Internet Sales Tax... Approve or Not?

[avonjax]

Internet Sales Tax: Here Come the Auditors


T. Elliot Gaiser

April 29, 2013 at 10:28 am

Internet sales tax legislation could subject small online businesses to up to 46 state audits.

And since sales taxes vary among thousands of tax jurisdictions across the country, the chances that auditors will find mistakesâ€"and slap the business owners with penaltiesâ€"are very good. If truth-in-advertising requirements applied to legislation, says Heritage Action’s Dan Holler, the Marketplace Fairness Act would be renamed the Tax Audits from Hell Act of 2013.

Here’s how the bill works: Online businesses would be required to figure the sales tax each customer owes based on where the customer livesâ€"even though the businesses themselves have no other dealings with that state or local government.

There are more than 9,600 state and local taxing jurisdictions in the U.S., and small businesses would be required to send the appropriate number of tax dollarsâ€"state and localâ€"to every one where they sell.

And if the business owner makes a mistake? Or if the state thinks that the business owner makes a mistake? The bill provides for “a single audit of a remote seller for all State and local taxing jurisdictions within that State.”

This provision is intended to streamline the process, but it still means every business could face 46 separate audits (from the 45 states that collect sales taxes plus the District of Columbia).

Audits cost businesses time and resources that could be used to create jobs, develop and market new products, and bolster the economy. To be audited in distant locations where they have no presence other than a few customers makes that burden even greater.

And while computer programs might help them calculate the sales tax they are supposed to collect for each transaction, they still need to send that money to the appropriate place.

As Megan McArdle asks at The Daily Beast, what happens after business collect the appropriate sales taxes? “Do the sales tax fairies simply whisk it off to the nice folks at the state tax department? Sadly, no.” The Small Business Administration explains the process of filing a tax return this way:

    Generally, states require businesses to pay the sales taxes they collect quarterly or monthly. You’ll have to use a special tax return for sales taxes, and report all sales, taxable sales, exempt sales and amount of tax due. Not paying on time can result in penalties. As always, check with your state or local government about the process in your location.

This would be a bureaucratic nightmare. Sarah Parness writes for ABC News:

    [F]ive states do not have state-wide sales tax, but two of those statesâ€"Montana and Alaskaâ€"allow localities to charge a sales tax. So a business owner in New Hampshireâ€"which has no sales taxâ€"sending a fishing pole to a customer in Juneau, Alaska, would have to collect a 5 percent sales tax, but would charge no sales tax to the buyer in Denali Borough.

Small businesses, like Wayne Johnson’s Idaho-based online fly fishing shop Angler’s Habit, or Todd Dickie’s Nebraska-based online ATV parts company Powersports Nation, will have to send money to up to 46 states regularly or endure swarms of audits and penalties.

“t’s going to be hell on sole proprietorships and other small businesses that can’t afford the compliance overhead,” writes McArdle. “Anyone who has had to file income tax returns in two states can imagine why you might not want to file in almost 50â€"monthly.”

Lawmakers should be finding ways to reduce burdens on consumers and entrepreneurs. Instead, this bill would impose new costs on both.
http://blog.heritage.org/2013/04/29/internet-sales-tax-here-come-the-auditors/

The big time internet sellers are so far ahead of the little guy I doubt they will ever be in the same league. And I seriously doubt they will be creating enough jobs to make the same impact that a handful of brick and mortars would make. If they are making over a million in sales they need accountants like any other business.

[Debbie Thompson]

First, it's not a tax on the business.  It's a tax on the consumer (user) and the business is passing it along to the states.  Yes, there will be some cost involved in the collections, but let's realize that sales taxes are paid by the consumer.

I agree it can be a nightmare.  In Florida, we have those local option taxes.  So while the Florida sales tax is 6%, in Duval County, we pay 7%.  Who is going to keep track of all that?

So, here's an idea.  How about they charge the same amount for every internet sale and all 46 states settle for that?  Take an average of all jurisdictions, and charge that.  If it's 4%, then every internet sale gets charged 4%, and the states all get 4%.  It's more than they are getting now on internet sales, and there will be no need to track sales by jurisdiction.

Oh, wait!  That's too easy and makes too much sense!  We'd rather involve auditors, draconian book keeping, and such.

[avonjax]

First, it's not a tax on the business.  It's a tax on the consumer (user) and the business is passing it along to the states.  Yes, there will be some cost involved in the collections, but let's realize that sales taxes are paid by the consumer.

I agree it can be a nightmare.  In Florida, we have those local option taxes.  So while the Florida sales tax is 6%, in Duval County, we pay 7%.  Who is going to keep track of all that?

So, here's an idea.  How about they charge the same amount for every internet sale and all 46 states settle for that?  Take an average of all jurisdictions, and charge that.  If it's 4%, then every internet sale gets charged 4%, and the states all get 4%.  It's more than they are getting now on internet sales, and there will be no need to track sales by jurisdiction.

Oh, wait!  That's too easy and makes too much sense!  We'd rather involve auditors, draconian book keeping, and such.

Your idea makes sense only it wouldn't make for a fair playing field. All those people who buy online to save tax would still buy online to save 2 or 3%. To me the only way it works is a Jacksonville shopper pays 7% to buy online. Unless this is just about states collection more income then it has to be that way.

[FSBA]

"Unless this is just about states collection more income then it has to be that way."

This.

[JeffreyS]

My quickbooks and many websites can make the calculations simply based on zip code.  The municipalities upload their tax changes all the time this will be simple for the payment processors to turn on for more people.

[JeffreyS]

The customer just enters their ZIP Code and now it will calculate sales tax as well as shipping costs.

[fsquid]

does it also automatically do all the returns for each municipality?  For example, if one did business in Tennessee alone, then they would have to file a return with each of the 96 counties.  Very time consuming for a small business making internet sales. 

[Dog Walker]

But won't this mean that every online retailer will have to remit taxes to dozens of states each month?  That is a burden. 

The Florida Dept. of Revenue has made it pretty easy to do online and by bank draft, but I'll bet that a lot of other states aren't so advanced.

Intuit needs to get working really quick to automate the process in Quickbooks.

[fsquid]

I'm also curious, if this is about state taxes, why is the Federal Gov't making a rule about this?

[tufsu1]

^ all the Feds are doing is making it available to states....plus the internet is governed by the FCC and falls under the Commerce Clause

[fsquid]

Why not have it that you pay the sales tax in effect in the jurisdiction FROM which you ship the goods, not the destination?
Then each vendor only has to deal with one locality, presumably the one it knows best and also the one best placed to enforce the law.
Then you'd have places engaging in tax competition to lure Internet businesses. Name something wrong with that.

[JeffreyS]

I think you could have the payment processor be Heartland, Visa or MC withhold and pay the tax directly.  No work now for the small business and no getting in trouble with the government later.

[Tacachale]

Why not have it that you pay the sales tax in effect in the jurisdiction FROM which you ship the goods, not the destination?
Then each vendor only has to deal with one locality, presumably the one it knows best and also the one best placed to enforce the law.
Then you'd have places engaging in tax competition to lure Internet businesses. Name something wrong with that.

The tax is really on the purchase from the buyer's end. At brick-and-mortar places, the seller charges for it . In the current setup, the buyer is actually supposed to be paying the tax for out-of-state purchases, but no one does it. And the online retailers obviously don't do it, so it makes their items seem cheaper. Again, it's just a loophole.

Places already engage in tax competition to lure Internet business; South Carolina recently gave Amazon a big sales tax break so that they'd build a distribution center there (states can tax online retailers with a physical presence in the state.) This will continue even if the loophole is closed. And of course localities will be better placed to compete for brick-and-mortar businesses as well.

[Traveller]

South Carolina's break to Amazon was to allow them not to collect sales tax on sales to SC residents for the first couple of years.  However, Amazon was required to notify SC customers of their duty to pay use tax on their purchases.  Like most states, SC has a line on its individual income tax return to report use tax due on out-of-state purchases.  Florida has a tougher job of collecting use tax since individuals here don't pay income tax.

Tacahale is correct in that the federal bill does not automatically impose sales tax on remote sales.  All it does is remove the existing Constitutional restriction on the states from doing so, at least with respect to larger retailers.  And as it has been pointed out repeatedly, it would not be a new tax, but rather would shift the burden of collection and payment from the customer to the out-of-state retailer.  Think of it like federal income tax withholding.  Employees can't be trusted to pay their own taxes on a timely basis, so the government makes the employer collect and remit it monthly.  Same idea.

[BridgeTroll]

Im a bit surprised at the results so far...