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Tax Internet sales until virtual cops can protect us

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POSTED May 7, 2013 2:10 a.m.

The Internet.

To those who make a living hawking everything from  toilet paper to second-hand upper end purses by the mere stroke of a key, it is sacred grounds for American capitalism.

In their eyes it succeeds because it is a vibrant home of low regulation and low taxes. True, but that is the same reason why the black market and bartering are so profitable. 

Even legitimate marijuana growers in Colorado will discover the high cost of being legit is no match in terms of profitability for rogue growers and the drug cartels.

Taxes are a lot of things – unfair, cumbersome, high, and nonsensical. They are also necessary.

It is what pays for police and fire services. It pays for public education and our national defense. It pays to keep murderers, rapists, robbers, and other bad guys behind bars. It pays for parks from the one in your neighborhood to the one in Yosemite. It pays for streets, freeways, airports, and a lot of essential services and also a lot of not-so-essential services down to the maddeningly wasteful.

There are three primary taxes that run America – property, income and sales taxes. Two of those taxes are in decline in relation to population growth and economic vitality as a direct result of the Internet – sales and property taxes.

The most obvious is the loss of sales tax. There was $225 billion in Internet retail transactions in 2012 with only a small portion taxed. As brick-and-mortar retail shrinks due to Internet business, they shutter stores. That results in a drop in property tax.

One of the biggest arguments made against taxes by those who believe the Internet is the cutting edge free market is the fact there are 9,646 different sales tax jurisdictions in the United States. That, they contend, would create nightmares both at the point of transactions and in the bookkeeping needed to pay the piper. One online entrepreneur currently skirting the need to collect sales tax on almost all of her $1.5 million annual business bemoans the fact she doesn’t have a chief financial officer and accounting department as she has only her uncle doing her books.

Amazing. When it comes to skirting sales tax the Internet and its accompanying technology is all cutting edge. But when it comes to keeping track of it they use old-school methods as a way to sink any efforts to tax Internet transactions.

Pick up a smartphone. It is a powerful computer that puts the ones that filled massive warehouses in the 1960s to shame. It has hundreds of thousands of apps that often do incredibly useless things. Surely someone can come up with an app that can handle 9,646 different sales jurisdictions and tracking sales according to each one as well as cutting appropriate electronic transfers. You can’t have it both ways.

What makes the argument against taxing Internet sales according to the jurisdiction where the buyer resides even more disingenuous is the fact study after study show the net difference between brick-and-mortar retail and Internet is roughly 10 percent. You’ll never guess what the average sales tax is in many jurisdictions. It is close to 10 percent.

Online retailers who have less staff, less physical presence, don’t have to maintain stores and such are essentially operating on much fatter margins obviously can cut the prices they charge farther. How profitable a business is shouldn’t be the basis for regulation. But the fact Internet prices in online and brick-and-mortar comparisons aren’t 20 to 30 percent cheaper certainly points to the fact Internet retailers won’t be driven out of business by collecting taxes. They will just have to cut into their fatter margins to keep businesses.

Some have argued making people pay taxes for a purchase they make based on the jurisdiction they live in is unprecedented. Go talk to a new car dealer in California. That has been happening for years. If you buy a car in  low tax overhead Barstow but it’ll be “garaged” where you live in Manteca, you pay the Manteca sales tax.

Those in non-sales tax locales such as Oregon argue they shouldn’t have to collect sales tax from their customers who live in places such as California. How much different, though, is that from a California resident owning  vacation  property in Oregon taxed at a significantly higher property tax rate than they are for their home in California?

The bottom line is two-fold. The vast majority of Internet retailers lower their prices just enough to make the savings for consumers roughly the equivalent of sales tax they don’t have to pay. That means the Internet retailer is still pocketing a fatter margin. They could just slash their prices another 10 percent and still undercut brick-and-mortar and stay in business.

And at the same time government needs taxes to operate.

Unless someone can come up with an Internet government that sends out virtual police to chase down real burglars breaking into your home, virtual firefighters to revive your loved one having a  heart attack, or virtual street workers to patch potholes in  your street, the Internet needs to cough up money to pay for the real world it exists in.



This column is the opinion of executive editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA.  He can be contacted at dwyatt@mantecabulletin.com or 209-249-3519.

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