Why are states so eager to collect taxes on Internet sales?

In short, because they could grab money from other states.

Heritage legal expert David Addington lays it out:

Like the money-hungry federal government, many state governments have financial and political interests in getting their hands on more and more money to grow their governments. It is not surprising that many of those state governments find out-of-state businesses to be lucrative and politically easy targets for tax legislation.

Addington explains how this would work. Take, for example, a company whose workforce and warehouses are in New Hampshire. This company has no contacts with Illinois other than taking remote sales orders over the Internet.

The Internet sales tax proposal would allow Illinois politicians to use the New Hampshire company as their tax collector. The New Hampshire company would have to collect Illinois sales tax on its remote sales to Illinois residents and send the taxes to the Illinois state government.

As The Wall Street Journal puts it, “Small online sellers will therefore have to comply with tax laws created by distant governments in which they have no representation, and in places where they consume no local services.”

Who’s hurt?

Who’s helped?

  • State politicians, who find it politically easy to impose tax collection duties on out-of-state businesses that have no say on taxes or tax procedures in that state.
  • States collecting new tax revenue to grow their governments.

The Senate is likely voting today on this proposal. As Senator Kelly Ayotte (R-NH) put it, “what this is about is officials in cash-strapped states across the country looking for new ways to plug their budget holes.”

And because Congress would be allowing states to grab from other states, Addington notes that “all the politicians get to hide from the consequences of their own tax decisions.”

The bottom line: “Less money in the pockets of people, more money for big government.”

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