The Looming Internet Tax

Like most other things these days, online shopping is likely to get a little more expensive. There is currently a bill, which has been enthusiastically endorsed by President Obama, making it's way through the Senate. Essentially, if the bill becomes law, it will require online retailers, such as Amazon, to collect state sales tax on purchases. These taxes would then be sent to the state in which the purchaser resides. Online retailers, in a sense, will now become tax collectors.

Traditionally, in order for a state to collect sales tax from a retail purchase, the retailer would have a physical location within that state. For example, if you live in Texas and buy something from the ABC Company who has a lone physical presence in California, you're online purchase is tax free.

With that being said, there are some states that work off of the "honor system" and require tax payers to report online purchases (and pay the appropriate state sales tax) when they file their income taxes. But, to no one's surprise, hardly anyone ever reports this stuff.

So, the argument for the online taxes is being pushed by the traditional "brick and mortar" stores. They see internet shopping as an unfair disadvantage. I can understand the argument from the smaller "mom and pop" shops to level the playing field. But it's hard to feel a whole lot of sympathy for retail giants like Walmart who, ironically, rose to the top of the mountain by trampling it's smaller competition. So now, all of a sudden, they want to make things fair?

States are also pushing for online sales tax. They are arguing that they're losing out of a boatload of tax money due to their residents shopping online. Proponents are saying that the current sales tax laws were created in a time before people shopped online. So, basically, they saying that the tax laws need to be updated to close the loophole that was produced during the internet age. I'm really surprised they haven't resorted to the "gotta do it for the children" rhetoric.

Not surprising, most consumers are opposed to the proposed online taxes. They see this as just another attempt by "the man" to squeeze blood out of a stone in the form tax dollars. The general perception is that if it exists, politicians will ultimately find a way to tax it. If you need proof of this, you need look no further than Maryland's pending "rain tax".

In the days prior to online shopping, people would often drive into a tax-free state to save a few bucks. For example, in my home state of Maryland, there is currently a 6 percent state sales tax (I expect this to be 7% by the time Governor Owe'Malley leaves office). Delaware, which is right across Maryland's eastern border, has no sales tax. So, if someone needs a high priced item, like a new car for example, it might seem to make financial sense to take a little road-trip to the Blue Hen State. But not so fast. Maryland anticipated this scenario and quickly slammed the door shut on that tax loophole. You see, although Delaware will not charge you sales tax on the purchase of your new car, Maryland certainly will when you register it here. By the way, I find it laughable that Maryland still calls itself the "free state".

To be fair, while Democrats usually get the blame for tax increases, there seems to be a push from both parties for the inevitable internet tax. The bottom line, politicians don't work for their constituents  They work for the people (or businesses) that helped put them in office. Once they get into office, there is tremendous pressure to throw political favors to these folks. Although we'll probably never know the real story, the internet tax is likely one of these paybacks in some shape or form.

Although I'm never happy about paying more taxes and I'm certainly no proponent of an internet tax, I can appreciate the opposing arguments to some degree. However, I can't help but wonder what will be next. For instance, I really don't expect the pending tax to diminish overall online purchases. I, along with many consumers, will continue to shop online because it gives us the ability to find the best price in a matter of minutes. And because the shipping costs are often minimal and sometime even free, it saves us gas money. So, with this being said, how long before one of our tax-happy representatives decides to tax us on the money that we "save". Hey, I know it sounds crazy but so does the Rain Tax which now appears to be a imminent reality. 

Not matter how you feel about it, I think you better be prepared to pay the internet tax in the near future. Yesterday, the Senate voted an overwhelming 74-20 to take up the bill. I would expect the bill to be passed sometime within the next couple of weeks. The cost of living continues to go up in America......

kw