The Paradoxical gasoline and Internet Sales Tax Conundrum
Even if you don’t agree with my blog you have to admit that’s a heck of a title. I love paradoxes and conundrums. The falling gasoline tax collected as a percent of miles driven and the fall of sales tax revenue as a percent of total retail sales is a huge problem, but it’s not being discussed. I have my ideas on why it’s not being discussed. That’s for another blog with political overtones.
The EPA has foisted lofty CAFÉ standards upon the US car manufacturers. Auto manufacturers have indicated that the standards can be achieved. The cost of meeting these standards will be exorbitant. The ill-advised logic behind establishment of the standards is material for another blog, one in which we discuss climate change.
Tax revenue to repair highways is generated through fuel tax that is levied by the gallon. There’s an inverse relationship between gasoline tax collected and EPA rules. The paradox here is that those who love to tax and spend are also the ones who have implemented regulations that will result in fewer taxes generated from gasoline sales. High efficiency cars result in fewer tax dollars paid per mile driven. And the gasoline sales tax is a regressive tax, which means it taxes the lower income classes at a higher percent of their income than that of the upper income class. The conundrum for the politicians is how to maintain gasoline tax revenue without appearing to be raising taxes on the middle and lower income classes.
Let’s shift gears…
General sales tax is collected by retailers. There are more sales tax jurisdictions than there are opinions about climate change. Asking internet sales concerns to keep up with the dynamic nature of thousands of different sales tax rates isn’t realistic. Technically, when a purchase is made on-line, from another state, the buyer is supposed to voluntarily pay sales tax on that purchase to their local sales tax jurisdiction. Most companies do this because state auditors are on the prowl for such things. But few individuals do. So, sales tax on most internet purchases is not being collected.
The paradox here is that people think they’re getting out of paying sales tax by buying on line. The fact is, they’re breaking the law when they don’t fill out a user tax form and anti-up what they legally owe. People actually brag about the sales tax savings being more than enough to pay the shipping on an on-line purchase. They are in a sense making a self-indictment when doing so.
Sales taxes are a huge source of revenue and provide funding for a long list of government services. Dwindling sales tax revenue, as a result of internet sales, is likely more of a budgetary challenge than sequestration, about which, we’ve all heard too much, and yes, fodder for yet another blog.
The solution is simple. Internet sales could be taxed according to the rate of the jurisdiction at which the internet sales transaction is conducted. Sales tax revenue collected would then be sent to the sales tax jurisdictions into which shipments are made. Each address can be associated with a sales tax jurisdiction and a simple, but very long, spreadsheet could handle calculating the disbursement.
Another solution would be for the sales tax to stay in the jurisdiction at which it is collected. Doing this would create stiff competition for attracting companies with large internet sales volumes. And it would cause internet sales concerns to migrate to areas of lower sales taxes. Now we’re talking – another paradoxical conundrum. You see, the lower the sales tax rate the greater the potential for sales tax revenue generation. I find this low tax rate high tax revenue potential intriguing. It’s a paradox first recognize by President John Kennedy when he petitioned congress to lower income taxes for the same reason – to increase tax revenue.
Sales tax, like the fuel tax is a regressive tax. To monkey with the formula is to draw attention to the tax and its regressive nature.
Internet sales are here to stay. And the percent of retail sales volume done on-line will only grow. Café standards dictate that cars will be driving more miles on less gasoline. Sales and fuel tax revenue is going down. Either budgets will need to be modified and provide additional general tax revenue for those items primarily funded by fuel and sales tax or tax laws and rates will need to be changed. Most budgetary items are supported by a group of constituents who vote and provide financial support for their candidate. This paradoxical conundrum has the potential for epic political debate by people who have demonstrated that they’re not proficient at math, budgeting, or diplomacy.