In an artical on Fox News, conservatives in Washington are in disagreement when it comes to the Marketplace Fairness Act 68-27, proposing that internet retailers should collect sales taxes on the sales that they make across state lines. Senator Ted Cruz calls it a "mad bill" saying it puts too much of a burden on small businesses to implement. Reagan-era economist Art Laffer argues that the public has owed these taxes already and that the state and local entities would garner a boost to their budgets by collecting the taxes to which they would have been entitled had the transactions that took place online been completed in a brick-and-mortar store.
They're both right. Sort of.
It's a mad bill: The current legislation turns the retail transaction upside-down. If you go into a shop at DisneyWorld and plop down a t-shirt and mouse ears on the counter, does the attendant ask you for your ID in order to calculate what sales tax he must charge for your state at the register? No! He calmly rings up your items with the Florida state sales tax.
The current internet bill would require businesses in states that have no sales tax, like Delaware, to calculate sales taxes for their customers who live places that do. The difficulty lies in the fact that some localities have sales taxes as well, like Chicago or New York. So the retailer has to calculate how much to charge based on the customer's place of residence. That's backward. The place from which a purchase is delivered should be the place for which sales taxes are collected.
A bill that would make more sense is one that would have businesses charge appropriate sales taxes on purchases based on the location of the store or warehouse from which an order is delivered. This would ease the stress of the small internet retailer, in that he would only have one rate to charge. It would ease the stress on larger internet retailers, in that they generally have no more than five warehouse hubs from which they ship purchases. The only type of online business that has a heavy burden of calculation is multi-level direct marketing business. They have to collect and remit sales taxes from each of their independent business owners based on the residence of each of those entrepreneurs. I know, however, that Amway has had the technology in place for over ten years and Mary Kay also remits taxes for its independent representatives. So it's already being done.
Why would I be in favor of paying taxes on items you and I get online? After all, It is more money out of our pocket. Am I in favor of paying more in taxes? No, I simply think we need to adjust collection practices to fit the not-so-new-anymore paradigm of retail business. And as a supporter of the FairTax model, I must be in favor of legislation that requires all US retailers to collect and remit sales taxes.
So call it an investment.
Even though it seems that we as the American consumer would suffer higher prices if an internet bill were enacted, consider this: When states and localities begin to see revenue from internet sales stream in, their legislatures will have an incentive to lure new businesses (a.k.a. jobs!) with lower business taxes in order to tap into a tax base that is much wider; internet tourists paying sales taxes to businesses within their borders. And when business taxes are lower, so then become the price of products, because the business taxes don't have to be embedded into the price. So, the final price we have to pay for it wouldn't really be any higher.