Just when I thought we could get a break from bad news this week, the Internet sales tax collection bill reared its ugly head. It has a way to go before becoming law, but according to the New York Times, a majority in the Senate has voted to take it up for debate and amendment.
While it is meant to level the playing field between brick-and-mortar stores and online stores (by allowing online retailers to collect state sales taxes), it will be nothing more than a bureaucratic nightmare in its current form. The Market Place Fairness Act would allow online retailers to collect sales taxes for the buyer’s state. So if I am an online retailer, I would have to keep track of the sales tax rates in some 9,000 taxing jurisdictions and remit payments to those jurisdictions.
As noted in the NCPA publication, “The Pitfalls of Internet Sales Tax Collection,” this destination-based form of taxation would require imperfect software plus several hours of compliance time. This is not what I call “leveling the playing field,” since a brick-and-mortar store must only keep up with the sales tax of its own location, not 8,999 others. If there must be an Internet sales tax, an origin-based tax would be much more simple and foster tax competition among states (see publication).
States with no sales tax are hopping mad. And as well they should be. Once retailers get their “free” software to collect taxes from other states, the temptation for legislators in these no-tax states to impose sales taxes of their own will be far too great.