An Internet Sales Tax, Seriously

The United States Senate out of character with bi-partisan support passed legislation to add a requirement for companies to pay sales tax on all items sold within each state. This requirement adds a burden on all companies despite the fact that companies do not have a physical presence in all states. While there is a need for increased revenue this requirement is one which will be difficult if not impossible to administer. Many laws are passed which it is felt create difficult situations with regards to enforcement of requirements regardless of whether it is a federal or state requirement.

Recently there was a move to initiate adding a fee for the use of the Internet through the United Nations. Though we have not heard of this proposal since last year it raised questions. One of the issues surrounding this involved legislation which required using the Internet to be tax free. This new proposal which does not initiate a tax or fee for using the Internet it creates a tax on sales made through Internet sites which various companies and organizations have.

Today in this global environment many businesses do not have a physical presence anywhere but exists only on the Internet. Adding a requirement for companies to charge sales tax on all their sales in each state would be a logistical nightmare to collect and manage sales made to individuals or organizations and to know where to send sales tax receipts in all states. The nightmare for businesses would involve not only knowing the sales tax for each state but could involve collecting the sales tax for each county in each state. Granted there appears to be some waivers for some businesses where they would not fall under this requirement. Interpreting what businesses would be exempted from this tax fiasco would depend on the definition surrounding the criteria.

While there was large support from both political parties in the Senate the fate of the legislation in the House of Representatives appears to be uncertain. Asking companies to collect sales taxes for states in which they have no physical presence is beyond logic. Companies today are now required to collect sales taxes where they have a physical presence and/or have a business license to practice is specific states. It is unclear if such legislation is needed given the example in the preceding sentence.

Our economy and the world economy are at a fragile point and adding additional burden on businesses in this country makes no sense at this time. Some say states are losing money by not having sales taxes collected for all sales to customers within their respective states. When the actions of our elected officials involve not only talk about adding another tax and creating the legislation to do so it should make voters question the logic being used.

I agree there are difficult decisions to be made not only in Washington but within each state concerning the need to increase revenue where needed. This requirement would cause an increase in the size of government just to manage and monitor this new tax as it appears to be. Granted closing loopholes that may exist needs to be evaluated but there are enough taxes in place at the sale and local government levels. The revenue projected with this legislation as far as accuracy may be questionable at best since it is unknown what the quantity of Internet sales are being generated that do not pay sales taxes.

In addition from looking at various organizations that sell on the Internet there is always a sales tax added to the price of items being sold? It is also unclear whether an additional sales tax would be required to add a sales tax in the state where an item is purchased. We have enough taxes today and we do not need any more especially one which would be difficult if not impossible to validate that all taxes are properly collected and distributed to the applicable government entities. This burden would also increase the costs of doing business as there would need to be individuals to ensure taxes are properly collected and dispersed.

The proponents of this legislation make the statement that it addresses the principle of fair competition. Many businesses have a physical presence in states but reality is that the development of technology has increased the opportunity for businesses to develop and grow. Competition should be the name of the game not placing additional burden on a segment of society simply for the reason that their existence impacts businesses with a physical presence in states. The legislation talks about being fair but is it fair to add additional costs to businesses which are flourishing. Internet businesses should be encouraged to exist not taking away the incentive by increasing the burden on their existence.



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Comments 10 comments

Larry Wall 3 years ago

Dennis:

You make some very good points regarding the sales tax and the federal government. Since the federal government does not levy a sales tax, they should not collect one on Internet sales.

That issue is being addressed by Internet merchants and the states. In Louisiana, where I live, we are required by law to report the value of any internet purchases we made during the past year. Since the sales tax varies by parish (county) the state collects four percent state tax and 4 percent local tax. In my city the actual tax is 9 percent, four for the state and five percent local.

Many online sites do collect sales taxes. I worked at Sears for awhile and online sales tax was determined by zip code. Originally, it was contended that if an internet company had a physical presence in a given state, it could collect sales tax. At least some states are taking the position that if the sales terminates in the state, via delivery of the product, the tax should be levied.

In our society, every service will eventually be taxed in some manner. Internet sales are no exception. Granted everyone does not report their internet purchases and to my knowledge does not make any effort to track them down. Amazon.Com provides a way for you to see your purchases for the past year. Some online sellers, as already noted, levy the tax already.

So, the question is, as you raised, should the federal government be involved in the collection of state and local sales taxes. The answer is probably no. However, even if the federal government backs off, online merchants and taxing districts will find a way to collect the tax. One more thing to remember is that every entity that collects a sales tax for a governing authority is paid a fee--usually a fractional percentage of the monthly collections. Thus, the collectors have at least some of their cost covered by this fee. It is a complicated issue.

Excellent information on an important subject that is often overlooked but certainly needs examining.


Abecedarian profile image

Abecedarian 3 years ago from These United States, Texas

Well, the way I see it; if it is a business regardless of where it is, there should be a tax paid. The economy suffers because companies have outsourced their jobs to the internet to avoid being taxed. It has nothing to do with businesses trying to stay in business and being asked to pay taxes. If it is a business it needs to contribute to the tax base, period.


Jayfort 3 years ago

The Government, ever addicted to spending, is constantly looking for new revenue streams to feed the addiction. They NEVER let a chance to add a tax go to waste. Here a tax, there a tax, all they want to do is tax!


Dennis AuBuchon profile image

Dennis AuBuchon 3 years ago Author

abecdarian,

Thanks for your comment. Companies do pay sales taxes and contribute to the economy. Income they make require them to pay income taxes and they are required to pay sales taxes in states where they are registered as a business. With the Internet it is not always possible to know the location of a customer. With regards to electronic books an email address is usually provided with no reference to their location. How would a sales tax be paid in these situations.


Dennis AuBuchon profile image

Dennis AuBuchon 3 years ago Author

Jayfort,

Thanks for your input and I totally agree with your comment.


Dennis AuBuchon profile image

Dennis AuBuchon 3 years ago Author

Larry,

Thanks for providing your input on this important topic, it is always welcomed.


pizza dave 3 years ago from Kingman Arizona

I believe the idea of making internet companies pay sales taxes to states they sell in, is a very good one. Local businesses are at a disadvantage to online sellers, because of extra expenses involved with running a local store. Why add the extra disadvantage of online sellers not having to collect sales taxes. On higher priced items, this could very well swing the sale to the online seller. The second problem are the job losses to the local economy caused by online sellers. Should we also allow them to have an undue advantage over local merchants, by not having to collect sales taxes. This should have been done years ago


Larry Wall 3 years ago

Dennis:

With all the computer power at our disposal, an online merchant need only get your street address and zip code and somewhere a query will be launched to determined the tax for that particular address. As I noted some merchants already do that. Louisiana requires that I report my online purchases and their value and then assesses a tax on that (that is still on the honor system.) It is only a matter of time before all online merchants will be collecting sales taxes, remitting them to a central location and that location sends them to the appropriate jurisdictions.


Jayfort 3 years ago

An interesting part of the Internet Tax Bill is that small businesses will need to file quarterly income reports to 46 states (4 states don't have a sales tax). Please show me where small businesses can afford the time and costs necessary to comply with this requirement??? Without greatly raising the costs of the products being purchased???


Larry Wall 3 years ago

I never said I liked the bill. However, as an old reporter covering local sales tax issues, I know they would consider a percentage of their new proceeds as a good investment if it generated any additional revenue. They also figure the business will pass on the additional cost to the customers and since all businesses have to pay it, everyone should be on an even playing field. Again, I am not in favor of the bill but know that local governments will do almost anything to collect all of its sales taxes. In Louisiana if you buy a car in one parish (country) where the sales tax is four cents and then move to another area where the sales tax is 9 cents, you have to pay the difference before you can get your registration updated, which you must do to get the annual inspection sticker. Local governments are going to get their money.

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