Investor’s Business Daily rightly criticizes a proposal in Congress to enable states to tax sales that occur outside their borders. The IBD piece focuses on greedy politicians trying to increase the burden of government, but this issue also deals with fundamental – and important – issues of extraterritorial taxation, as explained in this short article:
The Internet Tax Raid
June 8, 2009 by Dan Mitchell
Policymakers have been desperately trying to tax retail Web sales since the 1990s. So far, their efforts have gone largely unrewarded. Taxes on Internet commerce are generally levied only when the seller has a physical presence in the buyer’s state. This wealth-creating tax-free zone has allowed Web sales to surge. From humble beginnings — about $28 billion in 2000 — they reached $130.1 billion last year, up 6% from 2007. Elected officials and the bureaucrats who run their programs have watched electronic commerce whiz by much like a tethered wolf would watch raw meat repeatedly dragged by just outside its grasp: All they can think about is getting their claws on it. So it’s no surprise they’re at it again. Sen. Mike Enzi, a Wyoming Republican, has joined Rep. William Delahunt, a Massachusetts Democrat, to write the Sales Tax Fairness and Simplification Act, which would give states the law they need to tax sales between consumers and out-of-state sellers. …The retail Web market won’t crash if its sales are taxed. But it will soften the competition, which always benefits consumers, between Web retailers and traditional retailers. Under those conditions, jobs will be lost, growth will suffer and entrepreneurship, which fuels the economy, will be restrained. …A country already liable for wild spending at the state and federal levels doesn’t need another tax. An economy struggling to recover doesn’t need one of its growing sectors to be choked. Congress, as always, needs to think a lot more clearly.