Knoxville News Sentinel: Opinion by Greg Johnson: Online sales tax bill would level playing field

Posted on November 11, 2011

Almost exactly 10 years ago, William F. Buckley Jr., the father of modern conservatism, opined in the National Review about the vexing problem of e-commerce and the collection — or lack thereof — of sales taxes by state governments. Buckley stood firmly athwart principled, conservative convictions against any tax on Internet usage.

But when it came to the collection of taxes on Internet purchases, Buckley saw how the growth in online commerce was changing the world of retail sales and how local businesses were being harmed by the uneven playing field on which out-of-state vendors did not collect sales taxes.

"The estimated commerce done by the Internet in 1998 was $9 billion," Buckley wrote. "Last year (2000) it was $26 billion. Which means we have to come to earth and face homespun economic truths. If the advantage of tax-free Internet commerce marginally closes out local industry, reforms are required."

U.S. Sen. Lamar Alexander, R-Tenn., proposed such reform this week, co-sponsoring the bipartisan Marketplace Fairness Act. "The reason I'm a co-sponsor is that it's a states' rights issue," Alexander said in a Wednesday conference call. "(The bill) gives the state of Tennessee the right to decide how to collect or not to collect its own state sales tax."

Alexander noted how bricks-and-mortar retailers are at a disadvantage. "Main Street sellers are up at arms because they have to collect a tax when they sell a television set or a computer, and online sellers don't," Alexander said. "(This legislation) ends the subsidy of some businesses over others."

Gov. Bill Haslam backs Alexander. "The Marketplace Fairness Act will bring much-needed, and long overdue, relief to the state of Tennessee," Haslam wrote in a letter to Alexander. "Tennessee and other states are currently unable to compel out-of-state businesses to collect sales taxes the same way local businesses do." The University of Tennessee's Center for Business and Economic Research estimates the state loses more than $300 million per year in uncollected revenue.

While Ebay opposes the bill, Paul Misener, Amazon's vice president for global public policy, pledged support, writing to Alexander, "Your bill will allow states to obtain additional revenue without new taxes or federal spending and will make it easy for consumers and small retailers to comply with state sales tax laws."

Alexander moved to pre-empt fire from the right. "Conservatives understand (collection from online vendors) is not a new tax. It is a tax that already exists. It is not an Internet tax," Alexander said. "This is an existing tax on all sales, and it is not fair to charge it to some taxpayers and not others. It is not fair to discriminate against stores in Tennessee in favor of stores outside Tennessee."

A decade ago, Buckley embraced reality when online sales were $26 billion and local industry was being crowded out by uneven and unfair application of existing tax laws. Last year, online retailers sold $142 billion in merchandise. As Buckley wrote and Alexander recognizes, reforms are required.