A Season for Sales Taxes

[Commentary] On Cyber Monday this month, a big day for online shopping, the Supreme Court quietly cleared the way for states to begin collecting some $13 billion in sales taxes that go uncollected each year on Internet purchases. That development creates an important opening for hard-pressed states to update their sales-tax codes broadly.

Taxing online purchases of merchandise is only one way to tax Internet commerce. Twenty-three states lose some $300 million a year because they do not tax downloads of music, movies, games, books and other items that are sold and delivered digitally. Forty-two states lose some $350 million a year because they let online travel companies charge sales taxes based on the wholesale rate they pay hotels for the right to rent rooms, rather than the price they charge customers. While sales taxes are generally regressive, sales taxes on Internet purchases tend to spare low-income consumers somewhat because they shop less online than those with higher incomes. Broadened sales taxes could also be paired with more progressive state income taxes to ensure that the burden is widely shared. Ideally, Congress would pass a law to ensure uniform and comprehensive taxation of Internet sales. Until that happens, states will have to act on their own.