Saturday, August 11, 2012

Why Closing The Amazon Tax Loophole Would Make Taxes (Slightly) More Progressive

By Pat Garofalo on Aug 10, 2012

Last month, Tea Party Sen. Jim DeMint (R-SC) warned that a congressional effort close the “Amazon loophole” — which allows online retailers to undercut their competition by not collecting sales tax — would lead to government control of the internet. DeMint also penned an entire op-ed in the Wall Street Journal to rant against the effort, calling an online sales tax “taxation without representation.”

Many prominent Republicans, including Govs. Chris Christie (R-NJ) and Mitch Daniels (R-IN) support the measure, which would level the playing field for all retailers, rather than giving online retailers a competitive advantage for no reason. (Current law says that retailers only need to collect sales tax in states in which they have a physical presence.)

Furthermore, since wealthy Americans are more likely to have convenient and reliable internet access, the Amazon loophole makes sales taxes even more regressive:

Even apart from the Internet sales tax issue, poorer families pay a larger share of their income in sales taxes than better-off families do because they have to spend almost everything they earn. Tax-free Internet shopping compounds the problem: many low-income families would love to shop online to avoid sales tax but can’t because they don’t own a computer or can’t afford high-speed Internet access.

Closing the Amazon loophole, which Amazon now actually supports for its own reasons, would allow states to collect billions of dollars in sales taxes that currently go uncollected, while allowing traditional retailers to compete on equal terms. According to a survey conducted this year, many shoppers say that intentionally shop online in order to avoid sales taxes.