A recent article in the Hawaii Reporter on proposed tax changes in Hawaii includes some misleading language about online sales tax that we’ve been seeing in many press outlets.
We don’t mean to finger the Hawaii Reporter specifically—many, many newspapers and blogs have contained this kind of misinformation. The Hawaii Reporter just happens to be the one we saw this morning when we decided to finally address the issue.
And it turns out that this particular article is a good example, because several of the most common incorrect or misleading “facts” appear in a single paragraph:
One tax that will likely pass is the Internet purchase sales tax. Right now there are two federal legal rulings opposing attempts to tax businesses that don’t have a physical presence in the state (see comment section below for more details). That is under the theory that the businesses don’t have to pay taxes for government infrastructure improvements and services that they will never use.
1. No one is proposing a tax for businesses, online or off. (In fact, no one is proposing a new tax at all, but we’ll get to that.) Online retailers would simply be collecting the sales tax that consumers pay—a tax that, right now, consumers are expected to calculate and send to their state directly (although few do). The anticipated legislation would shift that burden from consumers to retailers.
2. Sales tax is destination-based, which means that it goes to the state where the consumer (who pays the tax; see #1) is located. Which makes sense, because sales tax pays for vital community services and infrastructure—and those who pay the tax are those who benefit from those services and infrastructure.
3. The reason that the Supreme Court ruled that retailers are required to collect sales tax only for states where they have a physical presence, or “nexus,” was not that the court wanted to ensure that the retailer didn’t have to collect taxes for places where they didn’t benefit from government services and infrastructure. It was because the court felt, in 1967, that requiring retailers to collect sales tax for every state they sold in would be too difficult—there are thousands of tax jurisdictions throughout the country, and at the time it would have been too hard for a retailer to keep track of the sales tax rate in every jurisdiction.
The good news is, all that has changed in the forty-four years since the Supreme Court ruling. Today, technology makes it easy for retailers to instantly calculate the sales tax due for any location in the country. It’s no more difficult than calculating shipping rates in real-time, something that nearly every online retailer does. What’s more, sales tax management services like TaxCloud handle every aspect of sales tax collection for the retailer, at no cost. TaxCloud not only calculates the sales tax due, it also files tax returns, generates monthly state-by-state reports, handles audits and exemptions, and more. With services like that, calculating and collecting online sales tax could hardly be easier.
4. No one is proposing a new “Internet purchase sales tax.” Sales tax is already due on online purchases; if the retailer doesn’t collect it, the consumer is supposed to calculate the tax due and send it directly to their state with his or her tax returns. What the legislation would do is shift that burden from consumers to retailers.
It’s strange that so many press outlets are getting these facts wrong. We hope that as the issue gets more and more publicity, journalists become more familiar with it and can address its nuances without including incorrect information.