Actually, Texans Save $600 Million a Year

by on February 12, 2011 · 7 comments

A Texas tax official estimates in this story that Texas loses an estimated $600 million in Internet sales taxes every year. Its part of a long-running debate about whether state governments should be able to collect taxes from out-of-state retailers who send goods into their jurisdictions.

What happens with the $600 million depends on what you mean by “Texas.” If you mean the government of the state of Texas in Austin, why, yes, the government appears not to collect that amount, which it wants to. If by “Texas” you mean the people who live, work, and raise their families throughout the state—Texans—they actually save $600 million a year. They get to do what they want with it. After all, it’s their money.

The Texas tax collector is complaining because the last thing state taxing agents want to do is collect money on in the form of use taxes, which means something like going door to door to collect money from voters based on what they bought from out-of-state. Revenuers intensely prefer to hide the process, collecting their residents’ money from out-of-state companies.

Amazon.com is Texas’ target—it’s the great white whale for tax-hungry jurisdictions nationwide. With no retail outlets and few offices or fulfillment centers around the country, it’s not subject to tax jurisdiction in lots of places that would like to tap it for revenue. Having a fulfillment center in Texas may make Amazon liable for $600 million of its customers’ money, so it’s doing the sensible thing: getting out.

And thank heavens it can! Amazon is a cog in the extremely virtuous process of tax competition. Its ability to move operations means that it can escape states with burdensome taxes and tax collections oblibations, like Texas. Tax competition among states puts downward pressure on taxes, which in turn puts upward pressure on the wealth and well-being of state residents.

The pro-tax folks have been working for years to eliminate tax competition. The “Streamlined Sales Tax Project” continues work it began in 2000 to pave the way for nationwide sales taxation. “Streamlining” sounds so good, doesn’t it? But the result would be uniform—and uniformly high—sales taxes that every state might impose on every retailer that sends goods across state lines.

The Web site of the pro-tax coalition sounds good, too: the “Alliance for Main Street Fairness,” at the URL standwithmainstreet.com. Who wouldn’t want to “stand with Main Street”? Lovers of limited government, for one.

“Fairness” here means uniform high sales taxes and interstate tax collection obligations. The site doesn’t say who’s behind it, but the campaign to impose taxes on Amazon and other remote sellers is almost certainly a project of big national chain retailers. Rather than fight to lower taxes nationwide, they think they should just saddle their online competitors with tax collection obligations.

As long as the Streamlined Sales Tax Project continues to fail, tax competition in this area survives, and retailers like Amazon can provide lower costs to all of us—including that $600 million in savings enjoyed by Texans each year.

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  • http://www.toronto-seo.org/ Toronto SEO and Marketing Corp

    It’s an economic fact that the free market allocates capital more efficiently than the government. They take in / spend too much money already.

  • Anonymous

    Everyone in the United States who is shopping on the Internet right now is already supposed to be paying sales tax, in the form of Use taxes. Unfortunately most people do not know this – and even if they try, they simply (and understandably) cannot be expected to remember every MP3, ringtone, and eBay purchase at the end of the year when they fill out their tax returns. The tax is owed — the issue is whether the retailer is required to collect the tax, or the consumer is supposed to report and pay it.
    When the Supreme Court ruled on this matter in 1967 and 1992 it was too difficult for a remote seller to keep track of the thousands of jurisdictions – which is why they were exempted from the obligation to collect. Moving forward to today, large internet retailers (such as eBay or Amazon) easily manage millions of items for sale at any given moment, and even the smallest internet retailer can calculate accurate shipping rates to every corner of the country in a blink of an eye – it is no longer too difficult to keep track of a few thousand local jurisdictions. There are companies that provide these services – and at least one of those services is completely free to the retailer.
    I understand the desire of individuals to avoid paying a tax, but I think it is important to remember that sales and use taxes are voted on by local residents. The intent of these laws is to raise funding for services such as fire protection, police presence, roads, sidewalks, parks etc. Local budgets have plummeted as internet shopping has increased.
    To suggest that it is a good thing for Texas that consumers have avoided paying the tax that is already due, and that states should not modernize the law (through Streamlined) to require that out-of-state sellers collect this tax efficiently, is, in my opinion, just plain wrong.

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  • OPAS

    FYI, Texans and other US residents can avoid paying sales tax on Internet purchases by using a forwarding address in Oregon (a state which doesn’t charge sales tax). We’ve been doing this for years, but it’s getting even more useful now that more states are paying attention to tax laws. A pretty innovative work-around. :) http://www.opas.com/tax_free_shopping.php

  • Come on

    Please Jim, stick to privacy. You are great at it.
    Tax protestors and accounting frauds save lots each year too – but the eventual non-payment penalties and incarceration are a bit pricy. There are good, economically sound arguments for virtuous tax competition at the state as well as international level. Make those, not some lame post about how lots of people in Texas save money by not complying with the laws that do exist.

  • Come on

    Please Jim, stick to privacy. You are great at it.
    Tax protestors and accounting frauds save lots each year too – but the eventual non-payment penalties and incarceration are a bit pricy. There are good, economically sound arguments for virtuous tax competition at the state as well as international level. Make those, not some lame post about how lots of people in Texas save money by not complying with the laws that do exist.

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