Trump got one thing right in his rant against the “Amazon Washington Post.”

The One Thing Trump Got Right in His Rant Against the “Amazon Washington Post”

The One Thing Trump Got Right in His Rant Against the “Amazon Washington Post”

Moneybox
A blog about business and economics.
July 26 2017 9:30 AM

The One Thing Trump Got Right in His Rant Against the “Amazon Washington Post”

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Trump’s favorite punching bag not named Jeff Sessions.

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Once again, President Donald Trump is slamming his perceived enemies on Twitter, this week returning to an old favorite: the Washington Post, whose owner is Amazon CEO Jeff Bezos. Though the Post is a separate company from Amazon, Trump tried to smear both by referring to the paper as the “Amazon Washington Post” and asking whether it was a “Lobbyist for Amazon and taxes?” In Trump’s rhetoric, Amazon is a “no tax monopoly”—an echo of an earlier tweet in which he accused Amazon of failing to pay “internet taxes.”

Trump is clearly trying to discredit one of his most dogged chroniclers in the press by claiming that its owner is somehow disreputable because he takes advantage of the tax laws to avoid taxes others are required to pay. Not only is that desperate, but it is also hypocritical, coming from someone who bragged during the campaign that he’s fought like hell to pay as little in taxes as he could and whose advisers claimed that his ability to avoid taxes was a sign of his genius.

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Despite all that, sometimes even a blind pig finds a truffle, and it appears that, in his rage, our blind pig in chief may have actually stumbled onto a good tax idea.

It is not entirely clear what Trump is accusing Amazon of—there are no “internet taxes” and Amazon does not have a monopoly. But it appears he is referring to the rules that prevent states from requiring out-of-state retailers from collecting and remitting use taxes on items bought by state residents, often over the internet. Put differently, he appears to be advocating for a law that would require all internet companies to collect such taxes and remit them to the states. Ironically, Amazon supports such a law. Instead, members of Trump’s own party have effectively blocked all efforts to address this problem.

States that have sales taxes require in-state retailers to collect and remit those taxes. Generally, sales taxes are due only on items purchased and used within a state. Thus, taxpayers quickly figured out they could escape sales tax by living in one state, buying things from a retailer in another state, and having them shipped to where they lived. This practice would give out-of-state retailers a significant advantage because their sales would not be subject to tax. To combat this, states adopted “use” taxes at rates equal to the sales tax rate, which applied to items purchased out of state but used in state. Thus, an Arizona taxpayer might avoid both California and Arizona sales tax by buying something in California and having it shipped to Arizona. However, he would owe Arizona use tax, thus eliminating any advantage of shopping out of state.

Taxpayers are supposed to report their purchases to the state government and pay their use taxes, but, as you can imagine, this seldom, if ever, happens. The result is that states are deprived of significant amounts of tax revenues. Some estimates suggest the number is more than $23 billion per year and growing. Several states have attempted to remedy this problem by forcing out-of-state retailers to collect and remit use taxes, but they’ve run into a number of problems. The first is jurisdiction. How is Arizona supposed to exercise power over out-of-state retailers? The second stems from the Constitution’s commerce clause, which limits the states’ abilities to interfere with interstate commerce. In a famous case (at least among tax nerds) called Quill Corp. v. North Dakota, the Supreme Court held that states lacked the authority to require out-of-state retailers to collect and remit use taxes but that Congress could grant them that power. The court all but invited Congress to act, but it has not yet done so.

Democrats have made a number of attempts in Congress to give states the power to require out-of-state retailers to collect and remit use taxes, or at the very least to report how much residents have purchased. For instance, they have introduced various versions of the Main Street Fairness Act over the years. Other efforts include the Marketplace Fairness Act. However, Republicans have largely blocked such efforts. Critics of the act have argued that a tax holiday for internet sales was important to help the nascent internet take root. Such concerns are clearly no longer relevant. They have also argued that requiring retailers to collect use tax would require them to know the different use tax rates for every state, county, and other municipality, thus imposing a significant burden. However, technology is quickly rendering such concerns obsolete.

Again, Amazon supports this law. It has expanded its physical presence into a number of states, thus coming under more states’ jurisdiction. As a result, Amazon actually does collect sales or use taxes for most of the states in which it does business. It’s smaller internet businesses, with a physical presence in but one or a few states, that are able to avoid the obligation, giving them a competitive advantage and depriving states of much-needed revenue.

President Trump campaigned in part as a populist, railing against the forces that have hollowed out the middle class and brought ruin to Main Street. One of those forces has been the significant tax advantage online retailers have had over small retailers because they often do not have to collect use taxes. If Trump really cares about the states and mom-and-pop businesses that sell locally, supporting the Main Street Fairness Act or one of the other similar proposals would be a great first step toward fulfilling that element of his campaign.

Obviously, all of that is less important to Trump than undermining the Washington Post, the source of a significant number of his headaches. At the same time, good tax ideas coming out of this administration are few and far between. Let’s take them where we can find them.