Online Sales Taxes and State Revenues

Governor Christine Gregoire (D, WA) and Sally Jewell, President and CEO of REI, have an op-ed in a recent Wall Street Journal.  In it, they claim a desire to “level the sales-tax playing field” by imposing a national requirement for online retailers to pay local state sales taxes.

Local retailers—who create jobs for our families, friends and neighbors—have long been required to collect and remit state sales taxes.  By contrast, online vendors that operate from out of state are under no such requirement, even though the taxes are still owed by the consumer in the 45 states that collect sales taxes.  This disparity undermines the competitiveness of the retail marketplace….

They claim a “cost:”

… diverts $23 billion from state and local treasuries every year.


For every supposedly tax-free sale, fewer dollars are available for schools, infrastructure, public-safety providers or (in flush times) tax reductions.

Never mind that online retailers also create jobs for “families, friends and neighbors.”  Those families, friends, and neighbors aren’t constituents of any concern.  Never mind the evident lack of tax reductions.  There’s always a good cause on which Democrats—and too many Republicans—should spend OPM.

A clue bat is here, in Gregoire’s and Jewell’s own words, but the bat swung and missed [emphasis added]:

Imagine a customer who walks into a sporting-goods store and asks for help in buying the coolest new running shoes.  An attentive salesperson spends half an hour with the customer to find the most comfortable fit, the best performance and the right price.  Just as the salesperson thinks she has found the ideal pair, the customer decides to make the $100 purchase via smartphone from an online competitor who doesn’t charge sales tax.

They omit another path to “leveling the playing field:” lower their in-state sales and other taxes levied on their brick and mortar businesses.  Watch the increase in economic activity from the suddenly lowered costs to the consumer/taxpayer, which increase will produce a net increase in revenues for the state government.  Besides which, the states (and I’m not just picking on Washington here) have not established they really need all that revenue, that they really are not doing things better left to the private sector.

Public pension systems have become famous for their bloat, for the overly optimistic assumptions state governments make concerning expected rates of return and state bureaucrat investment acumen.  Were these moved from defined benefit to defined contribution, the private sector would do a fine job of managing these public employee retirement programs, for instance.  As a first step in this transition, the state governments should publish widely the return on investment assumptions on which they base their pension benefit and taxpayer contribution requirements; alongside these, state governments should publish their empirically achieved return on investments.

Schools?  Get out of the way of school choice in the hands of the parents.  Pouring more money into the coffers of failing public schools only enriches the unions running those schools; it does nothing for the students damaged by those schools.

Infrastructure?  Stop paying union rates for the construction unless those rates win a truly competitive bid process.

And so on.

It’s for the several states to fix their own gaping potholes on America’s Main Streets.

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