Plan to Expand Tax Collection for Online Businesses Discussed in Senate Finance Hearing
Sen. Ben Cardin (D-MD) devoted his time to questions in
support of S.
1832 (the Marketplace Fairness Act), which would require out-of-state retailers to collect sales and use taxes on
purchases made to residents of their states -- regardless of physical presence. Sen. Cardin seemed to minimize the need
for a small business exemption, stating that he was not aware of any such
exemptions for collecting sales taxes.
In an exchange with Mr. Joseph Henchman of the
Tax Foundation regarding
how complicated the hundreds of different sales and use tax systems are, Sen. Cardin stated that he
found it hard to believe that we can’t find a computer program to figure them
out. Mr. Henchman responded that
the issue was not just the current complexity but also the need to keep up with
changes in state and local tax laws.
It is not accurate
to equate online sales tax collection with sales tax collection by brick &
mortar stores. While the physical
store only needs to collect sales tax for its own tax jurisdiction, an online
retailer is being asked to administer a tax collection regime for thousands of
jurisdictions, as an online purchaser could potentially be in any one of
them. This huge compliance burden
is the reason that a robust small business exemption is needed.
The point made by Mr. Henchman
regarding the ever-changing nature of state and local tax laws is also an
important one. Not only are state
and local tax jurisdictions a many-headed Hydra (thousands of heads in fact), even
the number and nature of the heads is unstable.
While it is
understandable for state governments to seek additional sources of revenue in
these economic times, responsible policymaking requires weighing the long-term economic
consequences of HOW that revenue is raised. Targeting an innovative sector like electronic commerce
because of its productivity is as short-sighted and unsustainable as a plague
of locusts devouring a fertile field and moving on to the next. Not only have they failed to achieve
meaningful simplification of sales tax regimes, they are now seeking to dump
the task of dealing with that failure on small online businesses and pocket the
revenue. We hope that Congress
recognizes the need to promote new innovative business models like e-commerce
rather than penalizing and taking advantage of their creativity.
