Internet Tax Madness

Internet Tax Madness

Let’s play make believe for a moment so that we can understand the Internet Tax Madness that is going on in the Senate right now… with the aptly misnamed Marketplace Fairness Act, S. 743.

Pretend you own a successful specialty store in Vail, Colorado selling the world’s best widgets (or maybe prepper supplies).  Everything’s going along swimmingly until there’s a convention of State and local politicians and bureaucrats from all over the country in town.  Several of the conference attendees, let’s call them Larry, Moe & Curly decide to skip out of their taxpayer funded educational opportunity and stop by your store.  While they’re browsing your store they notice a couple of their neighbors, let’s call them Joe and Shemp from back home buying your wonderful widgets with their hard earned money.

When you ring up Joe and Shemp’s sale you follow all local laws including collecting applicable local taxes.  When Larry, Moe & Curly notice Joe & Shemp’s purchases they turn green with envy.  You notice them whip out a couple of slide rules and start calculating something.  What they are calculating is all the ‘lost’ tax revenue that they could have made if Joe, Shemp and everyone else would have purchased their widgets back home…so that Larry, Moe & Curly’s various levels of state and local government could have taken their ‘fair share.’

Three StoogesLarry, Moe & Curly leave without buying anything (they want the tax revenue back in the home jurisdiction after all) but now they’ve got an idea.  Back at the conference they gather all their fellow public sector buddies and politicians and begin to hatch a plot.  Afraid that they aren’t powerful enough to get their plan through all by themselves they enlist the aid of Walmart and Amazon to aid in the efforts and bring important donations to pliable politicians.

The plan is simple in it’s complexity or complex in it’s simplicity…. Larry and his buddies propose a nationwide law that requires you to figure out where every one of your clients lives and charge the sales taxes that his state and local government would impose if customers like Joe had made their purchases at home.

The good news is that there are only about 9,600 separate taxing entities that you’ll need to keep track of.  The bad news is that you’ll have to buy sophisticated software systems that marry geospacial information systems (GIS) with constantly updated tax databases.

The GIS System will let you know which overlapping tax districts your client lives in (city, county, State, ambulance district, special incentive districts, etc.) and the tax database will help you navigate the multiplicity of sales tax rules and exceptions.  For example, some States exempt grocery items from sales tax but which items are considered ‘groceries’ varies from state to State, there are also sales tax ‘holidays’ for environmental purchases or back to school items on varying days and for varying different types of items.

Now that you’ve figured out how much tax you owe that city, county and State that you’ve never been to, may never go to, and certainly don’t utilize any of the government services that the taxes you’ve collected will pay for…you have to send them the money.

Did I mention that Amazon has developed a software system like the one described above that they’ll be happy to sell you to help you comply with this new legislation?  I wonder why Walmart is supporting the legislation…could it be that they think they’re big enough to absorb the cost of compliance…especially if it knocks out a lot of Mom & Pop businesses that they compete with.

Now, we all know that placing a logistical and administrative burden on a brick and mortar store is inconceivable…but this is the same burden that our elected officials are preparing to place on online merchants.  The Federal government certainly has the right to regulate interstate commerce but why is the proposal to charge taxes at the destination rather than the origination point of online purchases?  Could it be that high tax states which tend to be more populace and have more power in Washington are looking to recover ‘lost’ revenues that their own high taxes have driven out of state?

Some will argue that because the act exempts smaller businesses from compliance that it’s justified but forcing businesses to stay small in order to avoid crippling compliance costs doesn’t fuel our economic engine…just look at all the jobs (and/or hours) being cut by businesses in order to avoid the high costs of health insurance reform/ the Affordable Care Act.

If collecting sales tax on online purchases is truly a ‘necessity’ let’s collect the taxes in place where the selling business resides…just like we do with brick and mortar stores.  Requiring online merchants to absorb the costs of compliance (which they won’t it’ll be passed on to us consumers) with every tax law in the country is ridiculous and defies logic…unfortunately it doesn’t defy politics.

Let you elected officials in D.C. know what you think.  You can contact them all at once using the easy tool at Taxes Without Borders.

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