Congress is seriously considering three bills that will create new tax burdens for online and catalog sellers.
Under these bills, Congress would unleash sales tax collectors across state borders.
Today, millions of businesses use the internet to reach new customers around the country — which is essential when competing against the big-box chains that dominate local retail. But these bills would add new costs and complexity for every sale a business makes to customers from other states.
Consider a catalog company in Montana who must now figure out sales tax rates and tax holiday rules in Miami. Or a struggling artist who has to figure out tax rates across the country when he sells his paintings over the phone. It’s one thing to figure out the tax rates for the state where you live, but it’s another to figure out all 9,600 tax jurisdictions across the country.
It’s even worse when you consider the possibility of facing 46 different tax audits each year.
These bills would harm millions of businesses who are using the internet to reach customers around the country as they struggle to compete with the big-box chains that dominate local retail.
Moreover, the potential state revenues from these uncollected sales taxes are grossly overstated. According to a study by economists Robert Litan and Jeffrey Eisenach, uncollected sales tax on e-commerce in 2012 is only 1/3 of one percent of total state and local tax revenue.
And these bills, despite the claims of their supporters, would harm “Mainstreet” businesses, since many of them use the web to reach customers in other states.
Instead of imposing today’s complex tax system on all businesses, we propose a set of straightforward “simplification requirements” that would reduce the tax collection and administrative burdens across the board.
Some of these requirements are slam-dunk simple: like requiring each state to have a single rate for remote sales, standard definitions, and a single audit for all states. Other requirements – like vendor compensation and legal means to challenge states that stray from simplification standards – may take a little more thought. Taken together however, these proposals lay out a roadmap for real simplification that protects online sellers and the future of e-commerce.
Unless and until Congress requires all of these minimum simplifications, it should avoid foisting new tax burdens on remote sellers.
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