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An Internet Sales Tax, Seriously

Updated on April 26, 2013

The United States Senate out of character with bi-partisan support passed legislation to add a requirement for companies to pay sales tax on all items sold within each state. This requirement adds a burden on all companies despite the fact that companies do not have a physical presence in all states. While there is a need for increased revenue this requirement is one which will be difficult if not impossible to administer. Many laws are passed which it is felt create difficult situations with regards to enforcement of requirements regardless of whether it is a federal or state requirement.

Recently there was a move to initiate adding a fee for the use of the Internet through the United Nations. Though we have not heard of this proposal since last year it raised questions. One of the issues surrounding this involved legislation which required using the Internet to be tax free. This new proposal which does not initiate a tax or fee for using the Internet it creates a tax on sales made through Internet sites which various companies and organizations have.

Today in this global environment many businesses do not have a physical presence anywhere but exists only on the Internet. Adding a requirement for companies to charge sales tax on all their sales in each state would be a logistical nightmare to collect and manage sales made to individuals or organizations and to know where to send sales tax receipts in all states. The nightmare for businesses would involve not only knowing the sales tax for each state but could involve collecting the sales tax for each county in each state. Granted there appears to be some waivers for some businesses where they would not fall under this requirement. Interpreting what businesses would be exempted from this tax fiasco would depend on the definition surrounding the criteria.

While there was large support from both political parties in the Senate the fate of the legislation in the House of Representatives appears to be uncertain. Asking companies to collect sales taxes for states in which they have no physical presence is beyond logic. Companies today are now required to collect sales taxes where they have a physical presence and/or have a business license to practice is specific states. It is unclear if such legislation is needed given the example in the preceding sentence.

Our economy and the world economy are at a fragile point and adding additional burden on businesses in this country makes no sense at this time. Some say states are losing money by not having sales taxes collected for all sales to customers within their respective states. When the actions of our elected officials involve not only talk about adding another tax and creating the legislation to do so it should make voters question the logic being used.

I agree there are difficult decisions to be made not only in Washington but within each state concerning the need to increase revenue where needed. This requirement would cause an increase in the size of government just to manage and monitor this new tax as it appears to be. Granted closing loopholes that may exist needs to be evaluated but there are enough taxes in place at the sale and local government levels. The revenue projected with this legislation as far as accuracy may be questionable at best since it is unknown what the quantity of Internet sales are being generated that do not pay sales taxes.

In addition from looking at various organizations that sell on the Internet there is always a sales tax added to the price of items being sold? It is also unclear whether an additional sales tax would be required to add a sales tax in the state where an item is purchased. We have enough taxes today and we do not need any more especially one which would be difficult if not impossible to validate that all taxes are properly collected and distributed to the applicable government entities. This burden would also increase the costs of doing business as there would need to be individuals to ensure taxes are properly collected and dispersed.

The proponents of this legislation make the statement that it addresses the principle of fair competition. Many businesses have a physical presence in states but reality is that the development of technology has increased the opportunity for businesses to develop and grow. Competition should be the name of the game not placing additional burden on a segment of society simply for the reason that their existence impacts businesses with a physical presence in states. The legislation talks about being fair but is it fair to add additional costs to businesses which are flourishing. Internet businesses should be encouraged to exist not taking away the incentive by increasing the burden on their existence.



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