tl;dr> When a transaction occurs over the internet, why do you collect sales tax in the purchaser's home state, and not the producers?
This article in The Economist: "Click and Pay" discusses how sales taxes are levied in the United States. In the US, sales taxes (unlike VATs) are a gross percentage on a price, typically remitted by the business selling the good or service, to the government in question. That this is complicated by the Internet (and mail order in general) is explained by the article:
It makes no economic sense to tax sales in shops and over the internet differently. The prohibition is constitutional. In 1992 the Supreme Court ruled that states could not force out-of-state retailers to collect tax on sales to residents unless Congress, which oversees interstate commerce, said so. Only retailers with a physical presence—a “nexus”, in the legal jargon—in the state could be taxed.
The economic consequences were relatively minor before Amazon and eBay appeared. Not any more. Since 1994, mail-order and internet sellers have grown from 2% of total retail sales to 7%. In the past five years, while retail sales have risen by 10% and total state and local taxes by 9%, sales-tax revenue is up just 2%. The National Conference of State Legislatures reckons that the court’s prohibition cost states $23 billion in lost taxes last year.
What is interesting to me is that in a mail-order situation, there seems to be a presumption in distant sales that the transaction occurs where the customer is, and not the provider of goods or services (hereafter "the business"). As the article continues:
In theory, online customers are required to pay sales tax themselves. Unsurprisingly—since there are no means of enforcement, and no customs stations on state lines—few do. This galls traditional retailers like Best Buy and Target, who must charge tax not only in shops but also online in states where they have stores.
Retailers and state and local governments have long recognised that the ideal solution would be for Congress to allow states to tax the internet. But previous legislative efforts have stirred furious opposition from anti-tax activists and discomfort among many Republicans, who think this sounds like a new tax. Although the activists remain opposed, Republicans are increasingly sympathising with retailers and with local governments that are trying to build public works, such as sewers, while their tax base migrates into cyberspace. “You can’t flush your toilet over the internet,” says Mike Enzi, a Republican senator from Wyoming who spearheaded the amendment with Dick Durbin, a Democrat from Illinois.
The Marketplace Fairness Act, as the proposal is called, allows states that simplify their sales-tax laws to compel online retailers to collect taxes. In preparation for passage, 24 states have joined a coalition that harmonises and simplifies sales-tax collection, for example by using common definitions of goods that are subject to tax. That would soothe e-tailers’ worries about collecting different taxes in thousands of state and local jurisdictions. Amazon, one of the fiercest opponents of state-level efforts to collect internet taxes, backs the federal law, while warning against too high a threshold for exempting small sellers, now set at $1m. EBay, on the other hand, opposes any bill without a “robust” exemption. The law would not overturn the federal prohibition on taxing purely digital goods, such as internet access and e-mail.
Why is this, then, the case - that the transaction is "supposed" to be at the place of the customer? The business, it seems to me, is better placed to both collect and profit from the use of taxes, moreso than the purchaser - but that is just speculation. What is the economic argument.
For sake of any answers, it might be useful to imagine, for example, a Maple Syrup provider (who of course must hail from Vermont) sells her syrup over the internet to a guy in New York. To tax in both New York and Vermont would be double taxation - but why is the presumption that New York should benefit from a transaction that took resources from Vermont? What is the argument against saying that the transaction simply occurred in Vermont - where the Maple Syrup producer's business is located?