9,646 Tax Burdens on the Internet

[Commentary] Last week 74 US senators voted to allow a bill to proceed that would force online retailers to collect sales taxes for the states and localities where their customers live. John Donahoe, CEO of eBay, sent a blast email to Americans who use the online buying service urging them to tell "Congress 'No!' to new sales taxes and burdens for small businesses." The bill would put at risk the Internet's status as the vibrant home of low regulation and low taxation.

It's true that many online stores benefit from not charging sales tax, but they also don't use the services of states where they have little or no presence. Online stores would have to do something physical stores have never done for most sales: assess taxes based on where their customer lives. Physical stores apply their own local tax to most purchases. It's not just rates that vary but rules that determine what's taxable and what isn't. We take the largely free and untaxed Internet for granted, but often forget it was the rare act of politicians voting to keep their hands off that made today's Internet possible.

The Internet Tax Freedom Act of 1998 stopped the federal government, states and cities from taxing Internet services directly. Congress has always had the power to force collection of sales tax online but until now was reluctant to get in the way of the smooth operations of the Internet. As more online retailers add local services, they'll become subject to local sales taxes. In the meantime, the country is better off letting online retailers focus on building their products and services, not on forcing them to become tax experts on thousands of tax rules among states, counties and cities.