States have been trying to collect sales tax on internet sales for the last decade with mixed results. Many of us in the legal and tax fields have suggested this is a wasted fight as a national internet sales tax will be instituted sooner rather than later. Well, Congress is moving closer and closer to just such a tax.
Internet Sales Tax
As you’ve probably noticed, the federal government has a financial problem. Let’s just say if the feds were a company or individual, they would have been forced into bankruptcy long ago. The government currently carries a $16 trillion-plus deficit and is adding to this at a rate of $1 trillion plus a year. Before you get your political juices flowing, this has been true for both Bush W and Obama. The joke is both parties talk about getting the debt under control, and the facts show neither has done so when in power.
The feds can either raise taxes or cut spending. Despite all you hear from Congress, the only cuts that would come close to solving the problem would involve slashing Medicare, Social Security, and military expenditures. The voting power of Baby Boomers and seniors virtually eliminates any meaningful reform to the first two and the country, in general, enjoys a robust military since whoever the latest boogeyman is just might come after us. [North Korea. Really?]
The lack of meaningful cuts, of course, leaves one possibility – raising taxes. People are unlikely to be happy if their income tax rates rise significantly although “the rich” are already experiencing it. The internet, however, is ripe for the plucking. The question is how much revenue would the proposed sales tax raise? Despite the statements of pro-internet sales tax advocates such as Dick Cheney and Dick Durbin [an odd coupling, no?], the tax would only raise an estimated $10 to $70 billion. The real amount depends on the exact tax rate used.
$70 billion is a large number for you and I. It doesn’t mean much when discussing government finances. With a $1 trillion annual deficit, this tax revenue would cover about seven percent of the shortfall.
Sales Tax Is Coming
The national internet sales tax is on the way. The only question is when. The Senate passed a non-binding recommendation for just such a tax this past March. Importantly, the vote was 75-24 for the amendment, which means a combination of Democrats and Republicans voted for the bill. See, the political parties can agree on something.
The alleged basis of the vote is online retailers have an unfair advantage because they can charge cheaper prices since they don’t have to collect sales tax. This argument from the Walmarts of the world is weak at best. While online sites often don’t collect sales tax, they do still have to charge shipping and handling which brick and mortar retail stores do not. This more than makes up for any break on sales tax.
Can we avoid the national internet sales tax? Voters would need to apply massive pressure to Congress. The only way politicians will avoid adding more money to their trough is if they face the possibility of being voted out of office for doing so. A national sales tax probably isn’t the type of issue to produce such fear.
Richard A. Chapo, Esq.