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When Things That Are Bad for You Are Good for the World

Legislation is currently making its way through the U.S. Congress that would require online retailers to charge sales tax on domestic sales.

People who do not live in the U.S. will find this idea very confusing, so let me briefly explain it: In most of the world, consumption is taxed at a standard national rate, and that tax is built into the price of something. So if you see a book price at 10 Euros, when you take the book up to the cashier and pay for it, you will learn that the book actually costs 10 Euros.

This is not the case in the United States, where consumption taxes (here known as sales taxes) are 1. not built in to the advertised price, and 2. are set and collected by individual states and sometimes even cities. So if you see a book priced at $10, in Chicago that book will actually cost $10.92, whereas if you buy exactly the same book in South Dakota, it will (probably) cost you $10.40, although some South Dakotan municipalities have higher sales tax.

It’s complicated, as you can see from this hilariously convoluted wikipedia article. Now of course what we should do is get rid of all these taxes and replace them with a single national consumption tax like every other country in the world, but we will never do this because states’ rights.

If online retailers have to charge sales tax on every item they sell in the U.S., it will create a massive headache: Software will need to be built that calculates sales tax based on the shipping address and then charges that sales tax and then remits it quarterly to the gazillion different municipalities that charge sales tax. This is not such a big problem for a huge company like Amazon, but it is a VERY BIG PROBLEM INDEED for a small company like DFTBA Records.

So this bill is bad news for me, and really for everyone who works for or often shops with DFTBA Records, because it will increase overhead and prices and decrease royalties.

But I think the bill is still good news for the world, because brick-and-mortar retailers, who really are important to a community’s success, are at a competitive disadvantage right now, because goods sold through the Internet are (on average) 5-10% cheaper due to being exempt from consumption taxes. That’s a huge competitive advantage for online retailers, and it also means they don’t contribute to the well-being of the communities where they do business: They don’t pay for the roads that their goods are shipped on, or the schools where their employees and customers are educated.

That’s not right. This bill will be a big blow to DFTBA Records and other independent online retailers, and some won’t be able to continue doing business. But most will (we’ll figure something out), and we can’t continue to exempt online sales from consumption tax in the U.S. We need a single national sales tax rate. But that ain’t gonna happen, and this is probably the best option remaining.

Sometimes bad news for you is good news for the social order. In those cases, it can be hard to be rational. (I know my first impulse in re. this bill was to be like, “WE MUST DEFEAT THIS THING THAT WILL HARM MY COMPANY.”) But ultimately I don’t think that kind of selfishness makes for better governance.

This bill is bad for me. And I’m in favor of it.

oh p.s. Shop at DFTBA quickly, while it’s still deliciously free of sales tax.