Universal Online Sales Tax Imminent?

That Congress has had aspirations on collecting sales tax on online purchases, which comprise an increasingly bigger portion of all retail sales in the US, in the past is nothing new. However, following last night's passage of the Marketplace Fairness Act in the Senate with a cloture-busting 74 votes for (and 20 against), the US may be very close to finally adopting a uniform standard taxing all online transactions, regardless of physical jurisdiction or any other geographic boundaries.

As Ars Technica reported last night, "your tax-free days of online shopping are numbered. If S743, also known as the Marketplace Fairness Act, becomes law, the millions of Americans who have been able to avoid sales tax online will have to start paying it. Given the broad support shown by today's US Senate vote, some version of it is likely to come to fruition."

And since a tax is a tax is a tax, it means that the purchasing power of online shopping Americans will be uniformly reduced by some X%, depending on what the final tax structure is agreed upon, which also means that the volume of all online transactions will have to decline by a corresponding amount all else equal, in turn leading to lower overall revenues and profits for online retailers. But at least the Federal government will have more cash to waste on such high ROI generating projects as Solyndra and Fisker.

From Ars Technica:

The bill will compel companies having annual online sales of more than $1 million to collect sales tax on those purchases. Interstate sales have long been exempted from sales tax, but brick-and-mortar businesses have just as long complained about the edge that online businesses have since they avoid collecting taxes. A key opponent of online taxation, retail giant Amazon, recently switched sides after losing some key legal and political battles over taxation. Amazon already collects taxes on sales in nine states, including California, New York, and Texas.

 

"We've had a lot of innovation in the online space, but federal laws have failed to keep pace," said bill supporter Sen. Mark Udall (D-CO). "Today nearly one in ten sales occur online," and the lost sales tax revenue is hurting state coffers. "It just makes common sense... the Marketplace Fairness Act is about equitable treatment for all sales."

 

Opponents have already shifted their focus to limiting the scope of the bill through amendments, but it remains unclear if that will make much headway.

 

"A vote for the Marketplace Fairness Act is a vote to subject a senator's home state Internet [sales] companies to tax collectors in state courts around the country," said Sen. Ron Wyden (D-OR). Instead, states should look to "voluntary compacts" making it easier for companies to voluntarily collect sales taxes, rather than being compelled to do so.

 

In addition, the act is an attempt to apply "local laws to the international medium that is the Internet," said Wyden. That could inspire other countries in their own efforts to regulate the Internet, with taxes or with outright censorship.

Curiously, for all the vocal rejection of "austerity" in recent days following the R&R excel gaffe, the amusing aspect is that European governments had never actually implemented spending cuts (as we have shown in the past here and here), and it was the tax hike component to austerity that infuriated most people. It is therefore amusing to watch as the same people who denounce austerity in Europe and around the world, are those who are pushing for an online sales tax, which as the name implies, is simply another form of taxation, and less real disposable income going to end purchases.

We can't wait to see in one or two years whose excel errors will be trotted out for public consumption when this latest taxation proposal backfires and crushes already razor thin retail margins further, leading to yet another downward economic swoon.

Luckily, by then it will be the Fed that will be the end buyer of not only securities, but goods and services as the central bank insanity takes another step-function leg higher, and when "more of the same" fails to stimulate the economy, the only logical response is to do "much more of the same."

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