“Tax-Hungry Politicians” Target Online Sales Tax Evasion

Federal efforts to fight consumer sales tax evasion facilitated by the likes of Amazon.com continue to make news.  Last week, the House Judiciary Committee held a hearing in which lawmakers appeared to agree on the need to empower states to enforce their sales tax laws even on purchases made over the Internet.  Specifically, the Committee heard testimony on legislation that would require out-of-state Internet retailers to collect and remit the sales taxes owed by their customers—just as big box stores and Mom & Pop shops alike have done for decades.

This week the Senate followed the House’s lead, with the Senate Commerce Committee holding a hearing to discuss similar legislation.  Influential state lawmakers, as well as many major retailers are backing these federal efforts.  And while it’s too early to guarantee any particular outcome (especially in an election year), it’s also clear that the federal government is taking this issue more seriously than ever.

Many lawmakers, like Rep. Bob Goodlatte (R-VA), are “completely sold on the fairness issue” of collecting sales taxes on all purchases regardless of whether they’re made online or at the local shopping mall.  But there are some holdouts who think the states should be forced to sit idly by while their sales tax bases shrink, their local businesses suffer, and the sales tax increasingly becomes an optional payment for anybody with an Internet connection.  Senator Jim DeMint (R-SC) falls squarely into this category.

This week, DeMint authored a Wall Street Journal opinion piece arguing that taxing online shopping would amount to an attack by “tax-hungry politicians” on “the essence of our democracy.”  As you might expect from such rhetoric, much of the piece is far-fetched.  Among other things, DeMint fears that improving the enforcement of state sales tax laws could lead to “talk of a streamlined national sales tax … with Washington taking a cut and destroying our nation’s healthy tradition of state tax competition.”  And throughout the piece, DeMint misses the mark by suggesting that states are trying to directly tax Amazon, eBay, and other online retailers, when in reality they’re only trying to involve those retailers in the collection of sales taxes already owed (but rarely paid) by their customers.

For more information, see this policy brief from the Institute on Taxation and Economic Policy (ITEP), as well as some of our previous coverage of this issue.