The Sun’s strawman Argument on the Internet Tax
Earlier Mark discussed the shuffle on Martin O’Malley’s Internet Sales Tax-Gas Tax scheme, in which the gas tax will go up in 2016 if and only if Congress authorizes the taxation of internet sales. As Mark notes, the impact of the internet tax on the taxpayer won’t be to reduce taxes, but just to play games with where the taxes are going to come from.
Maryland has a significant stake in this decision, partly because it was wrapped up in the General Assembly’s recently approved gas tax legislation. The state’s estimated $173 million annual take from taxing Internet sales is set aside for upgrading roads, public transit and other transportation projects. Should Washington fail to take action, the gas tax will take its place — with an expected 7-cent increase in 2016.
But while paying 7 cents less per gallon at the pump in a few years may sound attractive, that’s not the real reason Maryland residents should support the Senate proposal. What should get their dander up is how local taxpayers are essentially subsidizing companies that have no presence whatsoever in the state.
Under a 1992 Supreme Court ruling, states can’t force a retailer to collect a sales tax unless it has a physical presence in the state. So, weirdly enough, that gives Internet companies an incentive not to locate a store or warehouse in Maryland whenever possible.
In other words, the current sales tax system not only hurts those retailers who actually set up shop inside Maryland’s borders by making their goods 6 percent more expensive, but it actively discourages Internet companies from coming here. If that doesn’t sound like something out of the “Madness of King George,” we don’t know what does.
- The Transportation set-aside: The internet tax is, ostensibly, a replacement for the 7-cent gas tax hike. The 7-cent gas tax hike, ostensibly, is set-aside for transportation funding. Of course, the argument can only work if you trust the General Assembly to 1) keep the money as a set-aside for transportation projects and 2) to not continuously raid the Transportation Trust Fund as they have done to the tune of $868 million over the last four years.
- The Subsidization Argument: To quote the Sun, they say that “local taxpayers are essential subsidizing companies that have no presence whatsoever in the state.” That argument, of course, is beyond ridiculous. A consumer who buys a product over the internet is not “subsidizing” a company. They are exchanging cash for goods. The funny thing is that most of the people who order goods off of the internet are doing it not out of the sake of avoiding the tax, but more often than not in an effort to get a specific product from a place that has a wider selection. The average consumer does not take sales tax into account, nor do average consumers actively take this savings into account. If the Sun editorial board wants to take on what it actually means to sub, they are more than welcome to review our posts on Martin O’Malley’s offshore wind
- The Internet Business Argument: Again to quote the Sun, they say that the current system hurts retailers who set up shop within Maryland’s borders. Is the Sun editorial board so naive as to think that this federal ban on internet taxation somehow disproportionately dissuades businesses from moving to Maryland mores than it dissuades a business from moving to any other state? Under their logic, a business that is located in New York (with a 9% sales tax) should move to a state like Maryland (with a 6% sales tax) because they would only have a 6% markup on Maryland’s smaller customer base while realizing a 9% reduction in the cost of their goods to New York residents with a larger customer base. The Sun’s logic here is totally asinine. We all know that if there is any reason that internet companies are discouraged from moving to Maryland it’s the year after year after year where the Democrats work to increase the cost of doing business, increase taxes, increase wasteful spending, and decrease the ability of businesses to compete in the national and global marketplace.
Now, we will grant that this obligation carries some burden for those companies that sell online. There are tremendous variations in the sales tax — in what items are taxed and how much — that not only differ among states but often by county, city or town.
How bad is it? Let me tell you the number The Heritage Foundation came up with: