The senate has passed a bill allowing states to charge sales tax on purchases made from out of state, on-line sellers. The current law allows such taxation if the seller has a presence in the state, such as a office, store or warehouse. The reason this tax is necessary is to provide a “level playing field” for “brick and mortar” stores because the internet sellers don’t charge tax. It is also said. that consumers “show room” products by going to the “brick and mortar” stores, checking out a product and then buying it on-line for less. My research among actual consumers has determined that neither claimed consumer behavior is real. Consumers want to see and feel a product before buying and they want it now. They also want to have someone to call who is nearby when products don’t work. As to the “show rooming” claim, it is the opposite of what actually happens. Consumers go to the internet to find a product and then look locally to buy it. For example, a consumer wants a new dishwasher, finds the perfect Bosch washer on-line, then searches for a local retailer who also will deliver and install the machine. An online seller in Georgia can’t do this in Minnesota, but Appliance Smart can. By the way, sales tax savings are almost always off-set by delay and shipping charges, real disadvantages for the on-line seller. Whenever I see a bill that offers fairness, I wonder to whom it is fair. In this case, it is big box retailers who have a national presence and must collect sales tax on internet sales anyway, states that have high sales taxes, who will be able to raise taxes with impunity, if the law passes, and, curiously, EBay and Amazon, our largest on-line sellers. The real purpose of the internet tax bill can be determined by examining why the biggest of the on-line sellers support the tax bill. It all comes down to competition, that mechanism that protects consumers from anti-competitive practices that lowers product quality, reduces availability, and raises taxes, all to the considerable detriment of consumers and commerce. The internet sales tax bill will place a burden on smaller on-line sellers who are already dealing with the burden of shipping and being a remote, impersonal presence, that gives the “brick and mortar” stores a great advantage. If the distant retailer has to charge 7% more, so, too, can the local retailer. That gets us back to Amazon and Ebay. Why do these major on-line sellers support an on-line tax bill? It is competition again. The collection and payment of the tax will not burden them, but will burden lesser competitors who may become challengers to EBay and Amazon. This tax bill is simply a mechanism to make smaller, emerging companies less competitive, allow “brick and mortar” stores to be less competitive or efficient, and lets states charge higher sales taxes. The Senators who voted for this bill are supporting oligopoly in the market place and higher taxes in the states. Who gets injured? It is consumers who currently benefit from the robust and competitive retail market where on-line competes with “brick and mortar.” I had the underlying principle for legislation explained to me by Senator Daniel Patrick Moynihan, D,N.Y. who looked at me and said “There is only one question-Cui Bono ?- (who benefits)- and it should be the consumer! In this case, the beneficiaries are the big box retailers and big on-line sellers, not American consumers, and that is being lost in this quest for “fairness.”
Thanks Clark for an insightful look at the reasoning behind this legislation.
Thanks for the note. Clark