In a predictable move, president Obama announced his support for a bill in the senate that would require all internet businesses to collect sales tax on all purchases. Right now, businesses collect sales tax only where they have operations. In other words, a located in New Jersey with a distribution center in Kentucky only collects sales taxes for those two states; a purchaser from Pennsylvania is not charged tax. Under the senate bill, the internet businesses will have to charge sales tax for each state. That may sound simple, but it is not. What it means is that if that same New Jersey firm gets an internet order from someone in Utah, then the Utah sales tax must be applied. Orders from Arizona get that state's tax rate applied. In some states, like New York, the sales tax rate varies county by county. Overall, there are about 9600 different sales tax rates applied by jurisdictions across America. The bill requires businesses to collect all of them. And it is not just the rates that vary. In some states, clothing is not taxed. In other states, clothing under $50 is not taxed. In some states, clothing is taxes. In some states, shoes are not considered clothing. In other words, the definitions and extent of the various taxes also varies in 9600 ways.
For a small business, this change would be devastating. Imagine having to deal with all these different tax rates. One suggested sollution in the bill is to allow establishment of about 30 different collection agencies that would cover regional areas, thereby reducing the rates and variations to just 30. That too is an impossible burden. It is one which would force the closure of some small businesses.
The solution is a simple one. Either leave things as they are (my preference) or adopt a national sales tax for internet sales which pre-empts all state and local taxes. The 5% collected in this manner could be allocated to each state based upon the population shown in the last census. This would mean that every internet sale paid the same tax, an easy option for those who sell on the net. It would also mean that the costs of the 9600 jurisdictions for enforcing their tax collections from the net would be replaced with just one agency. So there would be higher revenues and lower costs.
For a small business, this change would be devastating. Imagine having to deal with all these different tax rates. One suggested sollution in the bill is to allow establishment of about 30 different collection agencies that would cover regional areas, thereby reducing the rates and variations to just 30. That too is an impossible burden. It is one which would force the closure of some small businesses.
The solution is a simple one. Either leave things as they are (my preference) or adopt a national sales tax for internet sales which pre-empts all state and local taxes. The 5% collected in this manner could be allocated to each state based upon the population shown in the last census. This would mean that every internet sale paid the same tax, an easy option for those who sell on the net. It would also mean that the costs of the 9600 jurisdictions for enforcing their tax collections from the net would be replaced with just one agency. So there would be higher revenues and lower costs.
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