Monday, May 23, 2005

Internet Taxation

[From a comment on the Becker-Posner Blog.]

A few comments and an idle thought regarding "tax-free" Internet purchases:
  • Consumers who avoid paying state sales tax by buying on the Internet generally owe an equivalent state use tax on the purchase. So the uneven tax playing field does not exist in theory, only in practice-- because for the consumer, use tax is inconvenient to track, easy to forget, and tempting to disregard.

  • The existence (in practice) of the uneven playing field is probably more due to the Quill v. North Dakota decision than to the Internet Tax Freedom Act per se. Catalog retailers enjoy this de facto subsidy whether their orders arrive by Internet, telephone, or mail.

  • Large etailers such as Amazon practice tax avoidance by maintaining a legalistic separation between their operations in different states. Amazon has distribution centers in Kentucky and an A9 search engine subsidiary based in Palo Alto, which might be supposed to create nexus in Kentucky and/or California, but Amazon still does not collect sales tax in Kentucky or California.

  • The idle thought: since state governments evidently have some power to regulate the credit card industry, I wonder if they could impose on the credit card company, instead of imposing on an out-of-state retailer, to aid them in collecting use tax on out-of-state purchases. I don't believe this scheme conflicts with the Internet Tax Freedom Act (although there may be other objections) since it would merely further the collection of an existing use tax, not impose a new tax on Internet transactions.


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