An Uphill Playing Field for Online Retailers

Just when I thought we could get a break from bad news this week, the Internet sales tax collection bill  reared its ugly head.  internet salesIt 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.

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Comments (11)

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  1. Kyle says:

    Federalism – it’s going down in flames.

    Are we seriously trusting the government to create an efficient system which will reduce compliance expenditures or actually “level the playing field?”
    Annual expenditures on compliance for progressive tax structures is in the billions of dollars.

    Every time legislators say they “finally got it right” I throw up in my mouth just a little.

  2. Jordan says:

    I wonder what kind of precedent this sets for internet regulation of property rights. I’d really hate to see that monstrosity “rear its ugly head.”

  3. Mo says:

    This sounds like a complete disaster. Both the regulatory and the practical application of enforcing and collecting these taxes seems like an absolutely mediocre idea.

  4. Andrew says:

    I was listening to NPR and heard about this bill having some potential to become law. I am no expert in taxation, but even to me it makes perfect sense how this sales tax on online retailers would become quite messy.

  5. B. Popplewell says:

    The 2012 edition of the Tax Code contains 3.95 million words. Shouldn’t we bother cleaning up that mess before adding to it?

  6. Anthony says:

    While this sounds like a potential messy deal if passed, I actually really doubt it will get close to passing in the House.

  7. Paket says:

    Interesting, I knew that taxes are a hot mess, but when you include the internet into the dialogue, it becomes worse.

  8. Desai says:

    I agree with Dear Pam, “an origin-based tax would be much more simple and foster tax competition among states.” We need this kind of competition!

  9. Sandeep says:

    Just when I thought I had enough with Taxes, this shows up, great!

  10. Joe Barnett says:

    So is not paying another state’s sales tax going to be a federal crime?

    Would this legislation relieve consumers of the legal responsibility for paying their state’s sales tax?

    So purchases from small online retailers (under $1 million in sales) would be exempted from collecting the tax, whereas larger ones would not.

  11. Gabriel Odom says:

    More on the Internet:

    http://rt.com/usa/cispa-limbo-senate-apathy-294/

    I strongly dislike any effort to federalize the Internet. This is the one Nation in the world where ideas are truly free. The Internet, in my opinion, is the only place where anarchy actually works – mainly because physical violence is impossible.