Roland Stephen

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    On the Books

    July 14, 2011

    Amazon has opened a major new offensive against the sales tax in California. It is using California’s lamentable process for passing ballot items directly into state law as a way to prevent sales tax being imposed on its customers who reside in the state. They couch this initiative as an effort to protect jobs, investment and the state’s economic future, but exempting one class of consumer from the tax (online shoppers) only shifts the burden to another class of consumer (main street shoppers). In other words, as is always the case for tax and spending decisions with very specific target populations, the most important consequence is the the impact of preferential treatment. Sometimes we wish to prefer one group through public policy–for example the poor or disabled–but is there any compelling reason to prefer Amazon over Target?

    Indeed, beyond this straightforward case for fairness (or horizontal equity as tax specialists call it) there may be a particular reason to oppose giving on-line sellers preferential treatment. Many small towns across the U.S. (especially here in North Carolina) have dedicated a great deal of effort to re-building their main street businesses. The idea is that there are broader economic and social benefits from a central cluster of retail outlets beyond just the jobs and taxes generated by the businesses in question. Citizens will come downtown and share a public space. Through this increased sense of place they will come to identify more with their community which may yield increased citizen participation in civic affairs. Its makes no sense, therefore, to have a tax code that encourages consumers, at the margin, to stay home alone and shop online.

    Amazon and others do have genuine concerns about state sales taxes. Each state has different rates, different tax bases (some things are taxed, some are not) and all kinds of other variations in the code, including tax holidays, that make collecting the sales tax very complicated for a national, online retailer. For example, (somewhat inconveniently) I presently have two houses. What if I order an item from my house in North Carolina, and pay through a North Carolina financial institution, but have it delivered to my house in Maryland, and us it (a book?) in both places. Amazon would argue that unclear state laws may expose this transaction to double taxation. It certainly makes collecting the sales tax complicated and expensive.

    There is a solution, called the Streamlined Sales and Use Tax Agreement, which represents a compact among the states to align their tax codes in ways that would make it easier for national online retailers to reliebly collect sales taxes. But not all states are members of the agreement, and for it to work, as a practical matter, would require Federal action. This means that the U.S. Congress would have to have a sensible discussion about taxation that focused on practical realities rather than flighty rhetoric. Oh well…


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