Time to Eliminate the Sales Tax?

Texas has become the latest state to look at a taxing Internet sales. Colorado’s own “Amazon tax” has been ruled unconstitutional as is currently under injunction while the courts sort things out. Texas, Colorado and all of the other states that have attempted to enforce an online sales tax have the same problem. Sales tax revenue is falling. All of this got me thinking, is it time to eliminate the sales tax?

Sales taxes are a great source of revenue for states and local governments. It doesn’t matter who is shopping at the stores in town, the town gets a bit of tax revenue from them. The county and state usually get a cut as well. The taxes are easy to collect and generally stay where they are collected. As an added bonus, the taxes are anonymous. The governments don’t need to collect all sorts of personal information in order to collect the taxes. That also means that money gained through illegal channels and spent in town also gets taxed.

The next issue is that having both an income tax and a sales tax amounts to double taxation. You see, you’re taxed once on your income, then you’re taxed again on the money you have left over every time you buy something. One or the other is fine but not both.

All of those are great reasons to support sales taxes and partly why the Fair Tax is so popular but there’s a problem with the tax that may be the Achilles Heel of the system. That problem is the increased mobility of consumers. That mobility comes in two forms, shoppers heading out of town to make their purchases and those who simply hit up Amazon, Barnes and Noble or any of the zillion other online retailers.

You see, if a city raises its sales tax too high, a lot of the residents will take their shopping dollars elsewhere. Oh, not for everything certainly, but large purchases will almost exclusively happen out-of-town or online. Cities, counties and states that raise their sales taxes will see more and more of their sales tax revenues disappear as their citizens do their shopping elsewhere.

The greater ability to shop outside one’s locality makes sales tax collection problematic. Not that they haven’t tried. Colorado, for example, requires that everyone who makes a purchase online must calculate their own tax burden and send it to the state. That process is just as exciting as it sounds. Take a look at Ari Armstrong’s experience trying to pay his use tax. It isn’t pretty. In fact, so few people pay the tax that Colorado hardly enforces it.

I understand the arguments in favor of sales taxes. I would love to see either sales tax or income tax eliminated. Given the practicalities, I’m beginning to think the sales tax should be the tax to end.

Originally posted at PerlStalker’s Ramblings.