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Selling Us a Sales Tax Bill of Goods (Add 6%)

by Tim O'Brien
June 5, 2001

If there is one, universal, defining characteristic of politicians, it would have to be: covetousness.

Nothing drives a politician to distraction faster than the prospect that some money might be trading hands somewhere without the government getting a piece of the action.

The consummate incarnation of this effort to skim off of every transaction is the sales tax. In fact, elected officials are so enamored of this source of revenue that they have shamelessly pursued expansion of its application in ways that strain even contemporary credulity.

Consider, for instance, the sales tax attack on our state's most important product -- the automobile.

Suppose you buy even a modest new car for, say, $16,000. From an historical perspective this is really quite a bargain, given all of the creativity, resources and labor that goes into producing a vehicle that can safely and comfortably whisk you across several states in a single day.

But open your checkbook a bit wider. You will also have to fork over another $1,000 to the state government -- which contributed nothing to the production of your new car. The extra $1,000 essentially gets you a purchase permit.

What if you buy the car in another state? Or even don't buy it at all but, instead, merely lease it? No Michigan sale, no Michigan sales tax, right? As TV pundit Charles McLaughlin would say: "Wrong!" They thought of that. And created a corresponding "use" tax for such circumstances to make sure the government still gets its cut.

And if you expect any credit for the tax already paid on your trade-in, you obviously aren't appreciating the depths of the politicians' avarice. This isn't about equity. It's about opportunity. There is no credit for taxes previously paid on a vehicle when it is resold.

But you won't encounter the most crass example of government greed until you take that new car to your local gas station for a fill-up. There you will notice that the state has tacked the 6% sales tax onto the final price of a gallon of gasoline. A price that already includes a 19 cent state tax. That's right. More than a penny of the sales tax you pay on every gallon of gasoline you buy is not even on the gasoline. It is a tax on the tax!

How is that for unvarnished rapacity?

Now comes much wailing and gnashing of teeth in Lansing over the money that is allegedly being "lost" because the people are increasingly making purchases over the Internet. (In point of fact, of course, no money is evaporating into the ether. It is simply remaining in the pockets of the people who actually earned it. The only thing that is being lost is the politicians' chance to rake in a 6% windfall and spend the money as they see fit.)

The problem for state pols in attempting to leech off of e-commerce is a little stumbling block called the United States Constitution. This annoying document limits the enforcement authority of the individual states to within their own borders. And it prohibits them from interfering with interstate commerce -- including e-type -- by, for instance, slapping a tariff on goods produced in other states.

Senator Joanne Emmons (R-Big Rapids) has sponsored and already shepherded through her Senate Finance committee and the Senate itself a bill to circumvent this little difficulty. The legislation would send Michigan representatives to a National Council of State Legislatures meeting where they would be authorized to negotiate an interstate compact -- a reciprocal agreement that would permit collection and remittance of sales and use taxes among all of the signatory states. A sort of you-shakedown-our-residents-and-we'll-shakedown-yours deal.

Although the legislation is strongly supported by Governor John "31 Tax Cuts" Engler and is said by insiders to be on a fast-track, it still faces some additional obstacles.

For one thing, SB-433 has yet to be formally introduced in the state house (where stiffer opposition than in the senate is anticipated).

For another, the drafters of that pesky US Constitution anticipated the possibility that states might attempt this kind of "end-run" around the Interstate Commerce clause and also included in Article I, Section 10 a prohibition against states entering into such Agreements or Compacts without the consent of congress. A hurdle that may yet prove problematic.

Then, there's the fact that in order to unify the administration of diverse sales and use taxes, the numerous state codes themselves will have to be standardized in a way that is broad enough to encompass all variations.

That means caps and exemptions (such as our state's exempting food and medicine) and limits on application (such as our state's not applying the tax to services) could ultimately be eliminated.

So, they ostensibly set out to tax Internet transactions. But could well end up extending the 6% sales and use tax to everything from groceries and antibiotics to haircuts and medical check-ups -- even if you don't have to cross state lines to get to your supermarket, pharmacy, barber or doctor.

When the Almighty carved the last of his Ten Commandments in stone he must have had politicians in mind.

Tim O'Brien is the Executive Director of the Libertarian Party of Michigan.

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