitors when the problem is the very existence of the burdensome sales tax. Would it not benefit all businesses, online or not, if the costly and problematic sales taxes were simply lifted?

Jay Carney attempts to smear online companies from behind his domineering White House pulpit, claiming that they "undercut" local small businesses by not having to pay a sales tax. However, the fact is that governments are what is undercutting local small businesses by forcing them to collect the sales tax in the first place. Interestingly enough, the benefits from ending the sales tax is the exact same as Carney's rationale for the passage of the Marketplace Fairness Act: Ending sales taxes "will level the playing field for local small business retailers."

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