Taxing E-Commerce: Neutral Taxation is Best for the Industry

Exempting online transactions from sales taxes while taxing their brick-andmortar counterparts is bad fiscal policy for several reasons. First, failure to impose the sales tax on online purchases will cause significant revenue losses for state and local governments that collect more than one-fifth of their combined tax revenues from the sales tax. In addition, different sales tax treatment of online and traditional sales distorts decisions on where and how businesses produce and what and how consumers buy. The economy suffers losses, which include distorted distribution chains for goods, significantly altered business practices, and job displacements. Neutral taxation of ecommerce and bricks and mortar transactions will mean the ultimate winners will succeed because of superior business practices rather than government policies. Finally, the different tax treatment creates vertical inequities in tax liabilities and makes the sales tax even more regressive than it already is. Simplification of the sales tax regime combined with currently available software are necessary to achieve an environment where online vendors can collect sales taxes efficiently.