Should Internet Sales Be Taxed?

For many years, purchases via mail-order catalog have been sales-tax-free (with some exceptions). Now the internet has come along and there’s a hue and cry from many state and local governments to collect sales tax from internet transactions. They say that the explosion of web purchases is draining their coffers; traditional retailers say that it just ain’t fair. Concerned citizens claim that it amounts to a tax break for the well-to-do (since they’re the only ones who can afford computers).

Now, I have to admit that I could be perceived as, well, biased, since potential income to this website would indeed come from internet sales. (Trust me when I say that so far, that hasn’t amounted to much.) Nonetheless, I’d like to address the pro-tax arguments one-by-one.

Argument #1: Internet sales will drain the coffers of state and local governments. Even though there has been an explosion of internet sales, it still amounts to far less than 1% of all retail sales in the US. Experts say that that figure is not likely to rise much above 2% in the next few years. [Note that, as of 2022, internet sales account for about 15% of all retail sales. –JCS 12/22/2022.] I don’t think your local government will need to go on a diet anytime soon. Besides, I don’t hear anybody complaining about the extra income tax they’ve collected as a result of the booming internet economy!

Argument #2: It is inherently unfair to make traditional retailers pay taxes, but not make net-based businesses pay as well. Okay, I’ll admit this is probably the most convincing argument on the pro-tax side, but let’s look at it this way. First off, internet businesses must pay shipping for everything; local retailers don’t. Second, (and I’m heading to the left-side of the aisle here) the internet is good for the environment (less cars on the road means cleaner air, etc.) so, heck, I say let’s subsidize the web! Third, there is absolutely NOTHING stopping traditional retailers from offering internet sales to augment their normal business: many have already, and they’re much better off for it.

Argument #3: Internet sales benefit the well-to-do more than the poor, and that’s unfair. It’s true that internet sales are convenient and (sometimes) cheaper. If you buy, for example, a hardcover copy of Frank Herbert’s Dune at, it’ll cost you $17.47, plus $3.00 shipping (Total:  $20.47). If you drive over to Barnes & Noble (fouling the air with your SUV, causing wear-and-tear on the roadways, and endangering others by clogging traffic), that same book will run you $24.95; assuming a 7% sales tax, that’s a total of $26.70.  You save 23% by going online! By my estimate, the average American household spent about $300 last year buying stuff off the internet. If you assume my example is typical, they saved about $70. But since it cost them about $300 a year simply to be on the net, they’ve actually lost $230! Will the state and local governments be willing to provide a tax write-off to compensate these unfortunate souls? Doubtful.

But are the poor really missing out? Looking at this whole poor-versus-rich, us-versus-them thing for a minute (which is foolish, dangerous, and evil in my opinion)… computers are increasingly inexpensive. Even now, you can lease a computer, software and net access included, for around $25 a month. Any family too poor to afford that has a lot more to worry about than internet access.

Argument #4:  The economy is booming and we should do everything to ensure we can pay off the national debt. Besides, these wealthy web-heads are the only ones benefiting from the boom anyway. The reasons why this is a foolish notion are so many I don’t know where to start. First, the government hasn’t shown the ability to manage the budget up to this point, so why would we trust them with more? Second, the economy is booming in large part because of legislative gridlock. Clinton and the Congress are so afraid that the other will get credit for anything that almost no significant legislation (which could affect the economy) has been passed over the last seven years. This is a good thing. Third, by taxing the internet, we could squelch its growth faster than Alan Greenspan can say “irrational exuberance.” Fourth, aren’t we taxed enough already? Do we really need the government leeching off yet another aspect of our lives? It’s true that America is far less taxed, and has a higher quality of life, than, say, our European counterparts. It’s also true that you don’t see people fleeing the country in droves to escape ungodly taxation. But if you told me I could live in a place where they’d cut off both little fingers, or move someplace where they’d cut off both thumbs as well, I’d stay in Pinky Finger Land every time. I say enough’s enough, and if the government can’t learn to govern on 1.5 trillion (yes, t-r-illion) dollars a year (and that’s just the federal take), we’ve got way more problems than worrying about the internet.

So, what it all comes down to is this: we’ve been asking the wrong question. The question shouldn’t be “Should the internet be taxed?”, it should be “How can we make government more efficient and tax everybody less?” America, despite its warts, has shown the way for the free world for many years. We shouldn’t yield to the temptation to increase government’s reach, just because our esteemed allies have. We should show them that you can have less government and better lives. And it’s the best way to create responsible and independent citizens–that’s what the government wants. Isn’t it?

[Originally posted in April 2000 at]

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