It sounds like one of those crazy rumors you get in an e-mail from a friend: "Did you hear? They're going to tax the Internet!" Only this time, it's true.
The days of tax-free shopping are quickly drawing to a close for all except those willing to drive to places like Delaware or Oregon. A two-front assault on Web shoppers is in full force — Congress is considering legislation that would pave the way for states to force sales tax on point-and-click shoppers, and Amazon.com is making numerous one-off deals with individual states, where it will be collecting taxes no matter what Congress does. Together, these two developments make an Internet sales tax all but inevitable.
For years, brick-and-mortar stores were at an incredible disadvantage to online retailers that could offer tax-free shopping. If you are a fair-minded person, it's hard to muster an argument that this situation — in which online shoppers enjoy a 5 percent to 10 percent "discount" because they point and click instead of drive or walk — was anything but unfair.
On the other hand, despite all the word games being played by all the interested parties — the Senate version of the legislation is called the "Marketplace Fairness Act" — there is only one way to describe why your online shopping bill is about to go up: a new tax.
The National Conference of State Legislatures says states stand to gain $23 billion in new revenue when online sales tax collection kicks in. That's $23 billion the states weren't collecting before, and $23 billion you weren't paying before. Texas and New York residents will pay about $1.8 billion more; Californians, $4.2 billion. That's real money.
To boil it down, Forrester Research says the average U.S. online shopper will soon spend $1,700 annually — so the changes will cost each one about $125 every year.
That's $125 in new taxes you’ll be paying. It's $23 billion our state governments will have to spend that they currently don't have. Of course, very few are willing to say the "T" word out loud. George H.W. Bush learned that lesson for every future politician when his "no new taxes" pledge ended up defining his career. So you won’t hear supporters admitting it’s a tax.
"It's not a tax issue. It's a collection issue," David French of the National Retail Federation told me. He's senior vice president of government relations at the federation, which supports the legislation. French is right, strictly speaking. You probably know that consumers who don't pay sales tax when they buy a TV on Amazon.com are supposed to pay a "use tax" later to their own state governments. And you probably also know that almost no one does that. In the sparse data on use tax you'll find, you'll see a 2009 study that shows that 0.3 percent of California residents reported use tax on their income tax filing. Maine, by the way, wins the crown for most honest taxpayers, with 9.8 percent paying use tax that year.
"I don't want to say they are breaking the law, but I will say they are avoiding application of the law," said French.
So strictly speaking, the states would simply be getting better at collecting that which they are already owed.
"Americans want to see that the taxes that are due are paid before anyone's taxes are increased," French said.
I'll invite you, readers, to come up with your own analogies, but here's mine: If tomorrow, every state in the nation hired a bunch of new state troopers and began giving out speeding tickets to everyone driving 56 mph in a 55-mph zone, I'd call that a new tax. When everyone has done something for years without sanction, it's no longer illegal. Suddenly enforcing an unenforced law is the same as passing a new law; suddenly enforcing an unenforced tax is a new tax.
It's a testament to our tortured relationship with governing that such a straightforward debate leads to such intense obfuscation. One Net sales tax supporter I spoke with on background started to say, "People agree that everyone should pay their fair share," but then caught himself, fearing he had just made an enormous verbal gaffe. Talking about "fair share" triggers an entirely different debate, he feared. One reason the U.S. is floundering is our inability to even speak clearly to one another, so laced with vitriol is our marketplace of ideas.
So I'll speak plainly: It's a new tax — you'll be paying more to the government than you do today — unless governors who institute the tax agree to cut some other tax by an equal amount. Perhaps they could lower the overall sales tax rate by a fraction of a percentage point so the Internet sales tax is really a neutral event on consumers? Unless your state does something like that, don't let your politicians get away with campaign claims that taxes haven't been raised.
The real question, of course, isn't about the word "tax." The real question is: Is an Internet sales tax fair? On that issue, there's just no argument. If there's a sales tax, there's no reason online shoppers should be exempt.
"If it were up to retailers, we would abolish sales tax," French said. But since it has to be collected, it should be applied equally to all retailers, he argues. The legislation "corrects a discriminatory treatment of some retailers over others."
The federal Net sales tax law has gained a lot of momentum. At a Senate hearing Wednesday and a House hearing last month, there was surprisingly little pushback. Sen. Jim DeMint, R-S.C., leads the opposition and wrote an op-ed piece in The Wall Street Journal on Wednesday making the federalism case — he argued that e-commerce firms in California shouldn't have to obey out-of-state laws. The argument rings pretty hollow in our ever-connected world.
Meanwhile, even some Republicans with sterling conservative reputations — like New Jersey Gov. Chris Christie — have come out in support of the Marketplace Fairness Act. Still, it almost certainly won't pass during this election season. There are only a couple of days of legislating remaining before Congress enters full-time campaign mode, and I promise that no one will campaign on an Internet sales tax platform.
No matter. Amazon is taking all the anxiety out of the political conversation, anyway. It is slowly adding sales taxes to shoppers' purchases around the country — Texans just started paying when they check out at Amazon.com; in September, California residents will, too. (Amazon, as explained in detail here, is willing to give up its sales tax advantage because it plans to build distribution centers around the country in an effort to offer same-day shipping and slay brick and mortar shoppers that way.)
Ten states in all will be taxed by next year. By then, so much of America will be used to paying sales at the world's largest Internet retailer that it will hard to muster opposition to a federal Internet sales tax law. And French believes both Mitt Romney, a former governor, and Barack Obama would sign a law passed by Congress.
In other words, it seems inevitable: You're going to pay more to shop online. If you don't like it, don't fight the Internet sales tax – fight your state's sales tax policies. An Internet sales tax is only fair.