Why sales taxes on internet transactions will hurt small business

Megan McArdle explains why taxes on the internet sales of small businesses that do not otherwise have a "nexus" in a particular state will hurt them. She is right -- this is just another example of regulation that will burden small businesses far out of proportion to large ones. Why? Because the overhead required to pay taxes in hundreds of jurisdictions is no little matter, even for pretty significant companies. Only large companies can easily absorb the infrastructure to do it accurately. Small businesses trying to sell t-shirts or cupcakes or logo umbrellas over the internet cannot afford the people necessary to pay taxes in hundreds of jurisdictions, even if the taxes themselves are a small percentage of sales.

There is another question, a point of principle, that warrants at least passing discussion. Beyond the utilitarian anti-small business considerations, why are we (as opposed to the governing class) better off if the federal government enforces the unrealistic and outmoded tax laws of the states? States can fund themselves in any number of ways, and chose the sales tax generations ago because it was relatively easy to audit retail transactions. Now that the internet has driven retail in to the cloud and manifestly across state lines, perhaps states should consider reforming the means by which they raise revenue to take, you know, reality in to account.