The Internet Sales Tax: Taxation Without Representation
Supporters of this tax argue that this tax is not a new tax. Not only is it a new tax, it is a grotesque tax: a violation of the principle, "no taxation without representation."
Republicans in the Senate voted for this tax, all in the name of a fantasy: "It really is not a new tax." On the contrary, it really is a new tax. I hope Republicans in the House of Representatives will see this, and will vote against H.R. 684, the so-called Marketplace Fairness Act. This proposed tax is unfair in a way that few other taxes are.
Let us consider a real-world situation. I have GaryNorth.com subscribers who live outside the United States. For all I know, they live in jurisdictions in which there are sales taxes. I deliver information to them in digital form. They presumably do not pay a sales tax on whatever they have paid to me to become subscribers. I see no way for a foreign government to impose a sales tax on a digital transaction that takes place between someone inside the government's jurisdiction and someone outside its jurisdiction.
GOONS FROM ABROAD
Let us assume that I am contacted by that foreign government. I am told by email that it is my responsibility to collect the sales tax from the resident of that nation. Therefore, I am informed, the government is requiring me to find out what the rate of taxation is in that nation, and to immediately remit that tax to the government. What should I tell the government?
I will not respond to the government. I will act as though I never heard from the government. How is that government going to prove that I ever got the message, that the message did not go into my junk file? Why create problems? I do not think the government can do anything to enforce the claim.
But what if it is a really serious government? What if the government is so serious that it wants to make me the poster child for businesses dealing with residents of that nation? What if that nation sends over a squad of goons, and the goons threaten to arrest me? What if the goons have the power to do this? Should I pay the tax? I think I would pay the tax. I do not want to be kidnapped by goons, hauled to a foreign country, tried for tax evasion, possibly sent to jail, and leave my subscribers and family without access to me or my information.
You may say that this is impossible. It is not impossible. It is simply expensive. The government could do this. There were times in the past when the Soviet Union did do this kind of thing, although not on issues of sales taxes. A government that wanted to enforce a sales tax on me could do so at some price. What protects me is the fact that the price is too high. Also, the United States government does not look favorably on foreign governments that send agents into the United States to kidnap tax evaders. It is a matter of turf. It is a matter of jurisdiction. It is a matter of the defense of the jurisdiction of the federal government against interlopers, not any big commitment to my freedom as an individual. The feds want to get tax money out of me. They does not want to share this revenue with foreign governments.
I receive no benefit from that foreign government. I have neither a judicial covenant nor an economic contract with that foreign government. If that foreign government wants to tax the individual who bought a subscription from me, that is between the buyer and that foreign government. It has nothing to do with me. I am not under its jurisdiction, and therefore I should not be used as an unpaid tax collector for that foreign government.
We are talking here about invisible lines called borders. They are judicially relevant lines. They establish the limits of the jurisdictions of civil governments. Civil governments defend their jurisdictions, which means they defend their citizens. If their citizens remain inside the borders of a particular government, the government feels required to defend its citizens from invasion by other governments, because such an invasion is ultimately an invasion of a particular government. It is a matter of turf. It is a matter of competing jurisdictions.
If this is logical so far, then I want to extend the same line of argumentation to invisible borders between states, meaning jurisdictions within the United States. If the logic that I presented so far applies accurately to borders between nations, then the same logic applies to borders between states.
STATE BOUNDARIES
If I commit a crime while I reside in my state, and the victim resides in another state, then the other state has the right to call for my extradition to be tried where the crime took place. Maybe I am a digital bank robber. I have robbed a bank in another state, but I never entered the jurisdiction of that state. Then it is a matter between states. It is a jurisdictional dispute.
If a foreign state wants to impose a penalty on me, because I have committed a crime, it can go through the procedure of extradition. That is an expensive procedure. The cost of that procedure protects me. But it also protects you.
What we are seeing in this Internet sales tax debate is the attempt by states to use the federal government to substitute some other kind of procedure for extradition. The federal government is expected to lower the cost of extradition, meaning lower the cost of imposing a penalty on me.
If this bill becomes law, I will not get my day in court. I will have been told that I have committed a crime by not collecting a sales tax on an unpaid basis that has been imposed on a client of mine in another state. I have received no benefits as a resident of that state, but I am expected to serve as an unpaid tax collector for an obligation that I do not owe to the state, but which is owed by the resident of that state.
This is a matter of rival jurisdictions. The higher the cost of extraditing somebody for a crime, the fewer the number of extraditions there will be. It would not be possible for states to demand the extradition of all criminals, if criminals are defined as people who do not collect taxes on unpaid basis for governments in other jurisdictions. The Internet sales tax bill is an attempt to reduce the cost of proving criminal behavior on the part of sellers who live outside the jurisdictions of 45 states.
Tax evasion is a crime. The refusal to collect sales taxes inside a state's jurisdiction is a crime. The refusal to pay this tax is a business crime. Governments attempt to lower the cost of proving a buyer's crime by assigning to in-state resident business owners the responsibility of collecting the taxes.
That is a cost of doing business inside a particular state. Business owners get walk-in business. Their locations help them sell goods. Why should someone who does not have a store in a community, and who does not get walk-in traffic, have to pay a sales tax on behalf of the resident of a foreign state? This is not "a level playing field." This is discrimination. This is not fairness. This is unfairness. This is placing a business outside a state on what is supposedly an equal basis with the business located inside that state, but without any of the benefits of being in that state. The state government gives no benefits whatsoever to a business located outside the state, but that business is supposed to act as an unpaid tax collector on behalf of a foreign government.
If we use the term "foreign government," we can better understand the nature of this tax. All discussion of fairness should be equally applicable to every civil government's jurisdiction on the face of the earth, meaning every jurisdiction on the face of the earth whose residents are now or might possibly be involved in Internet commerce. Why should a resident of a particular state in the United States be required by every tax jurisdiction on the face of the earth to monitor and collect tax information from each of those jurisdictions, and automatically remit the money to those tax jurisdictions? To ask the question is to answer it: there should be no such obligation.
Then why should there be any such obligation inside the United States? Why should a taxation principle which is obviously preposterous when applied to tax jurisdictions around the world be regarded as tax fairness when applied inside the jurisdictional limits of the United States government? We are talking about invisible lines that separate tax jurisdictions. If the sales tax principle is legitimately applicable between states inside the United States, then the principle ought to be equally applicable between states inside the United States and states outside the United States.
If the principle is preposterous when we cross national borders,then it should be equally preposterous when we cross state jurisdictions inside the United States. When I say "cross borders," I mean "do not cross borders." I mean a seller in one state sells a product to someone in another state, yet he is required to serve as an unpaid tax collector for a tax-collecting jurisdiction with which he has no contract. The sales contract is between the seller and the buyer. There is no sales contract between the seller and the taxing agency that has jurisdiction over the buyer.
The Internet sales tax bill is an attempt to establish a contractual basis where no such contract presently exists. It is therefore a tax increase. This bill is not about tax fairness; it is about increasing taxes for the benefits of 45 state jurisdictions. It is a subsidy from the federal government to state governments that have sales taxes.
My suggestion is to resist any such subsidy by the federal government. It is just one more tax.
For details on how to protest, go here: http://teapartyeconomist.com/?p=13815.