Jim DeMint needs to revisit taxation without representation...

An editorial by Senator Jim DeMint - a Republican from South Carolina, published in the Wall Street Journal a couple of days ago.

http://online.wsj.com/article/SB10000872396390444226904577559414267708728.html

In the article, he argues that internet sales taxes amounts to taxation without representation and it overburdens small businesses.

I would like to take exception to both his arguments.

1) Taxation without representation - in the article, Sen DeMint states "So they'd like their allies in Washington to make it legal for them to tax people who can't vote against them."

Really? Yes, that's true.  On the other hand, have you ever rented a car at an airport in a different state than you lived?  Notice how much in "taxes" you pay on the rental car fee?  In some cities, it can be over 30% of the total.

And then you drive your rental car to a hotel.  Ever notice how much you pay in taxes on the hotel room?  12% to 20% would not be unusual.

It called "tax exportation" and is in hundred (probably thousands) of state and local laws through the US.

Why?  Because EVERY STATE IN THE US has state congressman who want to tax people who can't vote against them!  And those state representatives and senators realize the vast majority of people renting car and staying in hotels don't live in those states.

And since every state does it, effectively you have widespread "taxation without representation" already going on...

 -- Just as an aside, if you have ever gone to Disney World in Florida, you will notice they charge sales tax "built into" the admission ticket.  Generally, you don't charge a tax on services (think haircuts, car washes, etc).  But in this case, the state of Florida allows it.  Any guesses why? --

2) DeMint also states:

"A 2006 PricewaterhouseCoopers study found that tax-compliance costs for small businesses (those having $1 million to $10 million in annual sales) are nearly 2.5 times greater than those of larger firms. For businesses under $1 million in sales, those costs explode to 16 cents on every dollar of revenue."

That would be true of nearly every fixed cost - it is called economies of scale.  As a business gets bigger and bigger - certain costs which are fixed (or nearly fixed) decline on a per item basis.  This isn't something "new" to just tax compliance costs or internet sales taxes.

For example, in some states it is required that a business pay a fee (say $100) each year for doing business in the state.  If you sell only 100 items, the fee is $1 per item.  If you sell a million items, the fee become incredibly small.  That's simply how businesses incur fixed costs and the incentive that businesses have to "grow bigger."

The more important point DeMint should be focusing on is that tax compliance costs have decreased dramatically due to the widespread availability of the internet over the past 15-20 years, and that beneficial effect has been particularly felt by small businesses.  No longer must calculations and forms be filed out by hand and mail and state tax laws are now widely accessible over the internet (and do not need to be physically mailed to a business).  In hindsight, tax compliance in 1990 looked like the Flintstones (with chisels and stones)!