As Congress returns from its August flight from the political swamp on the Potomac, one of the issues it needs to resolve is Internet taxation.
Last fall, the House approved legislation that will permanently extend the ban on taxing Internet commerce. The Senate passed its own version 93-3 in April. But it merely extended the moratorium, which expired last November, for another four years.
According to the U.S. Supreme Court, mail order and Web sales can be taxed only if there is a “nexus,” that is, the business making the sale must have a presence in the state where the customer lives. It’s simply the principle of no taxation without representation.
That ruling has big-spending state politicians begging Congress to let them tax Internet retail transactions.
As surprising as it might seem, most in Congress appear willing to protect e-commerce customers from the grasping hands of state officials, who grouse regularly that they’re losing billions of dollars in tax revenues. One of their studies estimates that states would lose $14 billion in this year alone.
These politicians, spurred on by their entitlement mentality, see hundreds of billions of dollars changing hands via e-commerce and think a portion belongs to them.
They talk about a level playing field for traditional stores that have to charge sales taxes in most states. They talk about funding for schools and public safety. But what they don’t talk about is that a successful effort to obtain a new revenue stream from taxing Internet sales would help them avoid making the hard choices about how they spend scarce public money.
E-commerce is still relatively new. It has the potential to develop into a powerful economic engine. Allowing states to freely tax Web sales will harm that growth as well as needlessly ding millions of Americans’ wallets. We would all pay more and still get terrible public schools.