Why We Hate Web Sales Taxes

The Gilmore Commission finished its work in Dallas this week, splitting 11-9 against recommending sales taxes on web purchases.

That’s not the “super-majority” of 13 votes it was told to seek. The result has been great wailing and gnashing of teeth over whether a “mere” majority can issue a valid report. But the result was expected. The group was always split between pro-tax officials like Utah’s Republican Governor Mike Leavitt and anti-tax activists like Gilmore, Governor of America Online (excuse me, I meant Virginia).

What happened, in the glare of publicity, was that the two sides hardened their positions. State and local officials, joined by “meat-space” companies like Wal-Mart, insisted you start paying sales taxes when the current moratorium expires next year. We screamed no, and the name-calling began.

The question is why we’re so fired up against paying sales tax? Don’t we have kids? Don’t our homes catch fire? Are we never in need of a cop? Don’t we use the “services” of schools and environmental protection?

Those last questions were an exercise in political sophistry. (It’s Bush vs. Gore get used to it.) Of course we use government services. But we’re not just anti-tax cranks.

The fact is sales taxes are imposed on merchants, not shoppers. The store owes them whether or not they’re collected. When you cross an invisible county or state line to buy something, that merchant collects his jurisdiction’s rate, and the money goes into that jurisdiction’s coffers, protecting other citizens and educating other children. If the sales tax nexus is where I sit, with the money going to my state or local government, the nature of the tax has changed.

This argument isn’t theoretical. Vancouver, Wash., is known locally as “East Berlin” because Washington State has a seven percent sales tax. So everyone goes across the river to Portland, Ore., to buy stuff Oregon has no sales tax. You mean if someone picks up a phone (or a modem) in Vancouver to buy something from Powell’s bookstore, they have to pay their state government seven percent for the privilege? And since when can Washington State impose taxes on an Oregon merchant?

That’s an extreme example. In most cases the difference in rate is marginal. But it’s also horribly complex. Georgia, where I live, has a “local option” sales tax, imposed by counties or cities at their leisure. Thus some counties impose just the state rate of four percent, others as much as seven percent you want to make servers calculate all of them?

Different states also treat different goods differently. A few years ago Georgia changed its treatment of food, chopping the rate in half (it’s supposed to come off completely in July). This doesn’t always apply to the local option. My local market can deal with that; why should Dean & DeLuca in New York?

The point is that sales taxes aren’t ready for the web. Rather than dealing with these questions (there was a proposal to simplify the rates, but that disappeared in the screaming), the pro-tax people have merely demanded money. Don’t get me started on the “variable tax rates” of shipping charges, either. The commission, quite simply, has failed. You’re right to be mad.

Related reading