The Problem With Proposed E-Commerce Sales Tax Reform

Vermont Congressman Peter Welch (D)When I first heard about Peter Welch introducing the Main Street Fairness Act, I will admit that I was torn.  On the one hand, I am a huge supporter of local “mom & pop” shops, which are a huge asset to the small town communities of Vermont.  On the other hand, I staunchly support the principles of a free market and cannot reconcile the implications that the MSFA would have in this regard.  What to do, what to do…

After much consideration, I have to say that, as much as I want to promote the interests of small businesses, I do cannot bring myself to support this piece legislation.  I understand the uphill battle that small business has when trying to compete with online retailers.  I can honestly say that I have opted to pay the extra few dollars to purchase many items locally, rather than ordering online, just to chip in to our local infrastructure; but many do not share this sentimental approach to consumerism.  Most see the bottom line: they want the lowest price on the products that they purchase.  This has, unarguably, driven a lot of business into the online world.

Living in eastern Vermont, I can see an analogous scenario in the realm of brick and mortar businesses.  There are few retail stores in my area of Vermont, so most of my grocery shopping and “general needs” purchases are made just over the river, in New Hampshire, where there is no state sales tax.  This illustrates the competitiveness of the free market, allowing businesses to put down roots in places that provide them with advantages over their opposition.  As a consumer, I thus have the freedom to spend my money where I please, finding deals across state lines when possible.  So, how is this any different than shopping online to get a better deal?

The online market removes the obstacle of geography from the picture.  As I said, my proximity to tax-free New Hampshire provides for a quick 10-minute drive to savings.  However, folks who live further away would spend more in gas than they would save by avoiding the sales tax.  Enter the Internet: problem solved.

I can go online and make tax free purchases to my little heart’s content, provided the business I buy from does not have a physical location in my state.  This stipulation about taxing purchases when a company has an in-state presence makes sense to me; without it, I could dodge paying local sales tax by simply clicking my mouse instead of swiping my debit card.  And, I can even see a justification for including a sales tax on online purchases to be paid to the state in which a business is headquartered.  Think of it as tax revenue from “online tourism”.  But, what justification exists for me to pay a Vermont state sales tax on an item purchased online from a company that chose to set up shop in Delaware or Montana, which do not have any sales tax?  Shouldn’t I be able to digitally spend my money in any state I so choose, just as I can physically spend it anywhere?  By this same logic, should I have to show ID to make purchases in New Hampshire so that they can tack on a Vermont state sales tax?  I think not.  Congressman Welch says that “online retailers need to play by the same rules as main street merchants,” but his solution does not reflect this statement.

I can concede that there is some tax reform needed in the current way that online transactions are carried out.  Technically, one is supposed to declare any taxes that have gone unpaid through online purchases when they file their returns, but who actually does that?  Furthermore, who actually keeps track of that in the first place?  I certainly don’t.  Unfortunately, the Main Street Fairness Act is going to get lumped in with other initiatives to avoid going over the impending “fiscal cliff”, and will likely pass Congress.  Much like communism, this is an idea that sounds good on paper, but does not translate to success when applied in the real world.

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One thought on “The Problem With Proposed E-Commerce Sales Tax Reform

  1. Good point. New Hampshire has decided not to burden their businesses with a sales tax. When a Vermonter drives across the border, the NH store is under no obligation to collect VT sales tax. In fact (if I’m not mistaken) it would be illegal to do so, since the NH business does not have a certificate permitting to collect such a tax.

    If we allow online sales to be subject to taxation, the next step will be that NH stores will have to determine the residency of in-person transactions and collect the tax. (they will say, “It’s only fair, you’re doing it for online retailers, you need to do it for in-person transactions as well)

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