States Tell Online Shoppers to Fess Up to the Taxman

Today, April 15 is "Tax Day," that once a year occasion when we bare our collective souls to the IRS, and lighten our bank accounts as well.  To help celebrate the occasion, I thought it appropriate to focus not on IRS Big Brother but on the 50 state tax Little Brothers now scrounging for revenue.

State governments are in deep trouble fiscally.  California alone has a $20 billion current account deficit and unfunded future pension liabilities exceeding $500 billion.  Most other states aren't in much better shape.  It's no wonder state legislators are groveling for money anywhere they can find it.  And if you shop online, you're a target.

You see, while tens of thousands of bricks-and-mortar businesses shut down each year, online retailing is thriving.  Census bureau data show that while total retail sales declined about 7.5% through the third quarter of 2009, online sales increased 4.5%.  Online retailing is one of the few bright spots in the U.S. economy.

State tax collectors are drooling at the prospect at tapping this growing, but (in their eyes) "under-taxed" segment of the economy.  They want to force out-of-state online retailers to send them data on in-state customer sales.  Then state revenue departments can use this data to force in-state residents to pay a "use tax."  The use tax represents the amount of sales tax a resident avoided by purchasing otherwise taxable goods or services out-of-state.

Colorado recently enacted legislation requiring online retailers to function as the State Tax Police.  Legislators in California and Tennessee are now debating a similar proposal, and dozens of other cash-strapped state governments are sure to follow.

Civil libertarians, naturally enough, are crying foul.  Say, for instance, that you recently ordered a steel collar with spikes for your favorite slave-girl (or boy) from your selected online bondage retailer.  Not to mention a matching set of padded leather wrist restraints.  How do you like the idea of state tax collectors rummaging through your purchasing records and then sending you a bill for the "use tax" you avoided, complete with a copy of the invoice?

On a more serious note, what if you make regular online purchase from a Libertarian bookstore?  Or buy adult diapers for incontinence from an online retailer?  Do you really want your state's tax collectors to maintain records of those transactions?

Whether or not you share these concerns, it's probably just a matter of time before these measures become law in most states.  Indeed, the Multistate Tax Commission, an organization of state revenue agencies (funded, naturally, by U.S. taxpayers) is in the process of creating a "Model Use Tax Notice and Reporting Statute."  When these folks get involved, you know the states are serious about collecting this tax.

Just keep that in mind when you pop your copy of "Caught My Wife With A Gangsta" into your DVD player…

Copyright 2010 © by Mark Nestmann

(An earlier version of this post was published by The Sovereign Society,

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