The Taxing Problem of Internet-Based Sales

A sales tax imposed on Internet purchases has had many proponents, since the inception of the Internet, wanting to force online retailers to collect sales taxes on items purchased by consumers via their website. Last year, the Senate passed the Marketplace Fairness Act, which would require retailers to collect sales taxes based on where the consumer lived and send the sales taxes to the specific municipality. The bill, and the idea of an Internet sales tax in general, is extremely unpopular, with a recent poll showing that 57% of Americans are against new sales tax collection on the Internet, with an even stronger opposition amongst those 18-29, with 73% against it.

The Marketplace Fairness Act, as the American Consumer Institute has pointed out before, is anything but fair. While the bill attempts to put Internet retailers on equal footing with brick and mortar establishments, it actually puts a huge regulatory burden on them that traditional retailers don’t have. There are over 9,600 tax jurisdiction in the United States, meaning that Internet retailers would have to be compliant with each one – an expense that most small businesses wouldn’t be able to handle. Amazon is well aware of this, which is why it has endorsed the idea of a sales tax, even though it means having to begin collecting the tax themselves. Amazon can afford an army of lawyers and accountants, giving them a leg up on any potential competition and quickly crushing any potential newcomers to a game they’ve already mastered.

With the understanding that the Marketplace Fairness Act is deeply flawed, the House recently held hearings to examine alternatives to the Internet sales tax proposed by the Senate.  One alternative that was discussed was origin-based taxation, meaning that sales taxes would be collected where the company is based and not where the consumer lives. This would allow the retailer to only abide by the rules and regulations of a single municipality, a much simpler process for small and big businesses alike.

During the hearing, many problems with the Marketplace Fairness Act were expressed, including issues with the burdens of compliance with so many tax municipalities and issues related to privacy. Former Representative Christopher Cox, who was testifying on behalf of trade group NetChoice, pointed out that consumer data shifting from entity to entity could be a huge privacy problem, especially in light of recent major data breaches. The House should continue to look for alternatives, one that will truly be fair to retailers and consumers alike.

Zack Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research

 

 

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