Economists generally think that competition is good. Competition among computer makers causes prices to be lower. So does competition among airlines, rental car companies and insurance companies. Why would competition among tax authorities be bad?
But, says the pro-tax side, it's bad because then governments have trouble collecting revenue and some people who gain from government services don't pay their "fair share" for those services. Let's put that in perspective. A 2010 study by economists Jeffrey A. Eisenach and Robert E. Litan that was funded by Netchoice, the voice of the e-commerce industry, found that by 2012, the amount of revenue that California governments would be missing out on by not taxing interstate sales will be only $621 million, well below 0.5 percent of California governments' total tax take.
But even if the forfeited revenue were a large amount, there's still a problem. Even though the resident buyers pay the tax officially, what economists call the "burden" of the tax falls on both buyers and sellers. The percentage split of the burden depends on who - buyer or seller - is more price-sensitive.
This is from my "Tax on Interstate On-Line Sales Unfair," in the San Francisco Chronicle, July 31, 2011. In the piece I signed off on, I had the word "foregone," not "forfeited." I trust that my readers see the difference.