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Kashmeri: The Internet Tax

03/08/11 7:55AM By Sarwar Kashmeri
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(HOST)  Commentator Sarwar Kashmeri has been thinking about the proposal to tax Internet shopping and how unfair that might be for Vermonters who can least afford it.

(KASHMERI)  I wonder why the Legislature would spend time trying to pass a bill that increases the tax burden on Vermonters, is problematic under federal law, would hurt low and middle income Vermonters, and damage the state's business reputation.

It doesn't make any sense, but that is exactly what Bill H661, the Internet sales tax legislation now making its way through the House Ways and Means Committee, would do.

The Bill would force on-line stores to collect sales tax from Vermonters who shop over the Internet. Federal law makes it difficult for states to tax on-line merchants unless they have a physical presence such as a warehouse within the state. So Vermont law makers would have to find a way around the law. But even if they were able to find a loophole, would the tax be a good thing?
 
In a rural state like Vermont, the internet can be a precious lifeline for the poor and the elderly who may not have access to a car and must live on limited incomes. So the Internet tax would increase the cost of living for the state's most vulnerable citizens.

Here's something else to think about. Vermonters who live in the Upper Valley can easily shop in New Hampshire to take advantage of the tax differential between the two states. But Vermonters who live in Chittenden County must drive for hours to take advantage of this benefit. The Internet makes it possible for anyone to shop around for merchandise at the best price, even if the seller is thousands of miles away.  With this kind of competition it is no longer easy for states to keep increasing their taxes. Now isn't that a good thing?
 
Internet taxation is also unfair from a business perspective. A store in Burlington, for instance, benefits from the police, fire, water, and other services provided by local government. Taxes from the store help pay for the delivery of these services. But an online business in Nebraska receives none of these benefits from Vermont. Is it fair then, to tax on-line merchants for services they don't use? True the purchases have to be delivered, but shipping companies already pay taxes to defray their share of roads and infrastructure.

Lawmakers in favor of the Internet sales tax argue that Vermont loses around 20 million dollars in revenue every year by not having this tax. Internet sales figures are notoriously unreliable, but even if this were true I wonder if the amount, which is less than two percent of the State's budget, would make up for the tax's regressive impact on Vermonters and the increase in cost of doing business in the state.
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