A taxing issue: Why California is being stupid

As some of you may have heard, California just enacted an Internet sales tax. Some states have already done so, and in difficult budgetary times, who can blame them – right? I mean, if you walk into a store and buy something, chances are you have to pay some sort of tax on it. And when it comes to budgetary difficulties, none of the other states can really hold a candle to California – I mean, they’re not just broke, they’re like super-broke. As it happens, if California were a country, its economy would be on the scale of Spain or Italy. So they’re like a broke 800-lb gorilla, and they’re turning to companies like Amazon and saying “Hey bub, pay up!” (okay, so now it’s a broke talking 800-lb gorilla — sue me and my overtaxed metaphors…and puns)

For me, the problems with what California (and other states) is doing were hammered home on my drive into work this morning and listening to this story on NPR’s Morning Edition. Take, for example, this quote from the piece:

California needs money and state officials say the new sales tax could bring in two to three hundred million dollars a year. Amazon wouldn’t be paying more in taxes, just collecting the sales tax on customer purchases and passing it on to the state just like brick-and-mortar retailers do now.

You’ll hear that refrain from the bricks-and-mortar retail folks all the time. In fact, Bill Dombrowski, the head of the California Retailers Association had this to add:

In California, that meant [Internet retailers] had a 10-percent, roughly,  price advantage every day of the year, and shoppers were turning our stores into showrooms and then going out and shopping on the Internet.

This is presented as an issue of fairness and how they’re not really picking on Amazon because Amazon wouldn’t be paying the taxes, just their customers.


This is simply those with a failed business model teaming up with desperate policy makers to with one hand stifle online retails sales while with the other hand filling state coffers with money that is not the state’s due. Hold on some will say — why doesn’t California or any other state deserve their slice of that sweet, sweet revenue? The answer is obvious – the states DO NOT support the infrastructure that allows those transactions to take place.

At their best, taxes are simply a method for any government to recover costs associated with supplying the benefits of government and infrastructure in a way that hopefully distributes the costs fairly.  You want roads? Fine, but they need to be paid for, and that means taxes. You want a water processing plant so your water is clean? Fine, but there will be taxes to pay for it. And so on. Are all taxes reasonable or fairly applied – hell, no. But that is the idea behind them, and there is a recourse if you’re, say, a California businessman who doesn’t like having to collect a state tax. You can work to vote out the people who put the tax in place and find someone else who agrees with you or even run yourself. What recourse do I have in Virginia, or someone in Washington, or Illinois for taxes collected in California? None. You know, I believe that’s called taxation without representation. Generally not regarded as a good idea since about 1776.

So let’s take your bricks-and-mortar retailer. The local, state, and federal governments provide law and order, police and fire departments, regulation of utilities, schools, roads, etc. All of which the retailer benefits from when there are people around who can easily and safely shop at their store and have the money to do so. And that’s why he pays his taxes. Not because the government is due some tithe like a church – no, governments collect taxes to pay for all the stuff we ask them to do.

Now, look at an online retailer. Do they need roads? They might if they’re producing goods that need to be shipped, but if they’re selling ebooks, well then, not so much. What about all those other government services? Again, they’re either not applicable or the retailer pays for them through local, state, of federal taxes wherever they actually have offices. The only absolute-must-have thing for most online retailers is the Internet, and the states pay absolutely nothing for the maintenance and operation of that.

So what does Amazon “owe” the fine state of California or any other individual state? Not a whole hell of a lot.

As for the bricks-and-mortar retailer who feel this is so unfair? I guess they should have listened to that kid that told them 15 years ago that selling stuff online would some day be huge. I mean I do feel for them – they provide jobs, locally accessible tax revenue, etc. And some people like buying stuff in person from someone they know. Great! Brick-and-mortar shops that have great service and products will continue making money because the people who like to shop in person are willing to pay a little extra for that. But if your business model is so focused on price that the difference between having to charge tax and not is putting you in the red, chances are it’s your business model that has failed, not the government in collecting taxes.

Going back to the point above about states paying nothing for the maintenance and operation of the Internet — so who does pay? Well, the federal government created it and do provide national regulation of a sort across it, so perhaps they’re due something. But the infrastructure that provides us the Internet is already been bought and paid for — by us. First, obviously through federal taxes to fund things like DARPA and the creation of the Internet. But that’s really just a pittance and has almost no bearing on the Internet today. No, the existence and continued maintenance of the Internet is provided by telecommunications companies that own the lines, the networking equipment and the servers and they in turn charge people and business for services. No government “runs” the Internet – so unlike those non-Internet superhighways, state governments really can’t make a case they’re doing anything else but reaching into people’s wallets and grabbing a few bills because they feel like it they really need it.

Now, as a commie-pinko liberal, I like taxes as much as anybody else — okay, not really, but as I stated above, when done right, they are justified. A minimal Federal tax on Internet purchases is within the realm of reason I believe. Something small like 1- or 2-percent tax. It could go to pay for Federal oversight of the Internet infrastructure within the U.S. and the companies that own it, as well as initiatives to pay for research into faster bandwidth and carrying broadband to rural and poor areas. I believe a case can be made that without federal oversight, online retailers would find the Internet a much more hostile place to do business, so the tax would be justified I believe. And if there is any leftover money, add it into federal transportation expenditures so that all those highways that trucks drive on to deliver us our online-purchased goods are kept well-maintained.

That’s a reasonable discussion to have. How much, what exemptions might be needed, etc. There are details that will need to be worked out, but it should be worked out at the national level, since that really is the only place all of us have the representation to have our voice heard. And as it is largely an issue of interstate commerce, the Fed’s role is well precedented.

However, for anyone to claim that companies like Amazon are engaging in “blackmail” when they, as Amazon did, cutoff relationships with affiliates or close offices as a result of state-based sales taxes being enacted is idiotic. It’s like a mugger getting miffed that you don’t come around anymore after having mugged you repeatedly in the same neighborhood. Even worse, a patchwork quilt of state-by-state online sales taxes would have to be just about the most inefficient collection of revenue ever conceived. Also, since some states will see the advantage of NOT taxing online sales, what will happen will be online companies only having headquarters and doing business in those states.

And I’m sorry California, but your Internet sales tax is ill-conceived, counter-productive, and in my opinion probably not legal. I know you all have already cut to the budget bone in some cases, but if you hadn’t tied up so much of your budget into nondiscretionary spending through voter referendums and not also voted in the tax hikes to pay for them, you wouldn’t be in this mess to begin with. Maybe institute some taxes on bad movies, raise taxes on untalented celebrities, or look for other creative revenue streams? Hell, just tax your ex-Gov. Arnold every time he says or does something stupid — that should help.


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