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The Internet Sales Tax: Taxation Without Representation

Written by Gary North on May 8, 2013

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.

(For the rest of my article, click the link.)

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39 thoughts on “The Internet Sales Tax: Taxation Without Representation

  1. Bring Enough Gun says:

    I agree Mr. North; this is a bureaucratic nightmare. But then again, it wouldn't be the first time state governments imposed unfair taxation on their citizens. In my state, photographers (of which I am one) are required to remit Sales Tax payments on our labor fees; not just retail products produced and sold. For decades, the state tax laws have specifically singled out photographers for sales tax payment on labor charges. I have worked with my legislators for years to get this changed, but to no avail. So like you, I am hoping that conservatives in the US House will send this legislation to the trash can where it belongs! Love your articles; please keep the truth and liberty coming!

  2. Its a sad joke . The politicians are so out of touch with the majority of hard working Americans

  3. If you think the labor for producing a photograph should not be taxed then do you think the labor to produce a lawnmower should not be taxed.? Perhaps I am missing something, what labor fee, for which you are required to collect tax, is not part of a retail product?

  4. There are many things wrong with this article. Starting with the "taxation without representation" part. If vendor A, in California , sells a taxable item to customer B, in Texas, the vendor will be required to collect sales tax from customer B and REMIT the tax to Texas. Customer B has representation in Texas.
    Another example is in calling this a "new tax". Sales tax (and its companion "use Tax") is not new. The proposed law just makes vendors, that in the past did not collect the tax, collect and remit it. Also falling apart on closer examination are the comments about it being a subsidy and the comments about borders. Mr. North should take a closer look at the sales and use tax laws of the various states. Mr. North may also need to review his knowledge of the relationship of the various states to the federal government and their relationship to foreign governments.
    I do agree that this will be a compliance nightmare.

  5. Gary, apparently you fail to realize that all goods bought on the internet are physically stored SOMEWHERE. It's like going to that store, in that state, and buying the product, and bringing it back with you. There is representation. Your logic is extremely flawed.

  6. Wolfman says:

    our corrupt politicians will try to Tax anything they can get away with

  7. ltrail says:

    The issue is not compliance to pay an internet tax, rather, it is that the internet must remain a free and non-taxed environment. Government is attempting to take our money in a manner similar to rape.

  8. Seems to me that the real "taxation without representation" occurs if customer B, from Texas, travels to California for some reason and buys a taxable item there. He pays the tax, but has no vote on it's size or how it's spent.

  9. Myptofvu says:

    This is not taxation without representation because the tax applied goes to the State where the buyer resides and the buyer does have representation in their own State. Its a burden on the out of state retailer but its a pass thru tax not a tax levied on them themselves. its still stupid I'm just saying that it doesn't count as taxation without representation.

  10. "Commercial shackles are generally unjust, oppressive, and impolitic."

    James Madison

  11. Admiral_America says:

    I love how they give these laws such sweet sounding names while nothing but vile tyranny exists underneath it. This government is a corrupt joke.

  12. Bring Enough Gun says:

    Under current state law, if I come to your house and you agree to pay me $25 dollars to mow your yard, I am not required to collect and remit sales tax on that labor charge. Now replicate that same effort to any other labor service that comes to mind; the plumber who unstops your clogged sewer line, for example. In the case of many photographers today, all we do is provide a service; we pose you and push the button. The resulting image gets uploaded to any number of "retail" processing outlets online, including your local Walmart or Walgreens drug store. Those businesses produce a printed image and transact the retail sale, including the collection and remission of applicable sales tax. Photographers like me are only a supplier. Imaging if all of Walmart's suppliers had to collect and remit sales tax for the items they deliver to the retail giant. And in the state tax code for my state, there is specific language that states "Photographers must collect and remit sales tax for their sitting fees (labor)". The legislators will not make it universal across all occupations, nor will they remove this tax burden from just photographers. Photographers in my state have fought to get this repealed for decades, and my local legislators agree that it is unjust and have (on multiple occasions) introduced legislation to remove this sales tax requirement from our labor. Unfortunately, they have not been able to get said legislation out of committee. I can only speculate that once upon a time, there were a group of legislators that had an axe to grind with a photographer, and this is how they chose to get even… 🙂

  13. "It's like going to that store, in that state, and buying the product, and bringing it back with you."

    Smile, so ordering something from the other side of the country and having it shipped to you is like actually flying/driving to that store, buying it, andthen flying/driving back.

    "My logic is extremely flawed."

    Yes it is Shane, and I fixed your typo for you.

  14. Besides being an expensive regulatory nightmare this tax would put internet vendors at a unfair disadvantage. When you buy a product locally you pay sales tax in most states. When you buy on the internet you pay shipping and handling which is generally about a wash with local sales taxes. Add sales tax to S&H it is advantage local. Besides, the main reason most of us shop on the internet is that it is simpler to find things than in local stores, not for an imaginary cost advantage.

  15. If this passes, it won’t solve any state’s deficit problems. Many states are saying they need the new tax dollars to pay down deficits.

    But they won’t use it for that.

    They’ll create even more of the “much needed programs”(more redistribution)to benefit the less fortunate, WHICH IS WHAT CREATED THE DEFICITS IN THE FIRST PLACE!

    If this comes to fruition I guarantee you that in a year or two you will see the following headlines: CALIFORNIA GAINED $____ THROUGH INTERNET TAX BUT DEFICITS HAVE RISEN. I chose to use CA as the representative state because…well…DUH! No offense to NY, IL, or MI but I think CA has you all beat for fiscal lunacy.

    There is plenty of room here for lots and lots of Unintended Consequences, which ALWAYS get ignored.

  16. It'll cost way more to comply with the law than the states will collect in taxes. But hey, who cares what compliance costs–it's OPM, as usual.

  17. Please name the Republican Senators who voted for this bill?

  18. pete0097 says:

    It would make more sense to treat the internet store like a sticks and stones store. Just collect the sales taxes in the state they are purchasing from instead of where the buyer is. That would be no different than when on vacation and you have to purchase something in another state. t would make the sellers job easier and more reasonably performed. Only greed by the states thinking that there is more money from out of state than in state. As a kid, mail ordering model trains, I thought that it was odd that I didn't have to pay tax. The real advantages will go to sellers in states like Delaware that have no sales taxes.

  19. Evelyn Blake says:

    There is something else in this bill they are trying to slip through.
    According to John McCain:
    "On May 7, 2013, I voted to support the Marketplace Fairness Act because this bill will ensure that sales tax is collected on all purchases, regardless of whether in a brick and mortar retailer or through internet transactions. As such, states and localities will have a mechanism to collect sales tax already owed by consumers making transactions over the internet. This bill does not create a new tax for consumers, it simply will enable states to require online retailers to use software to collect taxes at the time of transaction. This bill does protect small online businesses, as it exempts retailers with less than $1,000,000 in out of state sales from collecting tax on internet sales."

    I have always had to pay sales tax according to the state I live in, and if I buy and send it to another state I have to pay the sales tax of that state. But I bet if you buy something and send it to me you would still have to pay sales tax for your state, even though I live in a state with no sales tax.

  20. That would be my first question – if California had any Republican Senators.

  21. Don Rushing says:

    We do not need any more taxes to be imposed upon us for whatever reason they may give. We are being over taxed and over regulated and it will destroy our ability to recover from the Obama unbridled spending and not listening to the people of this country that is being raked over the burning coals.

  22. Not to put too fine a point on it, in the situation you described the tax you pay is to pay for the government services you may use while in California. Services such as police, fire and emergency medical services. The tax also helps pay for the infrastructure (highways) you use while in California. While you do not have a vote in California, you do get some benefit from the taxes.

  23. kibitzer3 says:

    I'm still trying to get my head around this; something doesn't compute about it. If I live in a state with a state sales tax and make a purchase of an item from a store in my state, I pay the state sales tax on it. If I live in a state with a state sales tax but make a purchase of an item from a store in a state without a state sales tax, I don't, nor should I have to, pay my state's sales tax on it, regardless of whether I went to that state physically or electronically. My purchase was FROM that non-sales-tax state.

    This seems to me like an attempt to do away with state lines and sovereignties, and make the whole nation just one big centralized pot of tax monies. I say it's spinach, and I say to hell with it.

  24. OldPolitico says:

    Good comment, but it gets worse. I worked for the Pa. Dept. of Revenue one spring tax season and questions about sales tax were a constant aggravation. Clothing is exempt in Pa., but not if you buy it to bury someone in. Used items on which sales tax was ccllected on the original retail sale are generally exempt, but there are exceptions, most noticed here being used cars and trucks where sales tax is paid along with title fees.
    Tax dodging didn't start with the internet. For a generation, busloads of mostly women shoppers came to the outlets in Reading from DC, NYC, etc. for bargains and no sales tax on clothing.
    Then there is the question whether the billing address or the shipping address is to be the locus of the tax, what to do about local and regional piggy-back sales taxes and the few occurrences where the postal address does not accurately represent the buyer's state.

  25. I like the idea of just paying the sales tax as if you were in store in whatever state the item is shipped from.

    My problem is that as a small business owner I lose sales every day because of the internet; then that customer has a problem with the item they purchased and comes to me wanting a warranty resolution because they can't contact the internet store they purchased from. I sell and install all the products I sell, I have to collect sales tax on those items and file reports every month.
    I don't get paid to collect those taxes or for completing and filing the taxes. I feel it is only fair that the internet seller should have to do the same. If something doesn't change/improve on this there will soon be no more local stores and more people unemployed. Then where will you go with your purchase and installation problems? Good luck with that!

  26. WhiteFalcon2 says:

    Those who have read the Constitution know that interstate sales taxes are unconstitutional, but our idiotic legislators can't understand that. It never ceases to amaze me how stupid those idiots are. We really need term limits for the Congress. I mean there should be a set number of years that one can serve in the Congress meaning they can't serve their limit in the House and then turn around and serve another limit in the Senate. They should also have to pass an IQ test as well since many of them don't seem to have an IQ.

  27. Erik Osbun says:

    That's correct, it is taxation without representation, the same thing that started the Revolutionary War.

  28. Seymour Kleerly says:

    I guess the Zillionaire Romney would have understood better!

  29. I'm not understanding your reply at all. How do I have representation in another state by virtue of buying something from a merchant in that state? How does physically storing goods somewhere impart political representation? I'm not seeing it.

    If I can't vote in that state, then I don't have representation, period.

  30. This IS a "new tax" being that it's "federaly" being imposed. It's wrong on so many levels.

  31. Yes….many times in searching for something I find it easier on the internet rather than doing a wild goose chase driving around the county searching and wasting gas trying to find the item.

  32. I live in Calfornia………..and I think you're right. This money would go to illegals first and foremost.

  33. Bob Marshall says:

    You have to love the way this site use censorship.

  34. The liberals will stop at nothing to grab more taxes from the working class. We also have several RINOs that voted for the internet tax on the grounds that it was the fair thing to do. Writing to my two reps. from CA Feinstein and Boxer was an excersize in futility, but I had not oher choice as far as senators go. Yuk!

  35. Well, maybe you should be forced to check the address of every customer and bear the costs of remitting to every taxing jurisdiction in the country and be lible to audit by every one of them.
    Think it through – how long before they do part two of this tax and make you abide by this twisted law? Tax promoters never rest, they will be after you before long. I'ts the old "devide and conquer" routine. Take care.

  36. mrscuba says:

    If one believes that the purpose of this is to "level the playing field" between online and brick-and-mortar stores, this will not do it. It swings the pendulum way over to the advantage of the brick-and-mortar store. I live about 20 minutes from the border with a neighboring state and can cross one of our international borders within a couple of hours. There are reasons why I may choose to cross one of those borders to purchase a product – perhaps I just happen to see it while I am there already or maybe the price is much better or it could be a matter of availability – but, regardless of the reason why I choose to purchase something across one of these borders, when I do buy something there that business is not required to sort out where I live to in order to calculate what my sales tax would have been at home. They charge the sales tax of where they are located. When crossing back across the international border, there is customs and it is my responsibility to deal with that. The analogous situation for the states would be that they would need to sort out some type of customs to deal with purchases made in other states. It would be between the state and its citizen. The logistics of that would be prohibitive and are, as this article pointed out, the reason they have not gone down that road. Although I disagree with the idea that every purchase must be charged a sales tax, the only fair way to do it would be to charge sales tax based upon the location of the business being required to collect the tax. Yes, that will give businesses in a low sales tax jurisdiction an advantage of those in a high tax area, but that is not different from the advantage stores located in northern Oregon have over those in southern Washington. Over time, businesses would relocate to low sales tax regions for this price advantage and this would put competitive pressure on other regions to keep their sales tax in check so that customers and businesses do not take their business elsewhere leaving the high tax areas completely out of the loop.

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