0 votes

Taxing Online Sales - Shouldn't the State Decide?

Conservatives often embrace the Constitution on issues they favor while rejecting the same interpretation on issues they don't. Republicans tend to favor local control and state's rights when the federal government is seeking to impose a liberal viewpoint on states. A classic example -- John Yoo, the author of the Patriot Act and the massive expansion of federal power under President Bush was able to (with a straight face) condemn the Supreme Court for their ObamaCare decision describing it as " setting back both the Constitution and any dreams of limited federal power" with no irony whatsoever.

That's why a staunch supporter of the Second Amendment like Rep. Ron Paul has low scores with the National Rifle Association. In the name of the Second Amendment, the NRA has no hesitation to trash other provisions of the Constitution, most often the Tenth Amendment. Of course, the Founding Fathers never envisioned the Constitution would allow the federal government to bludgeon states to accept policies opposed by their populace.

The same situation is happening on the issue of the state's ability to enforce their own sales tax laws. While we oppose taxes and would vote against those who would increase the sales tax in our state, we recognize this as a state issue. Yet due to a Supreme Court decision, the ability of a state to enforce its sales tax policy for online Internet sales has been decimated by the federal government.

Like most interventions in the marketplace, the policy creates economic distortions that have negative impact on some while benefiting others. Small business -- “brick and mortar” mom-and-pop stores -- are forced to collect sales taxes while giant Internet retailers like Amazon.com do not. That of course benefits online retailers but hurts Main Street shops.

To address the issue, many states are asking Congress to give them their power back. I contend the proper position is to do just that if proper safeguards are put into place. Rep. Steve Womack has introduced the "Marketplace Equity Act." The bill tries to address this issue by shifting power back to the states.

Yet Sen. Jim DeMint (R-SC) has raised objections to the legislation. He contends this is a tax hike and the bill opens up taxpayers to taxation from jurisdictions they don't live in. He is partially correct. While the bill is not a tax hike, some argue the bill can be interpreted as allowing high sales tax jurisdictions to tax citizens who live in low sales tax jurisdictions at the higher rate.

Some have proposed a compromise.

An origin-based tax regime, based on the vendor’s principal place of business instead of the buyer’s location, will address the problems of the current system and avoid the drawbacks of California’s plan. This keeps politicians accountable to those they tax. Low-tax states will likely enjoy job creation as businesses locate there. An origin-based regime will free all retailers from the accounting burden of reporting to multiple jurisdictions. Buyers will vote with their wallets, “choosing” the tax rate when making decisions about where to shop online and will benefit from downward pressure on sales taxes. Finally, brick-and-mortar retailers would have the “even playing field” they seek.

Congress should exercise its authority over interstate commerce and produce legislation to fundamentally reform sales taxes to an origin-based regime. In the meantime, California legislators should resist the temptation to tax those beyond their borders. Might we suggest an awards show tax?

An origin model would bring power back to the states and return a proper constitutional balance. In fact, under the origin model, states could still decide that they don't want to tax online retailers within their borders in an attempt to lure more to locate in their state. But either way, it should be a state level decision and not a mandate from Washington DC.