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Internet Sales Tax: Would It Make Commerce More Fair?

Submitted by on April 22, 2013 – 10:13 pm4 Comments

This week, the Senate started moving seriously on a bill to require online retailers to collect sales tax. Supporters say it would level the playing field between internet-based companies and brick-and-mortar retailers while generating billions in lost revenues; but opponents allege the measure will cripple small business.

Under current laws, states may collect taxes from companies with a physical presence (a warehouse or office) in that state. But in fact, all consumers are supposed to pay tax on their online purchases after the fact.

(What, you mean you haven’t been tracking your online purchases and reimbursing the government for the tax? Yeah, join the club. The law is almost never enforced.)

The Marketplace Fairness Act of 2013 would allow states to collect tax from online retailers, even ones that don’t have a physical presence in that state. An exemption excludes companies that have less than $1 million in annual sales and no physical presence in the state.

An estimate from 2009 suggests that such a tax would generate up to $12 billion in tax revenue- and online sales have only increased since then.

Even online retail giant Amazon supports the measure- but perhaps this exemplifies the problem. Amazon is more than capable of absorbing the additional tax burden. And with warehouses all over the country, it already had to pay many taxes. This puts it at a distinct advantage to smaller retailers.

On the other hand, Ebay CEO John Donahoe raised concerns about the bill, urging the cutoff be raised to $10 million in annual sales.

The bill has surprisingly bipartisan support, with several Republicans co-sponsoring it in both the Senate and House (though most sponsors are Democrats). But Senate Finance Chairman Max Baucus (D) has blocked the bill; he is from Montana, one of five states that doesn’t have a sales tax.

What do you think of an Internet Sales Tax?

[via Washington Post]

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  • First, the exemption should be at least $10million in gross revenues, but reports from insiders state that exemptions will expire and the law will eventually be required of all online biz and possibly brick/mortars too.

    MFA is complicated. It’s not simply collecting one tax rate for one state, it is 45 possible rates for 45 possible states. And the mandated software can only plug in #’s it is given by the business owner, meaning it doesn’t work if given improper data.

    Proper data prep will be expensive annual costs for work that doesn’t generate income.

    Integration of the software will be expensive and complicated. It will need to be monitored daily. It will be impossible to afford, especially b/c small business will have to also develop or buy new shopping cart and other business systems b/c the govt software does not support most cart or 3rd party or multi-channel systems out there.

    The above is already a deal breaker and I haven’t even gotten to audits, privacy (online consumer profiles thru the software), state sovereignty and/or expansion of powers, and interstate commerce rights.

    It’s a burden. Quill still applies. And even if it wasn’t a burden, it’s stupid, plainly stupid.

    (You’ll see I didn’t even mention the Walmart/big retail lobby as that’s a whole other conversation.)

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