By Rob Roper
The Supreme Court is hearing arguments about if and how we should tax sales made over the internet. As of now, retailers are not required to collect a sales tax unless they have a “physical presence” in the state/municipality where the buyer resides.
With the explosive growth of online shopping, said states and municipalities complain that they are losing out on billions of dollars in sales tax revenues, and the laws hindering the sales tax collection, which were made for mail catalog companies, are outdated and ill-suited to today’s economic realities. They have a point.
Local “brick and mortar” stores complain that the fact that they do have to collect sales taxes for the states in which they operate puts them at an unfair disadvantage to their online competition. They have a point, too.
However, if the Court rules to overturn the ban on requiring on-line shoppers to pay sales tax, on-line sellers will have to collect and remit taxes to not one or a few local municipal entities, as brick an mortar stores do, but rather to, potentially, over 9000. This is not fair, and fraught with issues.
Consider cost and complexity. Imagine if a small brick and mortar souvenir store in Vermont had to determine the residency of each and every customer who bought anything, and then pay sales tax not just to Vermont, but to the states and cities where the customers reside. Nuts, huh. We’ll that’s what lawmakers want online retailers to do.
They say that software is available to make this simpler than it sounds. But, A) that software isn’t free. And B) it doesn’t account for unintended (or intentional) errors. What happens, when a Vermont based on-line seller receives a bill from, I don’t know, Salt Lake City, Utah, saying that the company owes that municipality, say, $138 in unpaid sales tax – erroneously. And another similar bill from Anchorage, Alaska? And so on and so on. How much will it cost in time and treasure to fight such errors? How much would it cost to just pay them? This would be a nightmare.
So, the fair solution to this issue is to treat on-line retailers the way we treat brick and mortar stores – pay the sales tax to the state/municipality where the seller is located.
If I decide I want a pair of L.L. Bean boots, and I get in my car and drive to their outlet store in Maine, I pay Maine sales tax on the purchase. So, if I get on line to buy those same boots from that same store, it makes sense that I should pay the Maine sales tax, not the Vermont sales tax. Similarly, if someone from Maine orders an Orvis fishing vest, they should pay the Vermont sales tax, and not Maine’s.
This would genuinely put on-line and brick and mortar stores on an equal playing field, and it would allow states to raise revenue from the sales tax in an increasingly digital age, and it would benefit taxpayers in that states would compete to be the home to online businesses by offering lower sales tax environments.