Should the Internet be tax-free?

Moderated by Larry Dignan | December 2, 2013 -- 07:00 GMT (23:00 PST)

Summary: Nothing's certain except death and taxes? Ben Franklin never considered the Internet.

David Gewirtz

David Gewirtz




Larry Seltzer

Larry Seltzer

Best Argument: Yes


Audience Favored: Yes (64%)

Closing Statements

We're better off without it

David Gewirtz

The first thing I'd like to say is that our readers truly added value to this discussion, contributing salient points that neither Larry nor I covered. A big shout-out goes to all of you for making this into a really meaningful roundtable discussion.

I disagree with Larry. We shouldn’t tax our populace and further damage our economy because of some misdirected desire to be “fair”. We also can’t give all little kids ponies, and we all don’t grow up to be princes and princesses. Life isn’t fair. Forcing fairness down everyone’s throats also isn’t fair.

This is really a two-part question. The first is whether to tax at all, and the second is how that tax process would be implemented. It's clear the Internet has been a transforming factor in our economy and encouraging Internet growth is good for all of us in the long term. But that growth is taking money out of the system as well, at the expense of already revenue-starved states.

If -- and this is a nigh-impossible if -- if Internet sales tax was consistent, universal, and easily manageable (none of which are government strengths), then it might make sense to implement it. But since there's virtually no chance that any sort of interstate Internet tax will be done with an eye to best practices before best politics, I contend we're better off without an Internet sales tax.

It's about fairness

Larry Seltzer

Many people seem to have a romantic notion of the Internet as existing outside of political boundaries. In a physical sense this may be the case, but in reality it is used and run by people who live and work in particular countries and states. These people and the companies they work for have to be subject to laws and by the same reasoning need to pay the taxes that people in the physical world do.

David's responses emphasize overall economic concerns over any sense of justice. His constitutional concerns seem misplaced to me. The federal government need not mandate anything to effect a more fair tax regime, but it might very well be authorized to do so as a regulation of interstate commerce.

For me this issue is all about fairness, and it's not fair that e-commerce is often preferentially taxed. There may be many good libertarian and pro-growth arguments for keeping taxes low and simple. There are no good arguments for taxing brick and mortar commerce but not e-commerce. My esteemed opponent has basically avoided the fairness issue.

Audience insight

Larry Dignan

If I had to declare a winner of this debate, I'd give it to the audience comments, which were insightful. Frankly, I see both sides of this equation; but on the basis of pure debate, David beat Larry with his arguments. The Internet isn't going to be tax free so here's to hoping there's some logical framework that's set up. 


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  • The wrong question is being asked.

    Shopping on the internet is not tax free (unless you live in one of only four states without sales tax).

    Mr. Gewirtz arguments seem to be fueled be a misunderstanding that there some sort of new tax being proposed.

    I will even respond to his points:

    One: This is not a new tax - no one is forcing "a 4- to 12-percent price increase on consumers". If an online retailer doesn't collect sales tax at the time of sale, the the consumer is expected to voluntarily report and remit the equivalent use tax due. This is the law in 46 states today, and has been for over 50 years in most states - unfortunately most consumers are unaware of this, and so the tax goes uncollected.

    Two: The assertion that tax revenue won't go up and that sales will go down in supported by facts. Recently Amazon began collecting sales in California, sales went up, and the Board of Equalization has confirmed that the tax revenue came along with it.

    Three: Another unsupported assertion - see previous response.

    Four: Why would filing sales tax returns put small online retailers out of business? The proposed legislation includes a generous safe-harbor for businesses making less than $1 million in out-of-state sales, and also includes provisions to require states to make compliance easier (even including free software that can handle collection, reporting, remittance, and audit response for all states).

    Five: Local stores are very strong supporters of the notion that everyone should have to collect sales tax. Local stores have been having difficulty for years trying to sell the same products or appliances to local purchasers who can by the exact same item online and evade the sales tax due. This artificial price disparity is both damaging and unwarranted.

    Bottom line: Enacting the proposed legislation could make the collection of sales tax more efficient which would help everyone. Businesses would be ensured compliance burdens would be minimal. Consumers would no longer be expected to manually track and report their sales and use taxes on online purchases. State and local governments would receive much needed revenue to support voter approved local priorities.

    So, my answer is No - The internet should not be tax-free.
    Reply 21 Votes I'm for No
  • tax revenues won't go up?

    Sales taxes definitely reduce sales, but but they don't eliminate sales. If items keep on selling, then raising the online sales tax rate from zero to something positive NECESSARILY increases sales tax revenues. If an online sales tax induces more local brick & mortar purchasing, that also increases sales tax revenues. Indeed, there's no scenario in which there'd still be some online sales in which sales tax receipts wouldn't increase.

    Plausibility is useful in a debate.

    As for sales taxes, my self-interest is to have no online sales tax. To the extent that online retailers are lower carbon than brick and mortar stores, there'd also be public good from encouraging online buying instead of buying from local stores. However there are other public good arguments as well as equity arguments which go against online retailers. Maybe my own bias, but call it a wash.

    Practicality, then. Sales taxes are easier to collect and generate less acrimony than income or property taxes. That makes them among the most expedient ways for gov'ts to collect revenues. OTOH, online retailers having to collect specific sales taxes for every jurisdiction would be rather expensive to manage. A single online sales tax for the US as a whole would be a reasonable alternative, with the rate no higher than the median across all states with all local additional sales taxes excluded. Sorry, Oregonians and New Hampshirites and others who have no state/local sales taxes, this would apply to everyone in every state.

    So a conflicted opinion: society would probably be better off with online sales taxes, but not each an every tax-levying jurisdiction getting to collect at its own rate. One rate countrywide, collected by the IRS, distributed to the states based on sales by zip code. Let each state divvy up their portion as they decide. Tell local taxing authorities to take a long walk off a short pier and/or soak their heads for a few hours.
    Reply 23 Votes I'm for No
    • taxes and revenue

      Higher taxes frequently reduce revenue by killing businesses and jobs. Frequently those loses outstrip the gains in revenue from the taxes. You cannot notice the effect except from on the macro economic scale, but it happens a lot. More times than not increasing taxes decrease revenue, though it is not a hard and fast rule.
      Reply 9 Votes I'm Undecided
  • thoughts

    "Two: tax revenue won't go up. Sales will simply go down. Jobs will be lost. "

    Actually, revenue will go up - at the expense of sales and jobs. Revenue probably won't go up as much as politicians hope it will, though. They have a really bad habit of overstating things in their favor. But yes, it will hurt the economy.

    In economics, everything is interconnected. Can't do things without having ripple effects everywhere.

    I'll be interested in what other points are made.
    Reply 13 Votes I'm Undecided
    • The Laffer Curve is common sense

      The higher the marginal tax rate, the lower marginal revenue will be (but absolute revenue will increase, provided the rate isn't too high) and the higher collection/enforcement costs will be.

      Thus from a "profit" perspective, the optimal rate isn't going to be anywhere close to 100%, but it isn't going to be all that close to 0 either.
      John L. Ries
      Reply 18 Votes I'm Undecided
      • Except that overall

        Economic activity takes a hit, so, yes you might see an increase in sales tax revenue, but see a decrease in income tax and property tax revenue for a net loss.
        Reply 13 Votes I'm Undecided
  • Internet Sales Tax

    Why not level the "playing Field" by allowing Brick and morters to be Non-taxable on sales.
    Reply 16 Votes I'm for Yes
  • Sales tax is a tax on the poor. Interesting

    that no one ever points that out.
    Reply 8 Votes I'm for Yes
    • It's actually a tax on spending

      The poor tend to spend higher proportions of their incomes (which is why it makes sense to exempt food and other necessities), but a sales tax is a tax on spending nevertheless (tax levied is directly proportional to the amount of money spent). In any event, those with the least money are the ones most likely to make purchases in person and the least likely to make purchases over the Internet.

      Besides, you don't strike me as a believer in progressive taxation.
      John L. Ries
      Reply 12 Votes I'm Undecided
      • None of your reply changes the fact that a sales tax

        hits the poor harder than the rich.

        You're right. I am opposed to progressive taxation. I am also opposed to most government spending. If federal spending were limited to what was explicitly allowed in the U.S. Constitution, the federal government would currently be running a 1.5 trillion dollar a year surplus.
        Reply 13 Votes I'm Undecided