I’ve long been opposed to a retail tax on purchases made on-line. It’s not that I don’t think it makes good fiscal sense — it does. In the early days of e-tailing — the late 90s through perhaps 2001 — retail tax might have killed things, because of the cost of shipping. It was thought that sales tax would be perceived by consumers as roughly equivalent to the cost of shipping — requiring people to pay for both shipping and sales tax would be seen as a double taxation. Now on-line shopping is a matter of course for Americans, and I no longer believe that the one-two punch of the shipping cost and sales tax would kill e-commerce, as it might have in 1998, when this was all new. Instead, my opposition comes from the practical question of how we e-tailers are supposed to figure out how much tax to charge and who to pay.
Anybody who has ever been in the retail business knows what a pain that sales tax reports are. It’s not terrible if you only do business in one state, but if you do business in three, five, or ten states, it’s a nightmare. Every state has their own rules, their own formula, their own paperwork, and their own filing schedule. With a total of over 7,000 tax-collecting jurisdictions, it’s quite literally impossible for most businesses to handle. Imagine having to file your income tax forms with every state in which you’ve visited in the past year, but instead of annually, some monthly and some quarterly, on a different form for each, and you’ll get the idea.
Anybody that sells in this multi-state manner has to have a full-time accounting/law staff, or have a close, expensive relationship with an accounting firm who files all of the paperwork. It’s very pricey, very time-consuming, and very difficult.
The miracle of the Internet, in terms of commerce, is that any fool can become a national retailer. At nancies.org, for example, we have, at different times, sold t-shirts, bumper stickers, and text ads on the site. We’ve had customers in most every state, if not every state, in our thousands of transactions in the past four years. By “we” I mean, of course, me. My sitting on my couch, licking envelopes and stuffing stickers, or processing incoming requests for advertisements or, for a time, working with a distribution company that sent out the t-shirts and handled customer service calls. There is no possible way that I could have handled sales tax reports. The site would have gone out of business, not due to having to charge sales tax, but under the crushing burden of the paperwork and filing requirements. I’ve got a job, school, life to live — selling schwag for nancies.org is just a way to pay the site’s bills, and nothing more.
This is true for many organizations and small businesses. The state regulations are too confusing. With this in mind, a new streamlined sales-tax program has been established, by which states throughout the union are creating a standardized sales tax collection process, such that the paperwork and filing schedule is the same for every state. Forty states have joined thus far, and the decision of whether to do so will be put before the Virginia General Assembly this coming session.
That, however, is insufficient. What we need is a central clearinghouse to collect the money automatically. Every taxable payment made on-line should be able to be run through a central state sales-tax server — XML-RPC based, totally open standards — and have the tax payment computed on the spot. That tax value can be added to the purchase total at the time of the transaction. The e-tailer can then immediately send the payment along to the clearinghouse electronically, via the same XML-RPC interface, which would then route the money to the appropriate taxing entities. Alternately, it could all be kept a running tally of, such that the e-tailer could invest and earn a return on that money until such time as the payment is due, again, using the same system. Those who file per-transaction would be relieved of the requirement to file as per the normal schedule of monthly, quarterly, or whatever. It is only with this system that e-tailers can possibly handle the burden of filing. Our tax system is so complex, and people of all political stripes can agree that it needs to be simplified. Rather than expect the commercial sector to create a Quicken-type program that handles this process or that prints out paperwork every so often, it’s time for these governments to simply hide the complexities of the system behind an open-standards veil. Those who care to delve into the code (be it programmatic or tax) can do so. Those, like me, who are inclined to just file and let the governments sort it out, can do that, instead. (Frankly, I’d like to see the IRS do the same, but that’s another discussion entirely.)
I think that it’s time to even the playing field between retailers and e-tailers. But it can only be level if e-tailers can be spared dealing with far more taxing jurisdictions than the vast majority of retailers would ever need to deal with. Open-standards, per-transaction electronic filing is what will make the SSTP viable.