Amazon and sales tax

Given that the integrated DVD player in one of my TV’s is broken (a disc seems to be permanantly stuck in there no matter what), I’m looking to by a new DVD player.  I’ll probably order one from Amazon.  Why, the prices are generally great– and when you figure in the lack of sales tax– really cannot be beat (I also do prefer the convenience and information of shopping on-line).  Truth is, of course, that this really is an unfair advantage for Amazon and similar retailers (for example, I almost never order from B&, which has to charge me sales tax because it has stores in NC).  As more and more business moves on-line, states are missing out on a significant chunk of revenue that they really need now more than ever.  Farhad Manjoo had a really interesting article about this in Slate.

The desire to have as few customers as possible pay sales tax has clearly driven Amazon’s business decisions and states are having a tough time fighting back.  Here in NC, the request you voluntary report your on-line purchases and pay tax in your state income tax return.  My highly ethical wife actually does this (though, I doubt they’re geting the full amount).

Ezra spins out the public policy implications as nobody like Ezra does:

When you have a tax, you want the base as broad as possible so that the rates can be as low as possible. The exception is when you’re using the tax to discourage something, rather than just raise revenue. But the point of the sales tax isn’t to kill off brick-and-mortar retailers and drive commerce online. It’s to fund state governments. And right now, state governments are losing more than$7 billion a year because online purchases don’t get taxed, and that number is going to keep growing as more and more purchases get done online, in part because they’re exempt from sales taxes.

And as they say on the infomercials, that’s not all! This is making an already regressive tax even more regressive. Sales taxes hit low-income residents hardest because they spend a higher percentage of their income. And online purchasing is more common among the affluent than among the cash-strapped. So you’ve got fewer affluent people paying sales taxes, which means more states with big holes in their budgets. And what do states do when they’ve got a big hole in their budget? raise the sales tax, of course. And who’s left paying that increased sales tax? Lower-income consumers, mainly.

I certainly like and benefit from this policy (as one of those affluent on-line shoppers).  While it may have made sense while internet commerce was in its infancy, now this is clearly just a bad policy (I’m still buying the DVD player at Amazon for now, though).

About Steve Greene
Professor of Political Science at NC State

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