The Senate moves to close the Internet sales tax loophole

April 23, 2013

IF YOU’VE EVER used eBay, you probably received a scary e-mail this week. The Senate is threatening small businesses, it warned. Complain to your legislators, it pleaded.

Actually, it isn’t, and you shouldn’t.

Senators appear ready to deflect the pressure. On Monday they advanced a bill that would allow states to collect sales tax from out-of-state online vendors. This will level the playing field for stores that have a physical presence, which are already charging tax on all local purchases. That is fair for retailers, good for state budgets and even beneficial for consumers who would rather shop in person. The Senate should follow through and pass the bill, which it could do as early as Wednesday.

Maybe brick-and-mortar stores will become obsolete. Maybe they will continue to serve a need, even in the age of Amazon. Government shouldn’t decide by unfairly favoring one outcome over the other. Treat all retailers the same way and let consumers decide. At the moment, the government is pushing consumers toward Internet retailers by failing to collect sales tax on many online transactions — an unprincipled, $11 billion annual tax giveaway.

You wouldn’t design policy this way. The current system is the result of a decades-old Supreme Court decision that put state taxing authority in doubt, to which Congress never properly responded. Now that Congress is finally trying to fix the law, some critics object that forcing retailers to keep track of dozens of different sales tax laws is too much to ask of Internet sellers. But computer software can easily manage that complexity. Besides, the law requires states to simplify their tax codes before beginning to collect — and even to assist retailers.

Opponents counter that unfamiliar, faraway tax authorities might menace small online vendors. But the hypothetical fear-mongering can’t justify continuing to discriminate against physical stores selling the same goods. The smallest of online stores would be exempt under the Senate proposal. The rest, even relatively small ones, should sink or swim without preferential tax treatment.

Anti-tax advocates, meanwhile, object to more tax revenue being collected anywhere, despite the fact that the Senate’s proposal would merely allow states to apply existing policy universally. The online sales tax loophole perverts states’ tax policies at the cost of revenue that all 50 of them need. Both Maryland and Virginia, for example, have built transportation plans on the expectation that Congress will act at long last.

Congress shouldn’t keep them waiting. The Senate should pass its bill, and the House should promptly follow.

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