Internet Sales Taxes and the Discriminatory Burden on Remote Retailers – An Economic Analysis

49 Pages Posted: 20 Mar 2018

See all articles by Ike Brannon

Ike Brannon

The Jack Kemp Foundation

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Eric Miller

Woodrow Wilson International Center for Scholars

Date Written: March 15, 2018

Abstract

[enter Abstract Body]In the wake of South Dakota v. Wayfair et al. some commentators are calling for an Internet Sales Tax (IST) to “close the tax loophole” and “level the playing field” between internet sellers and local retail stores. This view is fatally flawed and based on a number of fundamental misconceptions about both modern retail and basic economics. First, the proposed IST is not a tax on “internet” retail sales, but rather a tax on remote small and micro enterprises that are already struggling to compete in a retail environment dominated by national retail chains, such as Amazon, Walmart, Target, or Home Depot. These mega retailers combine the use of state-of-the-art logistics and internet-enabled processes with local presence, and as such are already subject to sales tax liabilities. Second, the IST, if enacted, would be a discriminatory tariff on remote retailers, who would face significant compliance costs without reaping any benefits of being local, and without incurring any costs for local municipalities through their presence. Third, we deflate popular myths floated by the pro-IST coalition of local governments and local retail interests, including the flawed arguments that remote out-of-state retailers (i) are dominating the retail space; (ii) are responsible for the decline of family-owned brick-and-mortar retail stores, and (iii) deprive states and municipalities of billions of much-needed tax dollars. Finally, we provide an economic rationale for the simple truth that IST, if implemented, would harm, not help, the U.S. economy in the short- and long-term. We conclude that the current tax system is working as it should: businesses with a local presence and capabilities–imposing local costs, reaping local benefits, and reaching local consumers – are getting taxed as they should. Imposing such costs on remote retailers would be discriminatory and harmful for the U.S. economy.

Suggested Citation

Brannon, Ike and Hanlon, Michelle and Miller, Eric, Internet Sales Taxes and the Discriminatory Burden on Remote Retailers – An Economic Analysis (March 15, 2018). Available at SSRN: https://ssrn.com/abstract=3140948 or http://dx.doi.org/10.2139/ssrn.3140948

Ike Brannon (Contact Author)

The Jack Kemp Foundation ( email )

1200 New Hampshire Avenue N.W.
suite 800
Washington, DC 20036
United States

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-668
Cambridge, MA 02142
United States
617-253-9849 (Phone)

Eric Miller

Woodrow Wilson International Center for Scholars

One Woodrow Wilson Plaza
1300 Pennsylvania Avenue, N.W.
Washington, DC 20004-3027
United States

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