Use Taxes and the Digital Divide

A commonplace analysis of e-commerce is that shipping costs are often more than made up for by the lack of sales tax. Shippers need not include sales tax within the prices paid for items shipped over state lines, even if the shipper is located in a state that charges sales tax. However, purchasers are generally required (depending on the state in which they reside) to pay “use taxes” which equate to what the sales tax would have been on the items purchased had they been bought in-state.

The truth of use taxes is that they are extremely difficult to enforce and rarely paid. especially for small ticket items. It is very difficult for state officials to determine where a good was purchased without being privy to the actual transaction. The end result of this scenario in the e-commerce world is that sales taxes are dodged and use taxes are not paid.

An ugly question remains: since e-commerce inherently requires a credit card, computer, and shipping address, are tax burdens unfairly passed on to those on the short end of the digital divide? I would be far more concerned about this phenomenon if there were not a bevy of other taxes that can be jiggered to balance the burden. However, this question has become more interesting as people grow more comfortable with e-commerce. I personally know several people that did not set foot in a store this past holiday season…and I doubt they are keeping tabs of the use tax they owe.

Regardless, this is clearly my most boring post to date.

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