Questioning the Viability of the Sales Tax: Can It Be Simplified to Create a Level Playing Field?

I. INTRODUCTION I appreciate the opportunity to speak to you. I would like to go on record as saying that it would warm my wife's heart to hear me introduced as the former chair of the Utah State Tax Commission. Whenever I was at a social event with my wife and was asked, "What do you do?" I would respond, "I am the chairman of the Utah State Tax Commission." In my wife's mind, my position was the medical equivalent of the endowed chair for the venereal diseases. So, she would hope that I would not be asked the next question, which was "What do Tax Commissioners do?" I would give a long dissertation as my wife would fade into the crowd. Governor Leavitt has been out in front of the Internet taxation issue. If you study what he has written and what he has said, and if you listen to his State of the State address on Monday night,' particularly to what he will say about Internet sales taxation, you will find that his position is the following: The sales tax system in its present form is complex, is burdensome, is in need of repair, and if it cannot be repaired to create levelness and fairness, it should be scrapped. It is his position that any additional revenues generated from the taxation of remote sales should reduce taxes and not be used to expand government. For Governor Leavitt, a level playing field means that all businesses or no businesses collect sales tax and that it is time to simplify and establish fairness in the sales tax system. Thus, the real issue from a tax policy perspective is whether the sales tax is a viable funding vehicle for state and local government in the twenty-first century economy. My one regret in taking over as Chief of Staff for Governor Leavitt is that I cannot deal with this issue on nearly a full-time basis. It is one of the most intriguing opportunities to simplify and harmonize tax policy in this century. II. THE RAPID DEVELOPMENT OF THE INTERNET Nearly 100 years ago, Alfred Marshall, a British economist, wrote in The Principles of Economics, "The full importance of an epochmaking idea is often not perceived in the generation in which it is made. . . . A new discovery is seldom fully effective, for practical purposes till many minor improvements and subsidiary discoveries have gathered themselves around it."2 Marshall alluded to a phenomenon of new, subsidiary discoveries that follow many major discoveries. As a recent article in The Economist put it: Who could have imagined, when the first car rolled along a road, how that invention would alter shopping, urban design or courtship? When Faraday experimented with electricity, who foresaw the coming of the skyscraper, its lifts driven by electrical power, or the movement of women into the workplace, their domestic productivity transformed by the washing machine and vacuum cleaner? What connection did anyone make between the arrival of television and the future of Political debate, or of branded goods?3 I believe we are on the threshold of these kinds of subsidiary discoveries in connection with the Internet. Headlines regarding the Internet suggest that subsidiary discoveries are occurring at a remarkable pace. For example, newspapers are being dissected and unbundled. Newspapers rely upon classified advertising as a main source of revenue. The Internet, however, is also being used for classified advertising, and, as a result, specialized nationwide services are emerging. Newspaper editorial boards, staff, and management are planning their reaction to the Internet's impact on one of their main revenue sources. These subsidiary discoveries present issues that historically have taken more than one career to see through. And yet it is likely that one issue, taxation of remote transactions, will be resolved within the decade. At this point, it is important to emphasize that the issue is neither the assessment nor the creation of new taxes. This issue relates exclusively to the collection of taxes. …