Internet Sales Taxes Are Inevitable

[Commentary] Online sales taxes is an issue in which the hyper-polarized politics of the 21st century give way to old-school deal-making, pragmatism, and parochialism. The issue at hand relates to what Tim Fernholz calls large-scale “accidental Internet tax evasion.”

Online shoppers have been engaged in it for the past 10–15 years. Most states and some municipalities in the United States depend on retail sales taxes for revenue. And if you look up those laws, you’ll find that in theory you’re generally supposed to pay sales taxes to the state where you live on everything you buy even if you got it from another state or bought it on the Internet. In practice, of course, nobody does this. Until recently, cross-border shopping wasn’t economically significant, and no enforcement mechanisms existed to compel you to pay taxes back in your home state. Then came the Internet. States are seeing their tax base melt away. Enter the Marketplace Fairness Act, enthusiastically pushed by big-box retail chains and Sen. Dick Durbin (D-IL). There’s a lot of clout behind taxing Internet sales. Even if it doesn’t pass the House this year, it’s hard to see the no-taxation coalition holding up in the long run. As a bonus, it even makes sense on the merits! E-commerce is great, but it shouldn’t just be a vehicle for tax evasion.