TaxWatch Report Gets it Right on Internet Transactions

A new brief from the Florida TaxWatch group takes a breather from the seemingly endless property tax debate to remind us that there are other kinds of tax loopholes to be closed. The TaxWatch brief on the streamlined sales tax project cites data from the University of Tennessee estimating that in 2003, Florida lost $1.1 billion in sales tax revenue because it was unable to collect sales taxes on "remote sales"-- that is, Internet-based or mail-order transactions.

There's a pretty straightforward argument to be made that Internet-based retail transactions ought to be taxed. If you can buy something on the Net tax-free, but the same item would be taxed at a bricks-and-mortar retailer, that discriminates against the bricks-and-mortar store-- and discriminates against the (likely lower-income) folks who don't have access to the Internet. The sales tax you pay shouldn't depend on how you buy a thing. For a more detailed defense of this position, check out our policy brief on this topic here, which covers pretty much the same ground as the TaxWatch piece.

TaxWatch president Dominic Calabro argues that "Florida should not raise or institute new taxes until the state makes every reasonable effort to collect the taxes that are already legally owed and not collected."

Is this a sensible position? Well, mostly. Calabro is absolutely right that Florida lawmakers need to get on board with the streamlining project, not least because doing so would make Congress more likely to do its part to allow streamlined states to collect sales taxes on Internet transactions. But Florida can't make this happen on its own. In the end, Florida can only start counting this money when Congress passes enabling legislation-- and it's not obvious that folks on Capitol Hill are ready to do this.

So there's a decent chance that if Florida lawmakers literally adopt Calabro's recommendation and refuse to hike any other tax until this problem gets fixed, they could be waiting a long time. And that's why Calabro is only "mostly" right on this point. But kudos to TaxWatch for taking a principled, if unpopular, stand on broadening the sales tax base.