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Unformatted text preview: Why Sales Taxes? State Tax Notes , February 14, 2000, pp.529-31 Mason Gaffney Professor of Economics, University of California-Riverside Orig. an address, "Taxation of interjurisdictional e-commerce." at the Conference on "The 'Worldview-OECD' and other Initiatives on Worldwide Taxation of e-commerce." Sponsored by Offshore Investment, The Ritz-Carlton Hotel, San Francisco, 20 Oct. 99 1. Most writers and reporters in this new field accept state and local sales taxes as part of the ordained order of things. The predominant attitude is one of how to preserve and raise the state sales tax, by taxing purchases from "foreign" (out-of- state) sources, which the writers regard as an administrative nuisance and a leakage. A. Academic sources. Modern textbooks on public finance do not treat the general retail sales tax as the historical novelty that it is. They no longer mention that no state taxed retail sales until 1929 (GA) 1 and 1930 (MS), and most not until 1933 (when California joined the movement with a rate of 2%) and the mid- thirties, by which time half the states joined in. Few books give any weight to the fact that 5 states and one province (Alberta) have no sales tax at all: the states are Alaska, Oregon, NH, Delaware, and Montana. The academics treat these states as eccentrics and laggards, and trivialize them for their small populations, but the states in question, which have 10 U.S. Senators among them, do not see themselves that way at all. One of them, Oregon, in 1980 retired the powerful Chairman of the House Committee on Ways and Means, Al Ullman, because he 1Technically the GA tax was on gross business income. Most economists see that as functionally a sales tax. championed a Federal VAT. Another, New Hampshire, plays a key role in screening presidential candidates. It is rather a matter of some local pride, not to mention commercial advantage. People speak casually about a uniform Federal standard for all states (and all cities and counties within states, over 7,000 taxing jurisdictions in all). But state taxes are a power reserved to each state; not one they will quietly abandon. Few academics show much concern about its partiality and non-uniformity. They enumerate a few exemptions, but then favor it because it allegedly exempts capital formation. Even some decentralists seem to favor federal action to promote state sales taxes. Here is the attitude of Charles McLure of the Hoover Institution, who wrote, "I believe sales taxes to be the most appropriate form of tax for state and local govts. to use." He adds, " ... the ridiculously unfair and distortionary de facto exemption of interstate sales by mail- order houses" should be banned by federal legislation....
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