Should we have an Internet sales tax?
About 14 years ago I set out to open a computer store. In the early 90’s you could really make a living building computers. By the late 90’s there wasn’t much money left in it, but it was something I enjoyed doing. After 2000, many people would grab them from a big box store. Almost anyone needing parts would buy the parts online since they did not have to pay tax, other than people willing to pay a small markup for convenience. This was a major game changer. Prior to this people needing a part like a hard drive would call around for pricing or go to their favorite local computer shop and purchase one. It always baffled me why there was no sales tax collected on the Internet.
They say if you can not beat them, join them. I ended up making my own niche in laptops. Refurbished laptops, laptop repairs, laptop parts, etc. I sold them online. It was a tough business, but people loved buying them because I do not have to charge them sales tax as long as they were out of state. If they were supposed to report this or not I am not completely certain of but that is on them.
How would tax be collected? I gave it a lot of thought over the years. In North Carolina, the tax is different than in South Carolina, and sometimes even different in different counties. Even if you charged a state tax per state in your eCommerce platform, keeping track of all of the changes would be difficult. And how would reporting work? Would someone selling online have to file 50 Sales & Use taxes every month? That would be an extra 600 tax returns a month. My accountant is so far behind he hasn’t even done my 2012 taxes yet.. It just sounds like a brand new nightmare for business owners.
What about the FairTax? I am not an economist but the idea of a single flat tax has always intrigued me. It just sounds like such a wonderful idea on many different levels. From a shopping cart/eCommerce integration point of view it works out fantastic, too. As a business owner, all I’ve ever asked for is a level playing field. I do not know if it is a solution or not but it is worth taking a look at and should be treated as a real option in my opinion.
Other problems for online retailers?
– If I were still a reseller I would have to fill out reseller forms and send them in to companies before making a purchase. An employee would then have to get the paperwork, approve it, tweak my account so that it did not charge me tax, and do even more paperwork. This sounds like a bit of a headache for both someone trying to buy and the person trying to sell.
– They say there would be a $1 million threshold for out-of-state sales. So if your business sells under $1m online, you would be exempt from the tax. I think this is silly. Let’s say I sell laptops and hard drives and my sales are $1.5m a year. I could simply make a second business. The first business could sell laptops, and the second could sell hard drives, and sales would then be under $1m for each company, exempting me. This goes against my thoughts on a level playing field and a flat tax.
– What happens if the Alaskan Dept. of Revenue thinks I am doing something wrong? Do I have to gather my paperwork and fly to Alaska?
Do we really need more tax? As a small business owner I’ve always worked within my means. If I had $1000 to experiment with, I might use $900 of it on advertising and the other $100 would be used on unexpected costs in the near future. Overspending isn’t an option or you go hungry. We take in so much money in taxes already, it just amazes me that people are out there trying to figure out new ways to get even more money. You would think we’d have a massive surplus.
So, random Monday morning thoughts aside… Do we need an Internet sales tax? Maybe, maybe not. I’d have to see all of the pros and cons and take them into consideration. I’d want to talk about it with other business owners, get input from economists, and most importantly, customers. I don’t know if a good idea or not but it is interesting. Maybe people should have been paying state tax on items they bought all these years in the first place, or maybe there is an interstate commerce something or other that applies to this- I really don’t know. I would be interested in having a discussion on it with people who have actually read and understand the bill. Then again, the Senate is voting on it today…