The Last Frontier of Low Taxes
It is not every day that you read in the Wall Street Journal about why we need more taxes. But now that E-commerce is booming and increasingly crowding out the quaint little notion of actually going to a store, Lee Gomes writes about why we should "cheer on" states like New York and Texas in their recent efforts to push toward Internet sales taxes [subscription required].
Many Web users surely will be annoyed by a tax. It's common to see the Internet as a refuge from the quotidian annoyances of the real world, among them death and taxes. But cyberspace is grounded in the real world, as are schools and parks and streets. If you doubt that, the next time your house is on fire, try calling Jeff Bezos.
It seems to me the last thing we want, for the sake of simplicity for both consumers and entrepreneurs, is a situation where some states have high Internet sales taxes and others don't. That's why testimonials from small-business owners seem to support the notion that state E-sales taxes are very bad but a national one would be OK.
Gomes makes a compelling argument about how taxes should be neutral and not discriminatory. From the entrepreneurial point of view, however, there are not many good things to say about an Internet sales tax, national or otherwise. Certainly, many small retailers would benefit from a sales tax; Dawn Rivers Baker of the MicroEnterprise Journal blogged recently about how the American Booksellers Association has praised an Internet sales tax as "E-fairness" and a necessary step to even the playing field with online sellers.
But ultimately, I think giving the Internet the advantage of being relatively tax free is a net win for entrepreneurs. A few weeks ago I wrote about how online retailing might be suited to small businesses and start-ups more than most other industries. With so much money coming from E-commerce, it's going to be hard for the government to NOT get its hands on it.
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Reader Comments
Keep it simple, if at all.
Sure, we love tax-free web purchases. But, there has never been any fairness whatsoever that Mom & Pop physical stores have had to collect and pay sales taxes while Mom & Pop websites have not.
Beware, though that ADMINISTERING the sales tax rules for "doing business" in multiple states can be one of the most daunting paperwork tasks that a very small business can face. Internet taxes, if any, need to be simplified to one rate and one filing place before they're contemplated for little tiny operations. It's really NO FUN to file sales tax in 20 states with all kinds of rules and forms. Trust me. I know. I've done it for a manufacturer. Incredible hassle.
Internet sales tax
The equalizer for the mortar and bricks sellers is that internet and telephone/mail order sales involve an ever growing FREIGHT charge. That differential may not be greater than the cost of driving to the store plus the sales tax. But I'm not so sure people are only thinking about the sales tax when they make their decision about how and where to buy something. Heck, I'm a CPA, and when I'm shopping in a store I rarely think about the sales tax until the cashier has rung up the sale!
There are other advantages that bricks and mortar stores have over internet sellers and vice versa - here are a few:
Immediate gratification vs waiting - Bricks
Seeing and feeling the shirt /trying it on/demo-ing the computer , camera or other gizmo/ skimming the book/ having a latte/ interacting with a live, knowledgeable sales person - Bricks
Price and selection - Clicks
It isn't just about the internet - it's about all interstate sales (at least where the seller doesn't have Nexus). Long before the internet, people would pick up the phone and order goods from an out of state seller and not pay a sales tax. The Quill case predates the internet by at least a decade. And what about all kinds of businesses sending goods, installers, technicians and consultants, etc, etc into other states? Not all services are sales taxable but it isn't just sales taxes - there's corporate and personal income taxes, too. Many businesses file and pay all these taxes, but many don't.
But why stop there? Do all bricks and mortar stores report all their cash sales?
I doubt it. And then there are all the service businesses - like the one that mows your lawn. Or the one that puts siding and new windows on your house, etc, etc Did anybody ever say to you, "If you make the check out to cash, I won't charge you tax?"
Most mail order and internet businesses use credit cards and are creating a trail, but of course they can be playing games with their tax reporting just as easily - I won't even mention them here - I don't want to give anybody any ideas.
Administration of sales tax can be handled by computer software driven by the zip code of the ship-to address and a well thought out Streamlined Sales Tax that has been slowly being crafted by a consortium of 20 or so states.
I don't work for the 49 states I don't live in
If I am going to have to do paperwork for the 49 states that I don't live in, then I should get paid for my time.
As the other commenter said, it would be a huge burden for a small business like mine with 10 employees to fill out paperwork for 50 different states every month.
I owe it to my home state, where I am a resident. But I don't work for other states, and don't see why I should work for them for free.
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