Level The Playing Field? Hold On To Your Wallet

Posted by Andrew Johnson on Wed, Dec 19, 2012 @ 18:12 PM

sales tax, online sales, nexus, collect use tax, tax rates


Just saw this genius comment to an article about online sales tax in the Peabody Patch from someone named John Buba:

"When politicians (Democrats) say "level the playing field" why is it always via a tax INCREASE?

You could create the same level field by REMOVING the sales tax from books (and then everything else.) Now that would really be something to cheer."


Talk about nailing it on the head. The only change I'd suggest is it's also the Republicans jumping on the bandwagon. The idea that the main concern of politicians is that we "level the playing field" has always been absurd in my book. This whole push for the Congress to pass a law forcing all online sellers to collect sales tax is nothing more than state governments forcing nonresident (and non-voting) companies to collect their taxes. 

People are selling these new laws like a panacea. I say it opens a new can of worms.

The big retailers already collect sales tax on online sales. Amazon is collecting in more and more states. It's hard to believe that all these local businesses people are naming are struggling just because some Internet vendors don't collect sales tax. Maybe it has something to do with more people are buying online period tax or no tax. People are casting it like this bill will do something for a local business. Since when does imposing costs on one business make another business better?

Are Goods Purchased Over the Internet Tax Exempt? No.

There has never been a period when purchases over the Internet were not taxable just because they were done online. That notion, while popular among the masses, has never been true. This whole movement is nothing but state governments trying to shift the costs of collection onto nonresident, non-voting businesses.

Can Congress Pass a Law on This? Yes.

There's no doubt that the US Supreme Court has cleared the way for the Congress to take action on this issue. In Quill, they held that this is a Commerce Clause issue. The Congress has the express right to regulate commerce "among the several states." Advocates of congressional involvement, though, are really hoping Congress passes a law forcing all companies to collect sales tax everywhere based solely on their volume of sales in the destination state. This is not a solution without significant burdens to businesses as advocates seem loathe to acknowledge. The field is plenty level already -- States need only enforce their own use taxes. State governments just don't want to do that. Too costly politically. So they want the Federal government to pass a law.

Once the law is in place, it's a simple matter to adjust the volume of sales year after year until any company selling anything must now collect and pay tax everywhere. A slippery slope for sure. Complying with laws and regulations in many jurisdictions is complicated, no matter how you look at it. We are in the trenches every day trying to help companies cope with the costs of doing business and just survive. Adding to their burden is not good for our economy.

And don’t believe for a second that this bill will make it easier for businesses just because there’s a $500K threshold for nexus. All it will mean, in my opinion, is that you will have nexus everywhere you currently have nexus because of “physical presence” (however that is interpreted state-by-state) and you will also have nexus wherever you have more than a certain volume of sales. That’s a great answer for government, but a bad answer for businesses, especially smaller businesses. That’s also a great answer for very large online retailers who can absorb these costs more readily than smaller businesses.

Maybe Congress could do something like pass a law saying you have to be headquartered in a state and have some voting privileges in that state in order for the state to force you to pay or collect their taxes. That seems like a good way for Congress to be useful here. Some have said that maybe Congress could pass a law that clarifies exactly what “physical presence” is. But hoping that Congress can do something that “clarifies” or “simplifies” is almost comical.

Topics: sales tax, nexus, SSTP, sales, collect taxes, audit enforcement, taxability, rates

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