Online retailers argue that since 1922 the law has been clear: sales taxes are to be charged by companies that have a physical presence in the state. When online commerce was in its infancy in the late 1990’s Congress passed several laws (and have subsequently reaffirmed them) that continued the legal precedent of nearly a century.
The internet is the fastest growing, most successful economic innovation in human history. From 1994 to 2011 – seventeen short years – the consumer commercial Internet went from zero to 2.095 billion users (30% of the world population.)
Sales taxes fund a variety of programs and services – from education to public safety. The idea has always been that if a business resides inside of a particular city, county and state then it’s likely that it and its customers will use and need community services. The merchant collects the tax and pays it to the state on behalf of the consumer is a pass-through proposition where the business has to incur accounting and reporting costs. That cost of business is the result of that company deciding to have a physical presence in that community.
What about those companies who choose not to have a physical presence in that community? Why should they incur costs and increase the price of their product if they’re not going to benefit from the services that the community provides?
The better question is which taxes are effective. Governments have been imposing, collecting and spending tax money since early Egyptian times. While it would be easy (and naive) to demand that there be no taxes whatsoever, the more productive issue is looking at some of the different types of taxes – sales, personal, corporate, etc.
Sales taxes are generally considered the most regressive. People with limited means wind up paying more in sales taxes as a percentage of their overall income than people who have more money. 45 states have them and there is no national sales tax.
The fact that taxes are used to drive political policy is the problem. The tax code is used not to raise revenue to pay for services, but rather to engineer a society - whether at the individual or the corporate level. After a century of tinkering it’s unwieldy and unfair.