David Cortriss of Revenue magazine recently interviewed me about the Streamlined Sales and Use Tax Agreement, a project that intends to make it easier to calculate sales tax in various venues, including online. While it’s not news that people are trying to simplify pieces of our incredibly byzantine tax codes, it’s worth noting that the Streamlined Sales Tax agreement is already winding its way through quite a few state legislatures.
David’s question to me about the Streamlined Sales Tax has led me to reconsider one of the sacred cows of the Internet, taxation of Internet purchases.
In a nutshell, I believe that it’s high time for us to reconsider the Internet Sales Tax with the triple whammy of the war in Iraq and the widespread devastation left in the wake of hurricanes Katrina and Rita. But there are even more important reasons why it’s time for us to enact taxation of Internet purchases…
Let me start by quoting myself, from the interview:
Q: Are Internet taxes a good thing or a bad thing? What will the overall impact be? Who benefits and who loses?
A: I’d like to see Internet taxes, actually. At this point in the evolution of the Web and online shopping, it’s hard to truly justify that online companies need special advantages to continue growing. A flat tax, perhaps at the 5% rate, that applied across all in-state and interstate commerce would be the most logical, truly simplifying the tax burden while generating tens of millions of dollars in city, county, state and national revenue.
Who will benefit? All of us. Not only will the government see a new and significant revenue stream, but government agencies will be better funded and traditional retail businesses will be able to compete more effectively, helping slow the gradual erosion of retail areas in this country.
And the impact? I honestly don’t believe that there’ll be a significant impact in the world of online commerce. Prices will move up a bit, but that’ll be true across the board so no one online company will have an unfair advantage over any other.
Consider, by contrast, how companies with retail outlets are unfairly penalized in the online world. Buy a pillow from Bed, Bath and Beyond or a package of socks from Target and if they have a retail store anywhere in your state, they have to charge you state sales tax (and the current sales tax calculations are phenomenally complex because they need to take your city and county into consideration, but that’s another discussion entirely and one of the motivations behind the Streamlined Sales Tax movement). If I make that same purchase from an online-only vendor, a company that might well have zero US-based employees, they can sidestep sales tax and therefore gain an unfair price advantage online.
When Internet commerce was just starting up I felt that there was value in delaying the addition of Internet-based sales tax collection to allow the medium to become fully entrenched. But it’s hard to accept that as a justification today when there are many multi-million-dollar businesses and even some billion dollar online businesses, all of whom have shied away from “brick and mortar” and are still operating without the playing field leveler of charging sales tax.
There’s a really important economic point here too, as I watch traditional brick and mortar companies declare bankruptcy or lay off thousands of employees, too: a company that has both retail and online sales employees more people than a pure-online company, and more of its revenue trickles into the local economy through lease payments, insurance on retail storefronts, membership in Better Business Bureaus, and, of course, its employees spending their income. If for no other reason than that, it’s time we allowed companies with retail storefronts to compete on a level playing field in the digital world, and that can only happen by expanding sales tax online.
To wrap up my argument, let me just summarize that I believe it is time for an Internet Sales Tax to be levied because of the following reasons: 1. Internet businesses no longer need to be sheltered from taxation to be competitive, 2. The U.S. Government needs additional tax revenue and usage taxes are easier to accept than income taxes, and 3. Businesses with retail establishments need to stop being penalized in the online world so that they can compete effectively.
It’s time for an Internet Sales Tax.