Taxing Remote Sales in the Digital Age: A Global Perspective

INTRODUCTIONThe challenges associated with the taxation of remote sales in the digital age are global.1 Providing a global perspective on these challenges is therefore appropriate, even for a symposium addressed primarily to such challenges under the U.S. subnational retail sales tax.2 Although the challenges associated with the taxation of remote sales in the digital age are global, the regimes that tax such sales are not. Accordingly, insofar as one looks to the implications of the global perspective on taxing remote sales in the digital age for guidance on U.S. subnational taxation of such sales, one should never lose sight of the contextual differences between the global and subnational tax regimes to avoid "lost in translation" problems.3This Article addresses three fundamental questions raised by the taxation of remote sales in the digital age from a global perspective, but focuses on the implications, if any, of the answers to these questions in the global context for the U.S. subnational retail sales tax. First, should remote sales be taxed under a consumption tax? Second, if the answer to the first question is "yes," where should such sales be taxed? Third, how can remote sales be taxed effectively under a consumption tax in the digital age?4I. SHOULD REMOTE SALES BE TAXED UNDER A CONSUMPTION TAX?A. The Global PerspectiveAs a theoretical matter, it is difficult to imagine how the answer to the question of whether remote sales should be taxed under a consumption tax could be anything other than "yes." This is so for the simple reason that a good consumption tax should tax consumption. A broad-based consumption tax5 generally measures taxable consumption by reference to purchases of goods and services for consumption, that is, by sales to private consumers.6 Whether goods and services are acquired through a local or cross-border sale has no relevance to the determination of whether the sale is for consumption to a private consumer. Moreover, failing to tax remote sales for consumption while taxing local sales for consumption would violate the fundamental principles of economic neutrality that "[t]axation should . . . be neutral . . . between conventional and electronic forms of commerce" and that "[t]axpayers in similar situations carrying out similar transactions should be subject to similar levels of taxation."7B. Implications of the Global Perspective for the U.S. Subnational Retail Sales Tax1. Can the U.S. retail sales tax reasonably be characterized as a broad-based consumption tax?The implications for the U.S. subnational retail sales tax8 (the "U.S. RST") of any conclusions drawn in the global context about the appropriate design of a broad-based consumption tax depend, at least in part, on the answer to the threshold question of whether the U.S. RST reasonably can be characterized as a broad-based consumption tax. If one regards the U.S. RST as a feature of "American exceptionalism,"9 and, accordingly, that the U.S. RST has no theoretical relationship to other broad-based taxes on consumption, then one can bring this inquiry to an abrupt¾and, in this Author's judgment, premature¾halt. If the U.S. RST cannot be considered, at least in principle, to be a broad-based consumption tax, then normative criteria, international or otherwise, informing the design of broad-based consumption taxes are simply beside the point.The better view, however, is that the U.S. RST should be viewed as a broad-based consumption tax, albeit one that is deeply flawed from a normative perspective. In principle, a broad-based consumption tax should tax all final consumption by households and should not tax businesses.10 Although no state has adopted a theoretically pure RST, all states have provisions that are designed to tax private consumption and to limit the tax on business purchases.11 Every state RST excludes sales for resale from the tax base.12 Similarly, states commonly exclude sales of ingredients or components of property produced for sale from the RST. …