Should online retailers be responsible for collecting sales tax like brick-and-mortar stores?  Is it “taxation without representation” or something that’s overdue in our ecommerce world?  Should Amazon.com, based in Washington, have to collect sales tax on sales to California customers, even though they have no offices, warehouses, or employees there?

Taxes are basically the price we pay in exchange for government services, right?  If I go to the store and buy a $100 widget, perhaps it makes sense for me to pay a tax since I drove on a public road to get there, and didn’t get shot, presumably thanks to the public police department.  That $100 widget cost $110.  Fair enough.

But what if I bought the same $100 widget from a store in Nevada?  Now I’m not using any California public resources, and neither is the store.  FedEx is the one driving on the roads now, and they got paid from the Nevada store, and sent the required sales tax into the government.  That widget cost $100.  Shipping cost $10, but was included in the price.  FedEx sends $1 to the government.  Fair enough.

In the Nevada store example, the California government gets $1 instead of $10.  (If the customer is Ned Flanders, they might actually get $11, assuming he reports his out-of-state purchases.)  But the fact is that less government resources were consumed, so California should get less.  A single FedEx truck making 50 stops along a route is far more efficient than 50 cars each making one trip to their local store to buy a widget.

I’m not sold that out-of-state stores should be responsible for California taxes.  They don’t have employees driving on our roads or children in our schools.  They can’t vote in California elections, they have no say in how their tax money is spent.  Making them pay would essentially be free money for the state, they get the income from the business activity, but none of the expense.  Taxation without representation indeed.

What about the local widget store that was undercut by their Nevada online competitor?  Economists have a semi-heartless term for this, “creative destruction,” which is a typical ingredient for progress and it’s all well and good until you’re the one getting destroyed.   But in business, price is only one selling point.  Maybe this local widget store has been in business 100 years, has unsurpassed widget expertise, amazing marketing, unbeatable service, and a great atmosphere.  Those are sales points they can compete on, and probably better than any website.

So what’s the solution?  I think something will have to be done on a national level.  There are something like 65,000 different sales tax jurisdictions across the country, and it would be a compliance nightmare unless something was standardized nationally.  However I imagine the congressman that proposes a national sales tax would be voted out of town pretty quick, so that might not happen anytime soon.

In the meantime, state and local governments could consider lowering their sales tax rates.  I think a lot of people would like to “buy local” and talk to a real person, especially for high dollar items, but sales tax rates like Alameda county’s 9.75% are driving people online instead.  They’re already taxing our income and our property; how much is “fair?”

Alternatively, states could spend some money on enforcing the current “self-reporting honor system.”  It probably wouldn’t take much to start a word-of-mouth / social media campaign that they’re auditing people’s online orders and tax payments.  A scared taxpayer is a compliant taxpayer.

Or we could all just move to Oregon.

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