The Coming National Sales Tax

The Opinion Journal points out that a number of state governments are busily working at imposing a de facto national sales tax that will forever change the online world. And the consumer will be on the short end of the deal.

But even Christmas stories, from Dickens to Seuss, need a villain. We'd like to nominate your friendly neighborhood state governments, which for years now have been predicting dire declines in state finances because untaxed online shopping would erode the revenue-raising ability of sales taxes.

As usual, the political gloom proved to be overwrought. State tax revenues took a header in 2002 along with the rest of the economy, but they've been growing smartly ever since. The third quarter of this year saw state tax revenues up 4.6% over last year, and that was a deceleration from growth that has bumped along at close to 10% at times in recent years. State sales-tax receipts grew at 4% in the third quarter–and that was the slowest growth in three years. The biggest news about the sales-tax apocalypse is that it isn't happening.

But the strong trend lines for overall tax receipts and sales-tax revenue in particular haven't slowed the move among states to grab a piece of the online-sales pie. In the 14 years since the Supreme Court ruled that the myriad state and local taxes were too complex for mail-order retailers to be expected to master, there's been a movement to obviate that argument by "streamlining" the country's many sales-tax regimes.

Indiana, New Jersey, North Dakota, Oklahoma, Vermont, West Virginia and more than a dozen other states have been busy laying the groundwork for an Internet sales tax regime that will charge consumers based on where they live, not where they click to when shopping online. And the system is already up and partially running.

Some retailers are already trying to comply with the state's efforts and are collecting sales tax no matter what state you live in, or what state the retailer is located in. As the editorial points out, many small online retailers will be squeezed badly by this and may not be able to deal with it. With no competitive pressures between the states to keep taxes lower, consumers can expect a steadily increasing tax burden in the future.