The Last Frontier of Low Taxes

What would an Internet sales tax mean for entrepreneurs?

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It is not every day that you read in the Wall Street Journal about why we need more taxes. But now that E-commerce is booming and increasingly crowding out the quaint little notion of actually going to a store, Lee Gomes writes about why we should "cheer on" states like New York and Texas in their recent efforts to push toward Internet sales taxes [subscription required].

Many Web users surely will be annoyed by a tax. It's common to see the Internet as a refuge from the quotidian annoyances of the real world, among them death and taxes. But cyberspace is grounded in the real world, as are schools and parks and streets. If you doubt that, the next time your house is on fire, try calling Jeff Bezos.

It seems to me the last thing we want, for the sake of simplicity for both consumers and entrepreneurs, is a situation where some states have high Internet sales taxes and others don't. That's why testimonials from small-business owners seem to support the notion that state E-sales taxes are very bad but a national one would be OK.

Gomes makes a compelling argument about how taxes should be neutral and not discriminatory. From the entrepreneurial point of view, however, there are not many good things to say about an Internet sales tax, national or otherwise. Certainly, many small retailers would benefit from a sales tax; Dawn Rivers Baker of the MicroEnterprise Journal blogged recently about how the American Booksellers Association has praised an Internet sales tax as "E-fairness" and a necessary step to even the playing field with online sellers.

But ultimately, I think giving the Internet the advantage of being relatively tax free is a net win for entrepreneurs. A few weeks ago I wrote about how online retailing might be suited to small businesses and start-ups more than most other industries. With so much money coming from E-commerce, it's going to be hard for the government to NOT get its hands on it.