NCPA - National Center for Policy Analysis

Sell Globally, Tax Locally?

November 21, 2003

A majority of states are asking Congress to extend their tax collection authority to Internet and catalog sellers, even when the seller has no store or warehouse or other business operation in the state. It is best that Congress reject such a proposal because taxing based on destination is too complex, burdensome, and inefficient, says Michael Greve, director of the American Enterprise Institute's Federalism Project,.

Instead, he recommends Congress should impose sales taxes where products originate, not where they are consumed:

  • Unlike destination taxation, an origin-based tax system will prevent Internet sales from escaping taxation, which deprives governments of revenue and gives Internet retailers an unwarranted advantage over traditional industries.
  • It would create tax competition giving states an incentive to lower their sales taxes as a means of enticing companies to choose their state as a base of operations.
  • Businesses in low-tax states would gain a competitive advantage, and be able to offer their consumer's lower-priced goods and services.
  • Each cross-border sale would be taxed equally and only once by a single authority.

Origin-based taxation is an economically practical option, and is a vast improvement over the current system, says Greve.

Source: Michael Greve, "Sell Globally, Tax Locally," The American Enterprise, December 2003.


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