Jul 162012

Republican governors, eager for new revenue to ease budget strains, are dropping their longtime opposition to imposing sales taxes on online purchases, a significant political shift that could soon bring an end to tax-free sales on the Internet.

via Tax Break Online Nears End – WSJ.com.

I’m not opposed to taxes on internet sales.  It’s only fair to level the playing field between brick-and-mortar stores and those where the customer doesn’t get to handle the merchandise.

However, this proposal is not ready for prime time.

For one thing, the governors have not yet identified which taxes will be cut to pay for these increases.  New revenue is fine, but old revenue needs to be cut to pay for it.

The other is that a formula and mechanism needs to be worked out to determine the tax rate.  In order to maintain tax competition between states, one possibility is to make it an average of three tax rates:  1) the tax rate where the buyer lives.  2) the tax rate where the seller is located. 3) the tax rate where the goods are shipped from.