Internet Taxes

The debate on instituting Internet taxes is again on the table in Congress. Sen. Mike Enzi (R-WY) and Sen. Byron Dorgan (R-ND) have each introduced the latest round of tax efforts.

I’m very torn on this issue. I’m a strong proponent for local businesses. I hate that the Mega-Marts move in and destroy so many businesses that help give a community its flavor (never mind the questionable tactics these companies use to manage their price/profit margin). On the other hand, as a consumer I want the best deal I can find. This isn’t anything new. People in a high-sales-tax state who live near the border of a low/no-sales-tax state often cross state lines for big-ticket purchases which can save them hundreds, if not thousands, of dollars a year. In a land where even two-income households find themselves in a never-ending cycle of debt, every single one of these saved dollars matters.

Several factors come into play for me when I’m shopping online. When I’m considering price, taxes do factor into it. If I can get something locally (and I’m willing to leave my cave to get it), but the shipping from an Internet store is less than the taxes I’m going to pay…well, I’m probably going to order it on-line. Unlike many of my fellow buyers, I factor in the total cost of a purchase to me.

One of the complaints is that the variety of tax rates in states and communities makes it difficult to be fair. Some states have no state tax, others have rates that make you scream to pay them. Within states, communities also have a variety of rates. Then you have different rates applying to different products in different locals. To any observer, it’s clear that an equitable solution is not currently available.

Enzi’s bill proposes that companies with out-of-state Internet and catalog sales below a certain amount be exempt from this madness. That might be a workable compromise…however, I think his figure of $5 million dollars, gross dollars, is much too low. I’m picking a totally out-of-the-hat figure here, but I think something like a company pays taxes whose remote sales exceed 1/10 of 1% of industry-wide total remote public and private sales ($28.3 billion in 2004…so the cap would be $28.3 million) when industry-wide remote sales account for more than 2% of all retail sales. Then let’s make it simple. For sales where companies don’t have a brick-and-mortar presence in the state (and thus responsible for the applicable taxes, as is currently the case) let’s have a flat tax rate for remote sales equal to the median national sales tax rate (to be computed and released every year by some federal agency); states may not draw from this an amount any greater than their own tax rate (sorry, Delaware), and any surplus at the end of the year goes to federal debt reduction, or infrastructure, or something helpful like that.