The internet sales tax

Lee Gomes’s “Portals” column in today’s Wall Street Journal takes on the issue of Internet sales taxes — but not the way you might think:

Now, chances are you’ve ordered a tax-free book or two from Amazon, and enjoyed the experience. No one likes paying taxes. But this particular tax break is an especially pernicious one.
For starters, by giving online businesses a permanent advantage over their bricks-and-mortar competitors, it helps those who need it least — huge, profitable e-commerce companies — at the expense of often-struggling local retailers.
In addition, the tax policy is regressive. It disproportionately benefits the upscale citizens most likely to shop online. Worst of all, as commerce increasingly moves online, state and local governments are being deprived of the sales-tax revenues they rely on to run schools, build roads, pay police and firefighters, and do all the other things they’re supposed to do.

By the way, Gomes is specifically taking aim at Amazon’s challenges to new Texas and New York State laws requiring them to collect the sales tax.
The second point in his argument is one I have made before as well — not collecting sales tax on Internet purchases is a tax subsidy for e-commerce. It is not a “technology” neutral policy — but a very clear technology subsidy (imagine if some one suggested that anyone who drives a car to pick up a purchase should be exempt from sales tax on those purchases).
I think the last point in this argument is the most telling. We can easily get in to a tax competition as a race to the bottom (which is what the anti-tax, anti-government folks would love us to do). Simply eliminating the sales tax might be a great idea (it is a relatively retrogressive tax). But without some other form of revenue, local government services are in danger. As Gomes states:

Many Web users surely will be annoyed by a tax. It’s common to see the Internet as a refuge from the quotidian annoyances of the real world, among them death and taxes. But cyberspace is grounded in the real world, as are schools and parks and streets. If you doubt that, the next time your house is on fire, try calling Jeff Bezos.

Well said.

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