How to Tax

by Ramesh Ponnuru’s competitors complain that government policy gives it an unfair advantage, because sales tax isn’t collected on most of its customers. My Bloomberg column looks at ways to fix the problem. The critics want Congress to beef up states’ enforcement powers.

A far better solution would be for states to levy sales taxes based on where products are coming from rather than on where they’re going — or for Congress to tell them to do so. Under an origin-based tax rather than a destination-based tax, for example, Washington state would have the power to tax’s sales. For physical stores, sales taxes would keep being collected as before.

This would be a much simpler tax system with lower compliance costs. It would tend to constrain sales taxes by increasing competition among the states: A state that raised its rates too high would induce businesses, particularly catalog or Internet businesses that can sell remotely, to locate elsewhere.