The Interocitor

A nation of scofflaws?

The Daily News headline article this morning declaims the shockingly low percentage of Californians who admit to owing sales tax on out-of-state purchases. Only 1 in 1000 state income tax returns show any amount on the new line for reporting out-of-state purchases. Imagine that!. My betting is that only tax accountants and others who fear professional repercussions are the least bit concerned about the state's new demand.

The rest of us probably feel like I do -- that the state has no part in these transactions and is not entitled to a cut. If anyone has a claim to taxes earned, it's the seller's state, not the buyer's. On top of that, the impostion of sales tax, coupled with shipping costs, would doom even the strongest online or mail-order retailer. Not paying these increasingly high taxes is one of the prime motivations for many people who shop online. Of course, local retailers may well want such an outcome, for the same reason they fight to have big-box and other national chain competitors barred from their local markets.

[Not that I fail to pay all these taxes, of course.]

According the the Daily News article, the state asserts that $1.2 billion is owed each year on out-of-state sales, yet they collected only $766,000 on the new Form 540 declaration line. Seems like the people have spoken once again, but Sacramento can't hear. Rather than trying to enfoce the utterly unpopular, the Legislature should repeal the tax on interstate sales. As should every other state.

Having said that, I offer two alternatives:

1. Each state should tax, as it will, those who sell to out-of-state customers. As with retail sales taxes, a levy on the seller is difficult to evade. It would have the additional benefit of causing the state to foster online businesses. The "downside", of course, is that buyers would gravitate towards sellers in states without a sales tax, and the sellers would follow.

2. Federally abolish all state taxes on interstate sales (buyer or seller), and impose a moderate federal sales tax (say 3%), with most of the money returned to the states on a per capita basis. This has the advantages of making the taxes simple to retailers (quick, what's the sales tax rate in Macon County, GA?), allows the consumer to abide by the law without having to hire an accountant, creates a flat playing field for online retailers, (hopefully) limits the tax to a reasonable amount, and actually provides considerable revenue where today there is almost none. Downside: People would pay some tax where they now pay none. It may be considered an unapportioned direct federal tax, and be unconstitutional (see Constitution Art I Sec 2.2; Art I Sec 9.4 (9.5?) and Amendment 16).

But of course, the politicians won't do any such simple thing. Instead they will use audits to scare people, lawsuits to scare retailers, and pass lots of new laws to poke through financial records to collect their 8+%.

UPDATE: The Daily News printed my letter