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Beware the Online Sales Tax Grinch

The end of the year seems to reliably bring the threat of expanded state sales tax powers for remote online purchases. But legislators should be wary. The expansion plan is fraught with both constitutional and practical problems, is opposed by the public, and should be thwarted by pro-jobs, small government, fiscally responsible members, lest their constituents hand them a bag of coal next November.

  • Allowing states to tax outside their borders would be an unprecedented expansion of sales tax authority. Despite its proponents claiming it’s, “not a new tax,” citizens will experience the expansion as an increase of their tax burden. 
  • Expanding state sales tax authority remains unpopular with voters; according to a September 2017 Rasmussen poll, 66% of adults oppose expanded sales tax online.
  • Expanded sales tax authority is a small business killer. While brick-and-mortar sellers will continue to calculate at point of sale, online retailers would be subject to calculation, collection, remittance, and audit obligations in more that 9,600 distinct taxing jurisdictions, each with their own rates, bases, exemptions, and tax holidays. Many small businesses won’t survive those compliance costs.
  • State budgets include plenty of overspending that could be cut; taking more money out of private pockets to dump in wasteful tax coffers is not the answer for fiscal conservatives. There are equitable solutions in line with small government principles, like an origin-based approach, but allowing states to reach across their borders to tax remote businesses is ‘taxation without representation’ in action.
  • Stalwarts of limited government including Americans for Prosperity, Americans for Tax Reform, National Taxpayers Union, FreedomWorks, Heritage Foundation, and others have all written and spoken in opposition to this sales tax expansion. The plan is in violation of well-established limited-government principles.

For more background information, see the CEI Web Memo “Why Internet Sales Taxes Bolster Bigger Government: A Primer on Leading Proposals and their Political Prospects.”