Online Sales Tax Collection Bill Is Myopic Approach to New Model

August 4, 2011

Last Friday, the Main Street Fairness Act was introduced in the Senate by Sen. Richard Durbin (D-IL), and in the House by Rep. John Conyers (D-MI).  The bill would allow states that have signed onto the Streamlined Sales and Use Tax Agreement to require out-of-state retailers to collect sales and use taxes on purchases made to residents of their states — regardless of physical presence.

CCIA opposes any legislation that burdens Internet retailers with the added role of acting as tax collection agencies across thousands of tax jurisdictions.  Such measures effectively force electronic commerce to conform to a tax framework established on geographic location and physical presence, negating the advantages and benefits derived from innovation.

E-commerce has enabled businesses to broaden the scope of their commercial activities beyond traditional geographic limitations.  Requiring online retailers to determine a customer’s location and then calculate and collect the tax according to that jurisdiction re-imposes the burdens and limitations they have striven to overcome.

In its ability to operate without the need for physical presence, e-commerce is a new commercial model distinct from the traditional model on which the jurisdictional tax system is based.  We should not fault the new model for not fitting into the old framework, and the solution need not be shaving the new square peg to fit the old round hole.  Perhaps it is time for a broader discussion on how old frameworks may need to be adapted to fit new commercial realities.

The Internet empowers businesses and individuals to find consumers for their goods and services not only from across the country but throughout the world.  Sen. Ron Wyden (D-OR) has characterized the Internet as “the shipping lane of the 21st century.”  Who then has the authority to tax or collect tolls on those lanes?  The full social and economic impact of this revolutionary tool is still being understood.

The relationship between the digital and the physical has profound implications, and the issue of taxation and physical presence (or lack thereof) should be discussed in that broader context, rather than rushing to target online sales as an easy source of revenue.  We hope that Congress will consider this broader context, and remember that good tax policy should promote and support new innovative models rather than simply protect the old.

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