Internet Sales Tax Update
Legislation leading Tennessee closer to taxing online cross-border sales passed the House 71-15-10 with 3 members not voting, and passed the state Senate 29-2 with two members not voting. That means a whole lot of supposedly anti-tax Republicans and anti-tax moderate Democrats just voted in favor of a future tax increase. They've also made an income tax more likely.

In Tennessee, all tax politics is ultimately about the controversial proposal to institute a state income tax. Hence, one anti-income tax lawmakers' explanation of his vote for this legislation, quoted in today's Tennessean newspaper:

''I think this leads us ... farther away from an income tax, and I'm going to vote yes,'' said Rep. Tim Garrett, D-Goodlettsville.

The sentiment is nice and the spin is artful, but Garrett - a Democrat I admire for his consistent stand against the income tax - is just wrong.

Taxing online sales leads Tennessee toward an income tax. Here's why: If Congress does allow states to tax cross-border online transactions, the revenue that will come in to Tennessee state government will be much less than the over-hyped forecasts. As I explained both here and on PolState.com yesterday, the legislators are being provided with estimates of revenue "losses" due to untaxed e-commerce that have long ago been discredited as wildly exaggerated.

And when revenue is lower, income tax proponents will again claim that shows the state's only solution to its "chonic revenue shortfalls" is an income tax.