A Taxing Debate
While I’m no fan of taxation generally, I find myself profoundly disagreeing with the Editors regarding online sales tax (The Week, November 28). They opine that if online retail purchases should be taxed at all, they should be taxed only by the shipping jurisdiction, because “this would keep compliance burdens low and promote tax competition.”
First, in this digital age, the burden is nil to calculate the sales tax applicable in a consumer’s domicile — with the appropriate software, all it requires is the entry of already-necessary information (the purchaser’s address). More important, a majority of residents in each sales-tax jurisdiction can be presumed to have voted the consumer and his neighbors a sales-tax rate sufficient to support the local-government services he receives. The consumer who then avoids the local tax by making online purchases, or worse, prefers to pay a lower rate to another jurisdiction that provides him no services at all, practices a tragedy of the commons as he continues to receive local government services for nothing. He has no incentive not to increase the local sales tax through the roof, since he intends to get free services while imposing the cost entirely on his neighbors.
Collecting the sales tax for the place where it belongs, the consumer’s residence, still encourages tax competition of a better kind than having fulfillment houses flying by night to the cheapest place: Local governments will compete to offer the best cost-per-services deal to individuals and businesses alike, which in return will put down roots and improve their communities.
E. King Alexander Jr.
Lake Charles, La.
The Editors reply: Even in the age of Google, we suspect, the administrative and overhead costs of complying with 8,000 sales-tax systems in 8,000 jurisdictions would be significantly higher than those of complying with one. Further, we are suspicious of the notion that taxing jurisdictions have the right to tax businesses in other jurisdictions. Connecticut has no business taxing Texas: That’s why we have 50 different states.
Some state and local governments (we’re looking at you, New York) will protest that they are taxing the consumer who lives in the jurisdiction, rather than the business outside of it, and thus are well within their rights in demanding the tax. In that case, let them collect their own taxes rather than conscripting businesses into doing so on their behalf. It’s not as though there were a great shortage of taxmen across the fruited plains. Having governments collect their own taxes from their own taxpayers would also make moot the objection that local consumers would have a strong incentive to use online purchases to evade local taxes while voting high rates for their less clever neighbors. Of course, it would be cumbrous and expensive for the tax collectors to do their own tax collecting — in which case, a more intelligent tax regime is called for.
And we have no objection to businesses’ “flying by night” from high-tax jurisdictions to low-tax jurisdictions — their customers are doing so (consult the U.S. Census), so why shouldn’t they?