There's no fairness in taxing e-sales ; jeff jacoby

ON THE home page of his US Senate website, Illinois Democrat DickDurbin invites visitors to learn about his record of "Looking OutFor Consumers" by protecting them "from excessive fees and predatorypractices." Alas, the senator's concern for the welfare of consumersgoes only so far. Indeed, he is poised to introduce legislation thatwould subject millions of American consumers to "excessive fees"they have long been sheltered from: sales taxes on their onlinepurchases.

The tech website CNET reported last week that Durbin, theSenate's assistant majority leader, will offer a bill after theEaster recess that would allow states to force any Internet vendorto collect sales taxes for them - not just when the vendor has setup shop within their borders, but even when its facilities arelocated elsewhere. If it passes, Durbin's bill will undo thelongstanding rule that merchants only have to collect sales tax forstates with which they have a "substantial nexus." That phrase comesfrom the Supreme Court, which has confirmed the no-nexus-no-tax rulein a line of cases stretching back more than 40 years.

While the court's decisions originally dealt with mail-ordercatalogs, the logic is just as pertinent to sellers doing businessover the Internet. If a company has no shops, offices, or employeeswithin a state, there is no reason it should be obliged to chargesales tax when it happens to sell something to a resident of thatstate. That is why most Americans pay no sales tax when they buy aproduct from Amazon, which has an actual physical presence in only ahandful of states, while those who make a purchase from Barnes andNoble or Walmart - companies with outlets nationwide in addition totheir online sites - typically will be charged their state's salestax.

To hear Durbin tell it, there is something unjust about sparingInternet retailers the burden of calculating and collecting taxesfor states they don't operate in. "Why should out-of-state companiesthat sell their products online have an unfair advantage over MainStreet bricks-and-mortar businesses here in Metro East?" he said inFebruary during a meeting with Illinois business owners.

This supposed "fairness" argument is echoed by the Alliance forMain Street Fairness, which lobbies against what it calls the"online sales tax loophole." The Alliance argues that "a sale is asale is a sale," and that whether it takes place in cyberspace or inthe shop around the corner, the sales tax should be collected. Onits website, the alliance posts videos from business owners likeMark Jeannette, a Pennsylvania tobacconist who complains that "ifsomeone purchases a box of cigars over the Internet at a discount,and on top of that doesn't have to pay the 6 percent sales tax, theyare at an advantage that I certainly don't have."

But it's a hollow argument. All other things being equal,consumers no doubt prefer a tax-free shopping experience. But allother things are rarely equal. E-retailers (or mail-order catalogs)may have a price advantage, but well-run "Main Street" businesseshave competitive advantages of their own. They attract customerswith eye-catching window displays. They play up local ties andneighborhood loyalty. They give shoppers the chance to see, feel, ortry on items before buying them. They enable the serendipitous joysof browsing. They don't charge for shipping. And they offerpotential customers a degree of personal service and warmth that nowebsite can match.

The current system is far fairer than the one Durbin wants.Bricks-and-mortar merchants charge sales taxes based on theirphysical location. The same rule applies to online merchants. APennsylvania tobacco shop doesn't collect Ohio sales taxes wheneverit sells a humidor to a visitor from Ohio. Amazon shouldn't have to,either.

"Out-of-state companies that aren't paying their fair share oftaxes," Durbin argues, "are sticking Illinois residents andbusinesses with the tab." What tab? Taxes paid should bear somerelation to services received, and merchants with no "substantialnexus" to a state receive no services from it. They don't use itsfirefighters or sewers, don't send their kids to its schools, anddon't expect it to plow their streets after a blizzard. To forcethem nevertheless to collect and remit that state's taxes would begrossly unreasonable.

Durbin's bill would only hurt the consumers he claims to be"looking out for." The existing arrangement has worked well for 40years. All it needs from Congress is a good leaving-alone.

Jeff Jacoby can be reached at jacoby@globe.com.

17jacoby.ART