Live (Tax-)Free or Die

Now that the value of e-tailing stocks has receded, Congress is moving in for the kill.

A bill to extend the moratorium on Internet sales taxes has stalled in the Senate, and my guess is a bill to allow such taxes (along with taxes on mail order goods) will be passed next year.

Congress has to act on the sales tax issue because of past Supreme Court rulings. Federal approval is needed for states to cross their own lines and grab money out of others’ pockets including merchants’ pockets.

Rather than bemoan how we lost this fight or complain about its paperwork burden, I’m going to, in the best Internet tradition, talk about how you can get around it.

The dodge being used is that merchants across the country will impose the tax based on where the buyer is, ending the canard that this is a business tax and not a personal tax. (It’s all in the name of “fairness,” claims tax-and-spend advocate Ernest Istook of Oklahoma.) But tax rates vary greatly, and in five states the rate is zero.

So let’s look for your new home.

You can choose to live in Alaska, Delaware, New Hampshire, Montana, or Oregon. Of course, you don’t actually have to live there. You can move virtually.

Do you live in New Jersey, Virginia or New York? You’re in luck. Just get a Delaware-based ISP and an “address” (a postal drop) in nearby Delaware and start buying. You can visit your stuff later, or have UPS deliver it.

Did the republican governor claim that’s a tax dodge and threaten to go after you? OK, rent a room in a nice hotel when it’s time for your big shopping spree. The Hotel du Pont is very nice. The Inn at Montchanin is on the National Register of Historic Places, but call ahead and make sure their modem ports are OK. Now, shop until you drop and have it delivered to the lodge while you vacation.

Don’t think this makes sense? Rhode Island has a seven percent state tax levy, and when you add local taxes, many places charge even higher rates. If you spend $10,000 in Rhode Island you just saved $700, more than the cost of your Delaware (or New Hampshire) vacation. Room service, anyone?

I can see this becoming a regular business. Let’s incorporate in Oregon for those California residents. Let’s start a business in New Hampshire live free or die.

Think the states will still stop you? Don’t bet on it. People have been traveling to avoid sales taxes for years. And while some merchants might raise prices (and profits) to compensate for their lack of tax, remember that when you dodge taxes, you can virtually shop anywhere the rate is defined by where you are, not where the store is.

There’s one more thing. The fight isn’t over yet. Sales taxes are the most regressive taxes we have (poor people spend most of their income, rich people save most of theirs), so it’s most popular in conservative precincts where an anti-tax political argument is most effective.

This means it’s still possible to get rid of the offending politicians. Every member of the U.S. House is up for re-election this year, and so are most state legislators. It’s time to see just how powerful the Internet really is as a political medium.

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