April 26, 2007

Tennessean Editorial Slams "Use" Tax

A stunning and excellent editorial today from The Tennessean, which has come out against the state's "use" tax - the sales tax the state imposes on out-of-state purchases. You read that right - The Tennessean has come out against the use tax.

Among the problems with the use tax, as described by the Tennessean editorial:
overall, the use tax has problems:

It is, in fact, an end run, contradicting decisions by the Supreme Court and Congress. Though it goes by another name, the use tax is a sales tax.

The notion that a state should be entitled to revenue for a good or service to which it did not contribute any resources goes against the notion of free enterprise.

The Tennessean that enforcement of the tax "is clearly disproportionate," as the tax is technically owed on all purchases from out of state, but the state only focuses its enforcement efforts on big-ticket items. Indeed, says the editorial, "most consumers are unaware of the use tax, and the whopping 12 percent interest penalty for late payment."

One weakness in the editorial: it recycles the very flawed prediction from University of Tennessee economists who estimated that Tennessee will lose $335 million in sales taxes due to Internet commerce in 2008. But all in all a very good - and completely surprising - editorial from The Tennessean.

The paper today also publishes an op-ed on the use tax by Ben Cunningham of Tennessee Tax Revolt, but also an op-ed by Dr. Bill Fox, the UT economist who is the lead author of all those flawed forecasts and who is a tireless cheerleader for higher taxes and a state income tax. Fox's argument this time is that applying state sales taxes to out-of-state purchases is good for the state's economy.