When he was a senator representing South Carolina, Jim DeMint argued that collecting sales taxes on Internet purchases was an impermissible form of taxation without representation. He’s continuing this meme in his new role as head of the Heritage Foundation, a conservative think tank in Washington. And he’s still wrong.
DeMint’s ire was focused on a bill, S 743, by Republican Sen. Michael B. Enzi of Wyoming that would require online retailers to collect sales taxes from customers based on the buyer’s local tax rate. With some notable exceptions such as Amazon.com, online retailers collect taxes only from customers in the states where they have offices. The bill’s backers include Amazon and Wal-Mart, while its opponents include EBay and senators from the handful of states without sales taxes, such as New Hampshire and Montana.
“As Heritage President Jim DeMint has said, this violates the classic American principle of ‘no taxation without representation,’ ” Amy Payne wrote Friday on the Foundry, a Heritage blog. “Retailers would be forced to act as tax collectors for states in which they have no voice.”
When did we start caring what tax collectors had to say about tax rates?
Let’s walk through this slowly. When you go to the Beverly Center mall and buy a $50 pair of shoes, the retailer collects $50 from you for itself and $4.50 for state and local governments. The tax, in other words, is on you. And if you’re registered to vote, you have a say in the tax rate, as Angelenos demonstrated in March when they defeated a proposed half-cent increase in the sales tax.
The shoe store, by the way, can’t vote. And if it’s a chain store, its directors and investors are just as likely to live in Las Vegas as Los Angeles. So they don’t get a say in the rates either.
If Enzi’s bill passes, an online retailer that sells a $50 pair of shoes to you in Los Angeles will collect $50 for itself and $4.50 for your state and local governments. The tax remains on you, not on the e-tailer. You can still use the ballot box to try to change the rate. And the e-tailer remains nothing more than a tax collector, just as shut out of the process as the aforementioned chain store at the Beverly Center mall.
E-tailers complain that the administrative burden on them will be greater than on brick-and-mortar stores. They’ll have to collect taxes for many jurisdictions, not just one. But there’s an app for that, or rather, a software solution. And if they are concerned about the cost, the solution is to let them keep a smidgen of what they collect, not to stop them from collecting in the first place.
I know, no one likes to pay sales taxes. But exempting the goods sold by e-tailers simply isn’t fair to all the retailers who do collect taxes, and it encourages buyers to become tax cheats. That’s because the states that have sales taxes expect people to pay “use” taxes on the untaxed purchases they make online.
And for those who complain that they pay too much tax as it is, I feel your pain. But that’s no more reason to keep online sales tax-free than it would be to exempt wages paid in November from income taxes. If governments are going to tax the sale of Item X, it shouldn’t matter where Item X is sold.
DeMint is completely wrong about the principle at issue. In reiterating its holding that mail-order sales were exempt from out-of-state sales taxes, the Supreme Court in 1992 ruled there was no due process issue -- a company that solicits customers in a state remotely has adequate warning that it may be subject to that state’s laws. But it said that requiring such companies to collect sales taxes would impose too great a burden on interstate commerce. Advances in technology have rendered that concern a nonissue.
The real principle here is fairness. Online shoppers shouldn’t be able to duck the taxman at the point of purchase that buyers who don’t have a computer or an Internet connection can’t avoid. And e-tailers shouldn’t have a competitive advantage over brick-and-mortar retailers just because they don’t collect a tax that every shopper is obligated to pay.
Follow Jon Healey on Twitter @jcahealey