Submitted by DAVID CAMPBELL
Is it fair to require online retailers to collect and remit state sales tax? In a word, yes.
Most governors who have taken a stance on the issue have supported online sales tax collection, including New Jersey’s Chris Christie, Tennessee’s Bill Haslam, Iowa’s Terry Branstad, and Michigan’s Rick Snyder (all Republicans, incidentally).
Why the widespread support? Several reasons:
1. It’s fair. Local retailers have to collect sales tax; why not online retailers? Main Street shops support our communities and create jobs, yet they are losing business because a loophole allows their online competitors to avoid collecting sales tax.
2. It’s needed. Sales tax revenue has been steadily declining for the past decade as online shopping has grown. States need sales tax revenue to pay for roads, schools, police and fire departments, and more. Without the sales tax due on online purchases, states may have to cut these public services or raise other taxes, such as property or income tax.
3. It’s easy. Technology has made it simple for online retailers to collect sales tax across the country. There are sales tax management services available at every price point, including free, and they can handle every aspect of sales tax collection, from calculation to remittance.
These issues are being well-covered elsewhere, however, so let’s focus on the states that are most concerned about what online sales tax collection could mean for their residents: states without sales tax.
Residents of these states don’t need to worry about paying sales tax on online purchases—destination-based sales tax, the kind named in the bills before Congress, is based on the shopper’s location. If a shopper lives in a state with sales tax, then sales tax is collected online, just as it is at their local stores. On the other hand, if a shopper lives in a state without sales tax, they will be unaffected—they won’t have to pay sales tax on purchases made locally or online.
But lawmakers from the few non-sales-tax states are often concerned about online businesses located in those states and what collecting sales tax would mean for them.
There is no question that online retailers based in non-sales-tax states would have to make some adjustments to begin collecting sales tax. But I offer two thoughts for these retailers:
1. The 46 states with sales tax are already beginning to require out-of-state retailers to collect sales tax. In September, for instance, California will start requiring out-of-state sellers with California affiliates to collect sales tax from California residents. Also in September, Pennsylvania will start requiring sales tax collection from online retailers who use a warehouse or other location in Pennsylvania—including third-party merchants who use eBay (GSI Commerce) or Amazon warehouses for order fulfillment. These state mandates are likely to affect online retailers in the 4 states without sales tax, with or without federal legislation.
2. While it isn’t possible to turn back the clock on online sales tax collection, it is possible to make it easy for sellers to collect sales tax. The Marketplace Fairness Act requires states to simplify and standardize their sales tax laws before they can require any out-of-state seller to collect sales tax. Online retailers in non-sales-tax states should be supporting this legislation: It’s the only way they can make sure that collecting sales tax won’t be too complicated.
Sales tax has always been due on online purchases. Online retailers haven’t had to collect sales tax in the past, but that loophole is about to end, one way or another.
Let’s end it the right way, by making sure states simplify and standardize their sales tax laws.
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Thanks to R. David L. Campbell for his submission. Campbell is the CEO and cofounder of FedTax, the proud creator of TaxCloud. TaxCloud is the internet’s only free sales tax processing service. Learn more at TaxCloud.com.
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