Occam’s Razor Meets The Internet Sales Tax

I was reading a post on internet sales when one of commenters compared internet sales to the problem with liquor sales across state borders. Here was my reply as I make the argument internet sales tax will fail because it is too complex. Simplicity is typically the best solution and the internet sales tax is not simple. The internet sales tax plan is a recipe for failure.

Since I grew up in Northern VA the reason the residents went to DC to purchase liquor was because the prices were cheaper. Virginia sold liquor via state run alcohol beverage control stores(ABC). DC had private businesses selling liquor who drummed up business by aggressively promoting their products. Over a period of years Virginia decided it was wiser and simpler to allow VA grocery stores to competitively price beer and wine and to allow the ABC stores to competitively price their liquor than to ask police officers to monitor liquor sales at the border. The simple solution won but it took many years and a lot of complaining by local residents and grocery stores.

If we try to look for a simple solution to internet sales tax we do not have one for either the small businesses or the smaller states. If I had a choice of creating a small business that was tax exempt or expand one that would pay internet sales taxes, I would choose to create a tax exempt business. Internet retailing is brutal so any advantage I get on Amazon is good! What can California do? Sue me in civil court!? Good luck with that!

Does anyone think it will be cost effective for Alaska and the other smaller states to collect internet sales tax? I am sure there are state employees who are dreading the thought of thousands of sales tax applications that will result in little to no tax revenue. All that work for so little money. Isn’t this the same situation as posting police officers at the border to catch out of state liquor sales? Customers are amazingly adaptive. I would not be surprised if we create a new market for package forwarding from states that do not collect sales tax. If the internet sales tax is not as simple to implement as the payroll tax, it will fail. Simplicity wins in the end.