So….you’ve developed a taste for “tax free” purchases over the Internet, haven’t you? I know the drill…you compare the numbers to see if the shipping charges will be less than the taxes and when it works, you proudly boast to all of your friends about your financial acumen and on-line prowess. Been there…done that. But just like those days in our youth when we could eat a quart of ice cream without gaining weight, freedom from taxation on the Internet was just too good to last.
GREEDY STATES ARE NOW BANDING TOGETHER
Spearheaded by the National Governors Association (NGA), the Streamlined Sales Tax Project (SSTP) is a coalition of states that have come together to develop a single tax rate for personal property or services effective by the end of 2005. The major focus of the single tax rate is a scheme to include taxation of online sales.
In a meeting in Chicago last month, lawmakers and tax officials from 30 states endorsed a proposal to simplify their tax laws and enter into a voluntary pact to collect online sales taxes. “This is a 21st century system that will dramatically improve the morass that currently exists,” said Utah Gov. Michael Leavitt, a founding member of the SSTP.
The voluntary program would take effect when at least 10 states representing 20 percent of the U.S. population have amended their state laws to implement the program. Participating states would then be free to ask Congress to approve a mandatory, nationwide online sales tax regime.
WHAT IS MOVING THIS RUSH TOWARDS ONLINE TAXATION?
In 1992, the US Supreme Court ruled in Quill vs. North Dakota that customers purchasing goods online from a company in another state was subject to the same law that keeps catalog shoppers from paying sales taxes to states in which they have no representation. Various measures to extend the ban on Internet taxes in 1998 and 2001 have consistently passed with the overwhelming support of the American taxpayer. President Bush has asked to permanently keep all Internet commerce free of the stifling regulations that would be forced upon an online retailer if compliance with the over 7,500 different state/local sales tax schemes were applied to them.
According to a study commissioned by the National Governors Association ( NGA ) in 2001, inability to tax e-commerce likely cost state and local government revenue a loss of $13.3 billion per year. By 2006, the loss will more than triple to $45.2 billion; and in 2011 the loss will be $54.8 billion. The cumulative total of losses between 2001 and 2011 is $439 billion, according to the NGA study. The report also shows how much each individual state will lose from uncollected sales and use taxes. The legitimacy of this study, though, is extremely questionable.
How can states “loose” money that they never had in the first place? Think about it…I can say that I “lost” a million dollars that Bill Gates failed to give me, but if I was not entitled to the money in the first place, did I really “loose” it? I don’t think so. Similarly, since the Supreme Court ruled that states were forbidden to tax online sales, then they were never entitled to that revenue in the first place.
No, the real cause of this action is a failure to understand the source of all government revenue. For example, who actually “owns” this money that the state governments allegedly “lost” ? YOU AND I OWN IT! Under their theory, money that belongs to you and I…money which the states were forbidden to collect by order of the Supreme Court…was nevertheless “lost” by these states in their attempts to prop up their bloated bureaucracies.
WHAT WILL HAPPEN NEXT ?
As soon as this cartel of state governments accomplishes their task of taxing online sales, the consumer, as always, will foot the bill. Presently, the shipping costs connected to online purchases more or less offset the absence of a sales tax. Once the online sales tax goes into effect, we will have to pay for shipping costs PLUS taxes. The result – – online purchases will cost more than traditional purchases. The law of supply and demand dictates that online sales will plummet, and once again we will see the execution of the goose that laid the golden egg. And just like in that old fairy tale, we will all be poorer at the end of the story.
Brad Young is an attorney with the St. Louis, Missouri and Belleville, Illinois law firm of Roberts, Perryman, Bomkamp & Meives P.C., where he concentrates on computer law, contract matters, and general litigation. He is a member of the Computer and Technology Committees and the Internet Committees of the Missouri and Illinois Bar Associations, and can be reached at jbradyoung@yahoo.com.