Bloomberg View editorial endorses taxation without representation

An article editorial from the National Review published late last night (7/25/2011) by Bloomberg View offers a frightening proposal . . .

Although the article starts out with a somewhat disrespectful tone regarding the Alliance for Main Street Fairness (which seems frankly uncalled for and doesn’t seem to enhance the article at all), it admits that the lack of sales tax collection on online purchases “is indeed unfair both to the mom-and-pop retailers . . . and to the larger companies.

The author should have mentioned that it is also unfair to local communities—communities that rely on sales tax revenue to fund vital local services that voters/consumers/taxpayers approve, either directly, through ballot initiatives, or indirectly, through their elected local governments. The National Conference of State Legislatures calculates that non-collection of sales tax on internet and mail-order purchases will cost over $23 billion during FY2012.

Strangely, as the solution to this enormous national problem, the author proposes a national origin-based sales tax system:

A far better solution would be for states to levy sales taxes based on where products are coming from rather than on where they’re going.

To understand the problem with this idea, one must first remember: Sales tax is local.

Our country was founded on the most basic concept of taxation with representation. That is why each state has its own House of Representatives and Senate—to ensure that there is local representation and a local voice regarding why, how much, and for what purpose you and your community will be taxed.

To adopt the origin-sourcing concept at a national scale would mean that if you bought something from an online store that charged you sales tax based upon where that online retailer is located, then you would be paying a sales tax you did not vote on.

Consider if you lived in California and bought a $1,100 LED TV from an online consumer electronics store based in New York City. Under the author’s plan, the NYC retailer would add 8.875% to the price of your TV ($97.63) and remit those proceeds to the retailer’s jurisdiction—New York City—not your California jurisdiction.

Under such a plan, you would be forced to pay a tax without any representation.

Origin sourcing gets even more toxic at a national scale. Consider how many e-commerce retailers in California or New York (or any of the 45 states with sales tax) would immediately relocate all operations to a state with no sales tax just to stay competitive—if you think your property and income taxes are high now, imagine what would happen if 40% of these states’ annual budgets vanished overnight.

The author bases his proposal on a PricewaterhouseCoopers study published in 2006, which was researched in 2004 and is based on costs incurred by retailers in 2003. To be blunt, this research is hopelessly out-of-date. Fortunately for all of us, technology and the internet have come along way since 2003! For example, in 2003 Facebook and YouTube did not exist and Google was still a private company. Also, since 2003, the Streamlined Sales and Use Tax Agreement has achieved significant simplifications in state-by-state sales tax laws, and today 24 states  (more than half of the 45 states with sales tax) have voluntarily adopted its simplification measures.

The article says the anticipated Main Street Fairness Act “imposes costs on the economy out of proportion with any revenue it might generate.”

I am sure the author and his readers will be happy to learn that this concern is moot. Our company launched TaxCloud over a year ago, and it calculates, collects, remits, and even responds to audits for retailers—all at no cost. Using TaxCloud, any retailer (large or small, online or offline) can collect accurate local sales tax for any address in the US in 13 milliseconds, with no cost burden and minimal technical burden.

Once again, sales tax is local—when online retailers refuse to collect, it only hurts your community.

Finally, the article is also surprising given that we briefed their editorial staff about this matter (in February), and Bloomberg has published three very supportive articles over the same number of months:

  1. supports online sales tax collection – 7/15/2011—just 11 days ago
  2. Bloomberg Businessweek article reaches surprising conclusion – 6/6/2011
  3. Businessweek editorial: “To help Main Street, close the internet sales tax loophole” – 5/2/2011
Apparently we need to request another briefing.
UPDATE: The author is not a Bloomberg editor but rather a senior editor at National Review.

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