The GOP’s Internet Tax

Republicans have spent the last year cutting taxes and regulations, which hasn’t been easy. But now some Members of Congress want to blunt their handiwork by passing an online sales tax. Yes, they actually believe this would be good policy and politics.

A large faction of House Republicans are pressing GOP leaders to attach legislation to the omnibus spending bill that would let states collect sales tax from remote online retailers. South Dakota Rep. Kristi Noem’s legislation, which has 50 co-sponsors, would let some 12,000 jurisdictions conscript out-of-state retailers into collecting sales and use taxes from their customers. A bipartisan companion bill in the Senate has 27 co-sponsors.

The Supreme Court’s 1992 Quill decision forbids state and local governments from requiring businesses without a “physical nexus”—that is, property or employees—to collect sales tax. States complain that this restriction puts brick-and-mortar stores at a competitive disadvantage and reduces government revenues. All political protectionism is local.

But online purchases make up less than 10% of all retail sales, and only a sliver is untaxed. Seventeen of the 18 largest retailers on the web by 2016 had already begun collecting sales taxes on all of their customers’ purchases. The exception was home-goods retailer Wayfair.

Big retailers like Amazon and Walmart have the resources to comply with disparate tax rules across thousands of jurisdictions. Small businesses don’t. In New York City, all clothing—save jewelry, costumes and some athletic equipment—that costs less than $110 is exempt from sales tax. Chicago taxes bottled water, soda, candy and groceries all at different rates.