The Wall Street Journal had an editorial over the weekend headlined "The Internet Tax Mirage" that took on the question of how, and whether, states should apply sales and use tax to items purchased over the Internet. The Journal writes, "The courts should insure that a firm has a genuine physical presence in the state—not merely an online presence—to impose its taxing power. States retain the right to collect a 'use tax' from their residents who make purchases from out-of-state companies or over the Internet."
One issue with that summary is that when states have sought purchase information from Amazon to assist them in collecting the use tax, Amazon has gone to court to fight the release of the information. When Dennis Kozlowski evaded the New York use tax on $13.1 million million worth of paintings, including a Renoir and a Monet, for his Fifth Avenue apartment, he was indicted. Yet Amazon has built a business in part on enabling customers to avoid the use tax.
The Journal editorial makes two other arguments that strike me as somewhat weak. First is this: "Internet firms don't use government services in the way that retailers do. If Amazon's headquarters in Seattle catches fire, no Illinois fire fighter is going to put it out." True about Amazon's headquarters. But it's the Illinois fire fighter who is going to extinguish the blaze if the UPS truck with Amazon's merchandise in it on the way to an Illinois customer catches fire, or if there's a fire caused by a faulty battery in the laptop computer that Amazon's Illinois-based customer is using to order merchandise. And these days the distinction between "Internet firms" and "retailers" isn't as clear-cut as the Journal would have it. Walmart, for example, has stores in Illinois, but also a Web site. Yet because of the presence of the stores, Walmart's Web-based sales in Illinois are subject to sales tax, notwithstanding the supposedly lighter burden those Web-based sales impose on government services.
Second is the claim, "It also seems an undue burden to require Internet firms to comply with 8,000 separate sales tax jurisdictions around the country." This is a problem that can be solved by software, and I'd bet that Amazon, which has tens of millions of items in inventory, could somehow manage to figure it out.
Regular readers know that as a general matter I prefer that taxes be lower. The "Amazon tax" looks like a tax increase because though in many cases users owe it, they are not paying it because the company isn't collecting it. But right up there with the principle that taxes should be lower is the principle that the law should treat everyone the same way, and the example above of a purchase from the Walmart web site being subject to sales tax while the purchase of the same item from Amazon goes tax-free seems to violate that principle. One could solve it by removing the obligation on Walmart to collect the tax rather than by imposing the obligation on Amazon to collect the tax. But it's worth figuring out some way to solve it, not to feed what the Journal describes as a lust by left-wing politicians for increased sales tax revenue, but because because of the basic principle at stake of equality under the law.
Disclosures: This site has an affiliate relationship with Amazon under which if customers purchase goods at Amazon after arriving there via a link from this site, this site gets a share of the revenue. I write books, so I also interact with Amazon in that way, and as a generally happy customer. I live in New York City, so Amazon has been collecting sales tax on my purchases for some time, so far as I can tell. I own stock in at least two retail companies that have both Web sites and lots of stores. Those firms are disadvantaged by competition from internet-only sellers that don't collect sales tax.