Class Warfare Blog

May 10, 2013

The “Fairness” of Sales Tax Free Online Purchases

An editorial in my local paper had the following (and more) to say about this issue:

“A bill that would enable states to collect sales taxes due for online purchases sailed through the U.S. Senate on Monday in a 69-27 vote. But it faces a fight in the House, where anti-tax advocates have vowed to defeat the Marketplace Fairness Act. States that charge no sales tax such as Montana and New Hampshire oppose it too. So do some, but not all, online merchants, including eBay and

We urge the House to approve the measure, and we think it will. We have a hard time imagining the alternative: picture members of Congress back in their districts trying to explain why their hometown brick-and-mortar retailers will have to continue operating at a competitive disadvantage. Sorry, Ms. Local Merchant, you have to collect sales tax. Your online rival doesn’t.” (their italics)

Okay, let’s take a step back. A $10 item bought locally involves some transportation costs (gotta go to the store) and sales tax (maybe 6%, so 60 cents). A $10 item bought online costs $10 plus $3.95 shipping and handling. So, buying locally is cheaper, if not more convenient.

Sales taxes go where, exactly? to pay for what exactly?

The problem is that the answers are all over the map. Here’s a 2007 example for Orange County, CA which had an 8.75% sales tax rate then:

For every dollar you spend:
The stage grabs the lion’s share of it – six cents on every dollar.
Then the Sheriff and District Attorney get a half-cent.
Cities/counties get three-quarters of a cent.
Road maintenance funds get one-quarter of a cent.
Health and welfare programs get a half-cent.
State optional funds get one-quarter of a cent.
The Orange County Transportation Authority gets a half-cent.

Oh, so the money goes for, who knows, but the intension was to provide for the infrastructure supporting the businesses making money in the community. Would those businesses rather have to pay fees for police protection and fire protection like they do for water and electricity? No? That’s why they pay property taxes and their customers pay sales taxes.

As far as legislators are concerned, they only want the money and they rarely care about how they get it.

So, the online purveyors (and I am thinking more eBay than, but . . . ) are paying their local utility bills and their local property taxes just like the “real” stores. They just aren’t asking their customers to pay sales taxes.

So, it comes down to do online sellers have a price advantage? Is this a fairness issue?

I don’t think it is a fairness issue. Those who want the tax revenue want the revenue and they don’t really care how they get it. The “fairness” aspect is just a way to sell their argument.

Sales taxes are regressive. Poor people pay a larger percentage of their income to these taxes than do rich people. No one benefits more from increased sales taxes than do rich people because it takes the pressure off of raising revenue progressively, that is in ways in which the rich pay more than poor people, not less.

I would do away with sales taxes if I could. What is it about a purchase that makes it a taxable event? If you argue that it is a taxable event, then you are arguing for the Robin Hood tax, a tax that would apply to the sale of each share of stock on our stock markets. But the same people arguing for this online sales tax are arguing against sales taxes on stock sales because “it would hurt the economy.”

What they are saying is that they would rather hurt poor people than hurt an abstract concept.




  1. A lot of stuff is cheaper online even with the sales tax and shipping and handling. I agree that the sales tax is regressive, but I think if we have it, it should be a national one. And let’s put one on investment sales (stocks, bonds, etc.), too – that would take care of the regressiveness.


    Comment by List of X — May 10, 2013 @ 10:10 am | Reply

  2. Can you visit my blog and consider reblogging my most recent article on Minnesota and use tax? It has to do with the Internet Sales Tax and I need to get the message out. I am trying to find websites that want to write articels against the tax and reblog each others articles on the subject.


    Comment by Thomas Carlson — June 20, 2013 @ 10:54 am | Reply

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