When it comes to taxing the Internet, equal is not necessarily fair. It depends on the kind of equality at stake. Proponents of imposing new interstate taxes on Internet retail sales tout exactly the wrong kind of equality: results. Equality under the law, even when it generates unequal tax burdens, offers a fairer approach to Internet taxation.
Internet retailers enjoy no special exemption from across-the-board sales and use taxes. They live under same laws as their bricks-and-mortar competitors. “Each type of retailer must collect taxes on behalf of states where its purchasers reside and where the retailer has a store” (Web 2), office or other substantial presence. But thanks to long-standing U.S. Supreme Court precedent, recently validated by the Tax Freedom Act, no retailer Internet, mail order or otherwise has to collect taxes for states where it lacks such a ‘tax nexus.’ Equal treatment here means fair treatment, leaving states unable to complain that Internet retailers enjoy a tax loophole.
Equal treatment turns into unfair treatment, however, when it demands the same price for different levels of service. It is not fair, for instance, to force first-class fares on economy-class passengers or to demand Ivy League tuition for a community college education. That same principle holds true for the pricing of government services.
The sales and use taxes imposed on retail transactions fund local government services such as fire and police protection. In principle, the same citizen-consumers who benefit from such services pay for them through those taxes. Retailers merely add the applicable tax to their prices, collect the money from consumers, and pass it on to the local government.
Now compare Alan and Beth. Alan drives on police-patrolled streets to a mall protected by the local fire department, buys a shirt and drives back home. Beth stays in the........
