| Sell Globally, Tax Locally |
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| Key Points |
| Posted: Wednesday, October 8, 2003 |
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| PRESS RELEASES |
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AEI Online
(Washington)
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| Publication Date: October 8, 2003 |
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- Under the umbrella of the Streamlined Sales Tax Project (the SSTP), a majority of states are currently imploring Congress to extend their tax collection authority to Internet and catalog sellers in remote states. Congress should categorically reject that proposal.
- Harmonization, on which the SSTP depends, will not work. State and local governments will never be able to agree on a lasting harmonization of the tax base.
- Even if harmonization were possible, successful “streamlining” would amount to the creation of an interstate tax cartel--a system of mutual cooperation among states that is geared toward enforcing tax obligations. The tax cartel, however, would undercut the potential for tax competition among states that would create incentives to lower taxes. As a general principle, tax competition is vastly preferable to cartelization.
- The central difficulty of the current tax regime is that cross-border sales are taxed on the basis of destination--by the customer’s home state rather than the seller’s. Instead of extending that already unworkable system, we should reverse course, and tax interstate sales--all sales--on the basis of their origin.
- Any destination-based sales tax system will invariably conflict with elementary principles of sensible taxation--simplicity, fairness, neutrality, and ease of administration. An origin-based system, in contrast, can do a better job of satisfying those demands. Each cross-border sale, through whatever channel, would be taxed equally, once, and by a single authority.
- While Congress should give serious consideration to the origin-based proposal, it may not be able to do so in the short time before the Internet Tax Freedom Act (ITFA) comes up for reauthorization. In that case, Congress should do two things: reject the SSTP proposal, and extend the ITFA for another two years. The moratorium would provide Congress the time to consider the origin-based option and might give selected states the opportunity to experiment with an origin-based regime. The sterile debate over Internet taxation would benefit from a practical experiment with alternatives to the present, manifestly unworkable sales tax system.
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| Available in Adobe Acrobat PDF format. |
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| Media Inquiries: |
Veronique Rodman
American Enterprise Institute
1150 Seventeenth Street, N.W.
Washington, DC 20036
Phone: 202-862-4870
E-mail: VRodman@aei.org
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Economic Outlook
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In the July issue of Economic Outlook, John H. Makin notes that though a weak economy is pulling it toward easier monetary policy, the Fed needs to resist higher inflation.
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