Consumer privacy online is threatened again by the specter of a scheme to tax Internet sales. This past month has seen outgoing California Governor Gray Davis sign a bill joining California into the compact of states building the Streamlined Sales Tax Project (SSTP). And bills to give Congressional approval to the compact have been introduced in both the U.S. House and Senate.

The SSTP is a project now consisting of 39 states that are working to harmonize sales tax rules and make sure none of their citizens even thinks of buying something from somewhere else without their state government recording and taxing the transaction. About 20 states have already passed the laws to "simplify" their sales tax systems in expectation that Congress will ratify the compact.

Will Congress grant all these state governments permission to plunder online and mail-order consumers? Bills introduced in the House by Reps. William Delahunt (D-Mass.) and Ernest Istook (R-Okla.), H.R. 3184, and the Senate by Michael Enzi (R.-Ore.) and Byron Dorgan (D.-N.D.), S. 1736, would grant the Constituionally-required blessing for the states to do just that.

The SSTP compact these Congressmen would ratify is essentially a warmed-over retread of the National Governors' Association's old "Trusted Third-Party" project -- in which states would trust someone who could write software to track everything you buy online, and then take money from your credit card and give it to your state's appropriations committees.

As it now stands, a state government cannot force businesses not located or lacking a "nexus" in that state to collect sales taxes. Individual consumers are instead liable in many states to report such purchases and pay a roughly equivalent "use tax". [See handy Flash animation explanation.] But use taxes are difficult and unpopular to enforce, which enables states to use lower sales tax rates to compete for businesses and consumers -- something that does not sit well with the governors and legislators of high-sales-tax states.

One sponsor of the Senate Bill, Michael Enzi of Utah, points out that it's not just Internet sales that will be taxed, but catalog and phone-order purchases as well. Proponents such as Enzi claim that the SSTP system "does not increase taxes." But besides the fact that the SSTP will increase tax collections, this claim ignores the reality that the "simplified" tax structures imposed by the new statutes will almost certainly lead to a net increase in sales tax rates overall as such "tax simplifications" almost inevitably do.

So, as state politicians whine about phantom lost revenue and continue to shovel pork into exploding budgets, they are attempting to set up and mandate an elaborate "streamlined" system that would track consumer purchases across the country -- online and offline -- and enable the consumer's home state to automatically collect a tax at the time of sale. This tracking system would necessarily undermine consumer privacy by adding their purchase information to yet another database. With state agencies recently selling or giving away everything from drivers' license photos to PCs full of Social Security numbers, joining into other database compacts like the MATRIX system, and using insecure voting software, it would be folly to expect purchases made through state-sanctioned tax software to remain secure and private.

Those in the statehouses and Congress who would cavalierly ignore consumer privacy in the quest to quash tax competition and grab more cash from online shoppers are this week's Privacy Villains.

government surveillance

medical privacy

financial privacy

online privacy

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