Senate Approves Sales Tax for Internet Sales

By a vote of 69-27, the US Senate voted to give states the power to enforce their sales taxes for on-line sales. In other words, a state could require an e-retailer to collect taxes on sales in that state even if it has no physical presence there. Brick-and-mortar corporations like WalMart back the idea, while e-retail firms obviously don’t. There is likely to be a bloodletting in the House over the idea, but the unfair support for Internet shopping needs to end, and fairness to traditional retailers is overdue.

E-commerce got a pass on sales taxes in the beginning because often the amount needed to enforce the taxes was more than the taxes themselves. Moreover, there is a solid economic basis for protecting infant industries; by giving them certain advantages, they flourish and can enhance competition and improve the overall economy. The best example of this is the Japanese car industry, protected from imports and aided by government policies to boost exports..

Now, though, the idea that e-commerce needs special treatment to make it competitive with brick-and-mortar firms is laughable. needs no help, whereas Borders bookstores are no more. Clearly, the industry is no longer an infant, and the case for protecting it is gone. Moreover, with revenues running into the billions of dollars, collecting the taxes due is now worthwhile.

However, there is a Republican-controlled House of Representatives religiously opposed to taxes. “Call me a conservative, but I believe the right approach to tax fairness is to reduce rates — not force higher rates onto others,” said Tom Graves, a House Republican from Georgia. Mr. Graves does have a point. Abolishing sales taxes on brick-and-mortar outlets would be as effective in leveling the playing field as collecting Internet sales taxes. Yet, what would the 46 states and the District of Columbia that have sales taxes do to keep their budgets balanced? Cutting spending by 50-80% overnight just won’t work.

Reuters reports, “House Speaker John Boehner plans to send the bill to the House Judiciary Committee, a senior Republican aide said. That will mean hearings ahead. The Senate uncharacteristically bypassed this step. Judiciary Committee Chairman Robert Goodlatte, a Republican, has reservations about the legislation, including its complexity and potential impact on small businesses, a spokeswoman said. Goodlatte has yet to schedule any hearings on it, she said.”

For once, this journal backs the speaker.. The change here is a big deal whether Internet sales are taxed or all sales taxes go. The Congress needs to get the legislation right. The current policy of taxing traditional retailers while not taxing e-retailers is simply indefensible. Open hearings with proper debate of the pros and cons are vital. Congressman Goodlatte can’t move quickly enough on this.

The debate is not yet part of the overall effort by the Republicans to “reform” America’s tax system. And one hesitates to endorse any pig in a GOP poke. However, if they insist on changing the way government gets funded, this issue may be a good place to start. Grand bargains and generational changes sound good on TV, but in truth, fixing a few big problems one at a time has one advantage over those. It is politically possible.