By William F. Shughart II
U.S. Internet commerce has grown dramatically over the past decade, from about $93 billion in 2003 to some $322 billion in 2013.
Several factors have driven this growth: convenience, access to products that aren't always available locally, and, frankly, the desire to save money, since online purchases from sellers in other states generally are sales-tax-free.
This last item rankles many state officials, who see a potential bonanza - perhaps as much as $23 billion per year - if Internet purchases could be added to the sales-tax base.
The inability of one state to collect sales taxes on purchases from retailers located in another state dates to a 1992 U.S. Supreme Court decision involving Quill Corp., a mail-order seller of office supplies.
The justices ruled that Quill and other retailers are not required to collect sales taxes on orders delivered to out-of-state customers unless the distant seller has a "physical presence" - a distribution terminal, warehouse, or brick-and-mortar store - in the customer's home state. "Clicks" such as Quill have enjoyed favorable tax treatment not granted to "bricks" ever since.
Six years later, Congress enacted a three-year moratorium on Internet taxes, which it has renewed four times since. That moratorium will expire on Dec. 11 unless it is extended again or is made perpetual, as the Permanent Internet Tax Freedom Act, passed by the House in July, would do.
Senate Majority Leader Harry Reid (D., Nev.) wants to move in the opposite direction, promising to push the Marketplace Fairness Act (MFA) during Congress's upcoming "lame duck" session.
The "fairness" in the MFA's Orwellian title refers to sales-tax proponents' belief that "e-tailers" have a competitive advantage over traditional retailers, who are required to collect sales taxes from all of their customers.
Forty-five states impose sales taxes. Their rates vary widely, ranging from a high of 7.5 percent in California to a low of 2.9 percent in Colorado. Moreover, some states exempt certain products from sales taxes - typically food and clothing - or tax these items at lower rates. These differences would require online sellers to compute the rate applicable to nearly every shipment.
While supporters of Internet sales taxes make good rhetorical arguments, their arguments are full of holes.
First, the retail playing field is not as out of whack as they would have us believe. Brick-and-mortar stores, for example, do not add shipping and handling charges to their prices, as many online retailers do.
Amazon cannot deliver a cappuccino with your book order. And online sellers of shoes and clothing cannot offer customers opportunities to feel and touch their products, try them on, or see their colors in person.
Second, state lawmakers do not need another $23 billion in sales-tax revenue to fatten government coffers.
More important, like cross-border shopping, the tax exclusion for Internet sales applies a brake on sales-tax rates. Eliminate the exclusion and you give state lawmakers a green light to increase these rates, making everyone poorer and transferring more money from the private sector to the already bloated and inefficient public sector.
Lifting the Internet sales-tax moratorium is a recipe for bigger, more intrusive state governments. Reid should junk this bad idea.