"Small businesses [want] a level playing field. The Marketplace Fairness Act gives them that. ... Local businesses will never be able to compete if we continue this unfair advantage for huge online retailers."
"The House and Senate should work together to extend the moratorium on Internet taxation without further delay."
-- Kevin Smith, spokesman for House Speaker John Boehner
And so the battle lines were drawn. On the left, a U.S. Senate voted 69-27 last year for an Internet tax bill that would require "e-tailers" such as Amazon.com (NASDAQ:AMZN) and eBay (Nasdaq: EBAY) to collect sales taxes just like their brick-and-mortar counterparts. On the right, a House of Representatives intent on keeping e-commerce a tax-free zone.
Last week, the House won this debate by default, leaving Washington for Christmas vacation without giving the Internet tax bill a hearing. But should they have? Should American consumers -- struggling to pay the the high cost of education, pressured by expensive healthcare, and stuck in a no-wage-growth economy -- ask Congress to pass an Internet tax bill that requires them to pay taxes on something currently tax-free? Yes. In fact, there are three reasons to change the sales tax system:
It's not fair
America was built on the concept of equal opportunity to "pursue happiness" -- and profit. But the system is rigged against brick-and-mortar retailers like Kohl's (NYSE:KSS) and Sears (NASDAQ:SHLD) -- and rigged in favor of e-tailers like Amazon and eBay.
Today, most retailers must convince shoppers to visit their stores and voluntarily pay tax-jacked prices ranging from 0% (in Montana) to 7.5% (California) higher than what e-tailers charge. (Actually, when you add local sales taxes, some prices shoot even higher.) That's not a level playing field.
And it's not fair.
It turns citizens into scofflaws
Admit it. You know it's unfair to buy a pair of blue jeans on eBay and pay no sales tax -- when if you bought the same jeans at Kohl's or Sears, you'd have to pay tax. In most states, you also know you're supposed to pay sales tax even if your Internet e-tailer doesn't require it, informing your state's revenue department of purchases at year-end, tallying up the taxes owed, and paying a "use tax" in lieu of sales tax avoided.
But if you're like most Americans you don't do that, do you?
Maybe you think you're "taxed enough already" and, if the taxman isn't fast enough to catch you, that's his problem. Maybe you're from somewhere like South Carolina, and it sticks in your craw knowing that you shell out 6% for your "use tax," while across the border in Georgia, folks pay 4% taxes -- and maybe they aren't paying their taxes at all! Or maybe you're just too busy to search through a year's worth of Internet sales receipts to figure out how much you owe.
Whatever the reason, you don't pay the tax -- just like 98.4% of Americans who should, but also don't.
And it beggars thy neighbor
Now, there's an obvious consequence of 98.4% of taxpayers not paying their taxes. Sales taxes lost to e-commerce are an enormous revenue drain on state budgets.
Forbes magazine says states lost a combined $11.4 billion in revenue from shoppers buying online to avoid sales taxes in 2012. "California alone forecast a loss of $1.9 billion; Texas, $870.4 million; and New York, $865.5 million," reported Forbes. That's billions of dollars of revenues that could be repairing your state's roads and bridges, buying new computers for your kids' school, and hiring more police to keep your streets safe.
If you like all these things -- you should like the Internet tax bill.
Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.