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Sales tax threat stalks online mail-order empires, but will it really hurt them?

Published: Wednesday, April 24 2013 2:53 p.m. MDT

In this Oct. 18, 2010 file photo, an Amazon.com package is prepared for shipment by a United Parcel Service (UPS) driver in Palo Alto, Calif. States could force Internet retailers to collect sales taxes under a bill that overwhelmingly passed a test vote in the Senate Monday, April 22, 2013.

Paul Sakuma, ASSOCIATED PRESS

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When 75 U.S. Senators agree on anything, a political earthquake is underway, and by that measure Congress seems poised to require retailers to pay in-state sales taxes, regardless of whether they have a physical presence in the state.

Conventional wisdom holds that the new requirement would equalize the ground between online stores like Amazon.com and brick-and-mortar competitors like Best Buy. But according to Wired, Amazon seems rather OK with it all.

The U.S. Senate passed a non-binding resolution last week by a 75-22 vote that cleared the way for consideration of a final bill. A vote is expected soon, and the action now seems to be setting the exemption threshold, according to Inc.com.

"The current situation is inherently unfair," Amanda Nicholson, professor of retail practice at the Whitman School of Management at Syracuse University, told Inc. "It allows online-only retailers to frequently avoid charging and collecting sales taxes …while the brick-and-mortar stores (large or small) are compelled to do so."

But, as Amazon's new support suggests, it may not be as obvious about who wins and who loses.

Wired's Marcus Wohlsen notes that Amazon has already struck a deal in California, by which it pays sales tax in exchange for setting up facilities in the state. Wohlsen suspects that Amazon might become an even more fearsome competitor if it goes toe-to-toe on the ground.

"It could turn out that forcing Amazon to collect sales tax nationwide could be the worst thing to happen to brick-and-mortar retail," Wohlsen argued. "Competing with Amazon was tough enough when it was just a company in Seattle with a big warehouse in Kentucky. What happens when one of the world’s biggest stores, online or off, suddenly moves right into your backyard?"

According to Megan McArdle at The Daily Beast, sales tax is a zero-sum game: Unlimited sales taxes in the hands of local governments would be unavailable to the federal government.

"A 20 percent state sales tax would probably make it difficult for the federal government to impose a (value-added tax). And without a VAT, most budget wonks think that in a decade or so, your favorite federal spending programs will probably have to take some deep cuts. It's just not possible to fund a huge welfare state solely on income taxes. Functionally, high state sales taxes buy you generous pensions for public sector workers at the expense of entitlements."

McArdle argues, in short, that higher consumption taxes are inevitable, and that local appetites for those taxes must be held in check until the federal government can claim them.

McArdle's fears rest on the notion that states that can force retailers to pay tax from out-of-state will have less incentive to temper their sales tax rates.

McArdle also objects to the regressive character of sales tax: the poor pay a higher share. But most of her concerns center on the drag on small business and economic growth, as she fears that significant financial and bookkeeping burdens will stifle small operations.

"We want small businesses to get bigger," McArdle writes, "spread their wings, engage in interstate commerce. The best way to do this is to minimize the amount of burdensome regulation that we put on them."

Eric Schulzke writes on national politics for the Deseret News. He can be contacted at eschulzke@desnews.com.

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