There are two ways to improve a state’s business climate as compared with other states.

One is to take the necessary steps in your own state: Cut taxes, defang regulators, cut taxes, improve schools and infrastructure in cost-efficient ways, cut taxes, eliminate unnecessary government spending (the presence of which leads to higher taxes), and cut taxes. The other is to do nothing while other states around you make their own business climates worse.

Thanks to the Nov. 2 election results, Wisconsin is working to improve its business climate (which is much more important than the collective bargaining “rights” of public employees), yet we are able to take advantage of poor decisions of other states. An example of the latter is to our south, where Illinois not only raised income taxes, but instituted a new “Amazon tax,” a sales tax on online purchases. The California Assembly passed its own Amazon tax this week.

The issue of online sales taxes is slightly more complicated than it may seem, analogous to the debate over shopping locally vs. going to the out-of-town big-box store for lower prices. It is, however, yet another example of government’s trying to suck more money out of our wallets.

Shoppers pay sales taxes at brick-and-mortar stores based on where they live. (If you live in Fond du Lac County, you pay the 5 percent state sales tax plus an additional 0.5-percent sales tax as part of the package for keeping Mercury Marine in Fond du Lac.) Wisconsin residents are supposed to pay sales taxes on out-of-state purchases, but that is up to the resident to pay them because a state cannot assess taxes on an out-of-state business.

Why not? The Competitive Enterprise Institute answers:

Currently, a Supreme Court decision prevents states from collecting sales-tax revenues from companies with no physical presence in the state. For example, if a Virginia resident buys a product online from a company in Oklahoma, unless that Sooner vendor has a store, warehouse or anything else that qualifies as “nexus” in the commonwealth, Virginia can’t collect sales tax on the transaction.

This arrangement benefits consumers by promoting tax competition.It also protects interstate commerce by sparing sellers the burdensome task of remitting sales taxes to about 7,400 different state and local taxing jurisdictions across the country. Finally, it preserves the principle of “no taxation without representation” by preventing states from reaching outside their borders to tax businesses to which they are not accountable.

If, however, the business in question has a “nexus,” or location, within the state, then that business becomes an in-state business and is required to collect sales taxes from its customers. The “Amazon tax” applies to online sellers that have affiliates within a certain state.

Illinois, whose voters blundered by giving their acting governor the job full time (but don’t tell them that), passed an Amazon tax earlier this year. And several online retailers with Illinois affiliates promptly severed the affiliations. Which means — surprise! — a likely loss of jobs due to a lack of business for those affiliates.

As usually happens in debates over business taxes, the wrong things get attention. The argument over online business taxes is often portrayed as a battle between Main Street businesses and their online or out-of-town competition. A newspaper publisher I know had to eat some newsprint- and ink-flavored crow when, after he wrote an editorial about how local shoppers should prefer local businesses to the evil from out of town and the Internet, the owner of an online business reminded him that his business and its worldwide clientele was based in that very community.

Building owners pay property taxes — that is, the cost of property taxes is added to the products and services consumers buy — to fund such local government services as police and fire protection. Amazon.com will not use, for instance, the Ripon Fire Department because Amazon.com doesn’t have a facility in Ripon. (For now.) To assess taxes on companies that aren’t actually physically here is indeed taxation without representation. You may recall that a war of independence was fought over that concept.

That concept is either forgotten or ignored by the U.S. senators who have introduced the Main Street Fairness Act, which would allow the 44 states that have signed the Streamlined Sales and Use Tax Agreement — which, of course, includes Wisconsin thanks to our previous governor — to tax each others’ businesses. In order to increase state and local tax revenues by 0.3 percent, the 44 states are willing to impose costs of 16 cents per dollar of revenues for companies of $1 million or less in revenue. (Regulations are taxes too.)

CEI adds:

Consumers also will suffer. Customers benefit from the downward pressure healthy tax competition puts on tax rates and rules. The tax simplification assumed in this legislation surely will mean overall increases in taxes paid. “Assumed” is the right word for the simplification because the so-called “streamlined” agreement document is still 200 pages of loopholes and exceptions.

Most important, the principle of federalism will lose, too. The “states’ rights” battle cry from proponents of this legislation is only half of what the Founding Fathers intended with their brand of federalism.They also meant to preserve the healthy tension among states competing for citizens and commerce. For this reason, they granted Congress authority to protect the free flow of interstate commerce – the antithesis of the bill’s blessing for interstate tax collusion. We’ve seen what happens when states’ rights include protectionism and discrimination against out-of-state entities; it was called the Articles of Confederation, and we all know how that ended.

There is, most importantly, the benefit of having a business within your state — employment, purchasing of goods and services, contributions to the community, and so on — which far exceeds tax revenues sucked from businesses. No economy anywhere is strong enough, particularly now, to be able to raise taxes on business and then, at a minimum, watch as consumers pay more for products and services or, at worst, watch businesses leave for more tax-friendly environments. Every new tax levied on a business is an encouragement for a business to leave. One assumes, based on Illinois’ Amazon tax, that Illinois thinks it has enough businesses employing people and can afford to have some leave the state. (We’ll see how Illinois voters feel about that in November 2012.)

TG Daily points out the real purpose of Amazon taxes, which has nothing to do with supporting Main Street businesses:

Nope, to fix the problem their big government spending causes they just turn successful parts of the private sector into the scapegoat. They make claims that Amazon is just a bunch of greedy bastards who don’t want to pay their fair share.

Amazon is good at what they do and they should continue to fight the states who want them to pay all of these new taxes. The tax system needs to be reformed because the way it is now is causing companies to leave states and the US altogether.

Big government spending and taxation is responsible for California’s budget woes, not Amazon. If you are getting tired of being taxed to pay for government waste then it is in your best interest for Amazon to win this battle. Believe it or not, it has huge implications for the rest of us.