By Sean Lansing
That’s because some in Virginia have inexplicably called on Congress to pass a controversial sales tax on the Internet. Worse yet, a previous session of the General Assembly is now holding Virginia taxpayers and Internet shoppers hostage, having passed a measure stipulating that if Congress fails to sign off on new Internet taxes, Virginia’s wholesale gas tax will increase significantly. This conundrum is an extremely unfortunate one. Both tax increases are regressive – harming working families and small businesses the most while creating yet another obstacle to job creation in an already anemic economy.
An Internet sales tax would require businesses to impose sales taxes on all out of state sales, regardless of whether or not the seller has an established physical presence in the state. These Internet taxes will be passed along to consumers in the form of higher prices, while simultaneously digging into the bottom line of employers – who will in turn have less money to hire new workers or provide pay raises to current staff.
Employers will also be hit with an accounting nightmare. Despite proponents’ claims to the contrary, enacting an Internet sales tax will have serious impact on businesses in the form of high compliance costs. Instead of “leveling the playing field,” this legislation would put online retailers at a disadvantage by forcing them to comply with nearly 10,000 constantly changing taxation jurisdictions around the country.
And as with many onerous burdens the government piles onto business, small businesses would be disproportionately harmed, as they are less equipped to handle added costs than their larger competitors. A majority of the new jobs being created in the United States today are from small business, and an Internet sales tax would surely put a damper on their progress.
In fact, the Main Street Alliance estimates that an Internet sales tax could cost anywhere from $20,000 to $300,000 and kill 220,000 jobs in the first year alone. The tax would only apply to businesses with revenues exceeding one million dollars, which provides a perverse incentive against expanding beyond that threshold.
Finally, an Internet sales tax would sit on extremely shaky legal footing; the United States Supreme Court ruled that states are not allowed to extend their taxation authority beyond their own borders.
Most Americans – and specifically most Virginians – understand the problems with an Internet sales tax, which is why they overwhelmingly oppose this unnecessary burden by an almost two-to-one margin.
Unfortunately, the General Assembly has left Commonwealth families and businesses stuck between a rock and a hard place. If the Internet sales tax does not pass (which is the likeliest scenario thanks to conservatives in the House of Representatives), the gas tax will increase $1.2 billion over five years. Like sales tax increases, a gas tax increase would be regressive, hurting poorer and middle class families, and it would raise the cost of doing business in Virginia.
Simply put, a tax increase of any kind at this time would be extremely harmful to Virginia’s economy. Our representatives in Washington should oppose an Internet sales tax, and those in Richmond should repeal the provision that would increase the gas tax.
Instead of further burdening residents and businesses, the state should seek spending reforms. Virginia is in a multi-billion dollar budget hole, but the problem is not on the revenue side – it is on the spending side. In short, Virginia isn’t facing a shortfall because taxes are too low; it is facing a shortfall because politicians often spend too much.
Rather than asking Virginia taxpayers to dig deeper into their pockets and PayPal accounts, lawmakers should do the same thing that Commonwealth businesses and families do every day: Prioritize expenditures and seek to cut waste and excess.
Economic growth itself can raise tax revenue, and we can accomplish this by shrinking the burden of government on businesses and families – reducing government spending and maintaining a competitive tax environment. The power of Virginia’s economy will only be unleashed in this manner if taxpayers demand that representatives not raise taxes.
Americans for Prosperity has been a leader for free-market reforms in Virginia throughout the year, and we look forward to empowering Virginians to hold their representatives accountable in this crucial fight.
Sean Lansing is the Virginia State Director of Americans for Prosperity, the nation’s largest free-market grassroots advocacy organization.