Internet Sales Tax: Could there be unintended consequences no one is talking about?

What may be the unintended consequences of
collecting internet sales taxes?

As early as today, the United States Senate may take up a bill (The Marketplace Fairness Act) that would allow states and local governments to collect all sales taxes due on products bought over the internet.  Today, the law allows a state (not city or county) to collect sales taxes from an internet sales company if they have a working facility in that state.Read Washington Post story here.

What is being proposed is that all internet sales, from those companies who have over $1 million in out of state sales, would have to collect and pay the sales tax due to the state, city, and county where the purchaser orders the goods from.   To comply with this bill, those affected internet sellers will  have to have some high powered sales tax figuring software, as there are thousands of taxing districts in the United States, many with odd sales tax laws that will have to be understood.  For example, Laredo has an 8.25% sales tax, other Texas cities have more or less.  Some states allow rounding up for sales tax collection on 1/2 cents, others round down.  So if I buy from Amazon, Walmart, Sears, or whomever online, my price will go up 8.25% on that sale.

Of course most brick and mortar retailers are all for this as they say the sales tax loophole provides a discount for those purchases made over the internet.  This is partly true.  And they believe that this law will make more people buy their products from local stores.  Again, this is partly true.  So, the National Federation of Retailers, including Walmart and other big box stores are all for The Marketplace Fairness Act.

Now, for the possible unintended consequences.

First off, when you buy over the internet you pay something that is not a line item charge on your product sale at the local store.  You pay freight.  That can range from free shipping for large purchases, to small dollar amounts to hundreds of dollars depending on the size, weight, and urgency for delivery.  So, while the retailer in the local store pays shipping cost, those cost are mitigated over truck load rates, not individual customer shipments.

So, there could be, as the brick and mortar retailers hope, a massive shift from internet purchases to local purchases.  If this is the case,. you will see less of the UPS and FedEx trucks in your neighborhood, less of the mailman delivering to your door.  That of course will mean job losses and spending shifts.

Or, this bill could force the online retailers (which I hope comes true) to actually reduce the price they charge for products in order to offset shipping and thereby increase their competitiveness with the local stores.

Of course this may start a price war, and everyone may reduce their cost, which will of course reduce the  total money collected for sales tax.

Another area, and I don't buy music, or rent tapes, where the tax could make an impact is on the sale of songs, video rental, software purchases, technical services, etc.  Too soon to tell.

Or, and this will be very interesting to see, it could force US internet retail purchasers to shop overseas for big ticket items like cameras, computers, etc.  I am not sure how this legislation addresses that.

Only time will tell.  But I can assure you a true winner in this whole process will the makers of the computer software that keeps track of and figures sales taxes for cities like Havana, Kansas, population 235 (on a good day.)  And of course the city, county, and state governments.

Losers, U.S. consumers who buy online, not because of price, but because of availability and choice.  Now those desires will be taxable.