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Ramping Up the Fight to Tax Internet Sales

Back in March, I wondered why states would willingly lose hundreds of millions of dollars annually to Internet sales tax. After all, the amount of money left on the table is staggering:

Taken on a state by state basis, the losses incurred to the U.S. from the loss of out-of-state sales taxes are staggering. Alabama expects to lose $1 billion in sales and use taxes during the next five years; Arizona won't pocket $210.7 million over the next decade; Indiana's hit is $40 million to $114 million annually; and in 2012 alone, Pennsylvania may lose $250-400 million. Michigan lost over $400 million in 2010. And so on.

All told, states and localities lose about $24 billion a year in revenue from untaxed Internet sales, according to National Retail Federation.

Needless to say, that's not small change. For Alabama, a billion dollars accounts for a quarter of the state's entire education budget.

Perhaps, if last week is indicative, there may finally be a push towards taxation. Via the Streamlined Sales and Use Tax coalition, 21 states have agreed to "implement the policies and software technology that would make it easy for even the smallest businesses to collect and forward sales taxes across state lines." This is on the heels of the Marketplace Equity Act of 2011, a bill introduced by the House nine months ago, last July's Main Street Fairness Act and November's Marketplace Fairness Act, both from the Senate.

It's not clear when these bills will soon advance, despite massive projected shortfalls for state governments. But it's encouraging that a couple of Republican governors, Chris Christie (the keynote of this year's Republican National Convention) and Iowa's Terry Branstad, have pledge their support. It would be even more helpful if Barack Obama and Mitt Romney would back these particular bills (in fact, one could make the case that both men are inclined to do so) but neither wants to labeled a tax-hiker in an election year by voters with little understanding of, and appetite for, Keynesian economics. 

There's also the problem of a Pavlovian opposition, common among conservatives, to taxes of any kind. What's disguised as concern for the wellbeing of the small business owner is no more than fealty to Grover Norquist, and it precludes the adoption of measures both uncontroversial and sensible. Just ask Wyoming's Mike Enzi, whose Marketplace Fairness Act has the support of Amazon. He's no one's idea of a moderate, but for his trouble the senior senator has been accused by party activists of "conspiring with liberals."

This is a missed opportunity. According to Forrester Research, over the next four years 25 million more Americans are expected to shop online. That represents a pile of money. It would be foolish, and fiscally irresponsible, to leave it on the table.