by Lowman S. Henry | February 27, 2007

New PA tax SWAT team after more internet revenue

Big Brother Pennsylvania tax collector wants you!  Pennsylvania Revenue Secretary Greg Fajt has told the House Appropriations Committee that he plans to crack down on internet sales tax scofflaws.  And, he has asked for $4.6 million to hire a new fiscal swat team to pluck more dollars from the pockets of Pennsylvania taxpayers.

It seems more and more people and businesses are making purchases on the internet as a way to avoid paying Pennsylvania’s six percent sales tax.  Secretary Fajt estimates a windfall of $230 million by going after that revenue.  Particularly targeted are businesses, and those who buy cigarettes on the internet.

Internet sales have skyrocketed in recent years.  A combination of convenience and price (including the avoidance of taxes) has fueled that growth.  It is axiomatic that any time the government taxes an activity, the activity decreases.  In non-tax or low-tax environments, free enterprise flourishes.  Thus far, the internet has operated largely outside the tax man’s grasp.  Secretary Fajt wants to change all that.

Perhaps the most draconian of Fajt’s proposed tactics is his plan to audit thousands of businesses. He wants to set up a whole new bureaucracy to do this.  Let me suggest the new tax collection unit should hence forth be known as the “Keystone Get-your-money Brigade” or KGB for short.

If a business has reported a significant increase in so-called fixed assets (for any reason), they will become a KGB target.  Apparently the secretary thinks you cannot honestly succeed at growing your business here in the People’s Republic of Pennsylvania.  So, if you look like you’ve been turning a profit, you’ll get yet another government form to fill out.  If you don’t turn in your form, then like the revenuers of old going after a mountain still, the KGB will be on your doorstep, pens in hand ready to audit.

If you happen to be a professional licensed by the state, you will be in the center of the KGB’s cross-hairs.  Before your license is renewed you will be thoroughly checked out by the Revenue Department, and if you are found to have made any purchases on the internet and didn’t give Governor Ed his six percent, you won’t get your license renewed.

All of this raises a number of serious questions.  Pennsylvania already suffers from one of the worst business climates in the nation.  From high and duplicative taxes, to over-regulation, this just isn’t a good place from which to operate.  That is why the Keystone state rates at or near the bottom of every survey on competitiveness ever taken.  So now, the commonwealth will dig the hole deeper by extending its tax grabbing ways to the internet.

Taxing internet commerce represents a significant public policy challenge for governments at all levels.  The internet has been a technological growth engine for years.  One thing is certain, the more governments interfere, and the more taxes are levied on internet commerce, the slower future growth will be.

All of this is not to say that internet retailers should not comply with current tax laws.  Secretary Fajt did say his department would be negotiating with on-line retailers to establish sales tax collections in the same manner brick and mortar retailers collect such taxes.  That sounds like a more reasonable approach than sending government agents out to audit businesses and deny re-licensure to professionals.

Media reports indicate legislators reacted positively to Secretary Fajt’s proposals.  That is unfortunate, and symptomatic of the legislature’s penchant for expanding bureaucracy and contracting economic freedom.  This is not a tax collection proposal. It is a job-killing, anti-business Jihad which should be stopped dead in its tracks.  Otherwise, the flow of businesses headed south on I-95 will continue to grow.