• TheDMonline.com Staff Member?
  • Log In
Share |

Internet sales tax is a federal issue

Rarely will you read a column of mine that advocates 1. An expansion of federal government power and 2. A tax increase. This one, however, does advocate these.
The Constitution grants Congress and the federal government the power to regulate interstate commerce. The vast majority of Internet purchases fit into the category of interstate commerce.
Currently, the Supreme Court’s 1992 decision exempts retailers from collecting sales tax if they do not have a physical presence in the state — a store, warehouse or office. This means that Walmart.com, which has a physical presence in all 50 states, must collect sales tax according to the state laws of the purchaser. However, Amazon.com, which does not have a physical presence in most states, does not have to collect sales tax in those states.
The Court’s primary reason for this decision is that the variety in state sales tax laws is too complicated to burden retailers with it. However, in the decision, the Court wrote that Congress has the authority to enact a policy that requires online retailers to collect sales taxes.
Since many online retailers do not have a physical presence in Mississippi, they have an advantage over local retailers in this state, especially since the state is mostly rural.
Now, the argument for an online sales tax usually hinges on online retailers collecting individual states’ sales taxes. It is certainly a valid argument and one most likely to be enacted into law, but why make a complicated policy when a simple one will suffice?
The federal government currently does not collect a sales tax of any kind. As such, since 45 states already have sales taxes, the common refrain for online sales tax supporters is to keep it at the state level.
When it comes to buying online, though, the federal government has the opportunity to centralize online sales taxes. Much of the federal government’s current tax collections are redirected to the states, and the online sales tax collections would be no different.
Today, an argument could be made that almost all commerce is interstate and therefore subject to Congress’ authority. Congress, however, has mostly chosen to let the states handle commerce themselves.
Online sales tax is an issue that the federal government should collect before the individual states, though, because it would be one simple policy that applied uniformly across all states. It would be easier on the consumer, easier on the retailer and easier on the government.
What is my policy solution? A 5 percent federal online sales tax collected by the online retailer and owed to the federal government, with 80 percent of online sales tax collections earmarked for distribution to the individual states.
In the end, whether online sales tax is collected by the individual states or by the federal government does not really matter, so long as policy is enacted that eliminates the major advantage that online retailers have over local retailers.

Trenton Winford is a junior public policy leadership major from Madison.