BNET column looks at economics and politics of online sales tax

Earlier today, a column on BNET (CBS’s business website) offered an insightful look at the economic and politic realities of online sales tax. The author believes those realities are favorable for the Main Street Fairness Act:

But with states and municipalities across the country facing enormous fiscal challenges, a measure that raises revenue while also leveling the competitive playing field may now find stronger support in Congress.

With this caveat:

That said, the politics surrounding Durbin’s bills are complex. It pits politically wired online giants against even bigger, more powerful offline retailers. The measure is also likely to face opposition from anti-tax lawmakers who falsely label it as an additional burden on business.

The author cites the figures in a University of Tennessee study to illustrate just how much exempting online retailers from collecting sales tax is costing states:

A landmark 2009 study by University of Tennessee researchers projected that over a six-year period through 2012, failing to collect taxes from e-commerce companies would cost state and local governments a total of more than $52 billion.

However, there are problems with the efforts made by individual states to get online retailers to collect sales tax. In particular, the author offers this argument against affiliate nexus legislation of the sort just passed by California’s Assembly:

They result in a patchwork of state tax laws, arguably raising compliance costs. Worse, it allows online retailers to play states off each other by threatening to leave the ones that are weighing such laws.

The better solution? Federal legislation such as the Main Street Fairness Act:

Federal legislation . . . is the only way to ensure a uniform Internet sales tax. There’s no reason that online retailers that benefit from soliciting customers in a state shouldn’t pay local sales tax. That hurts competition, and it deprives states of essential revenue that they are already legally entitled to collect from traditional merchants.

We must point out the slight misstatement here—the author likely intended the word collect rather than pay. This little slip-up suggests that online retailers would pay local sales tax, when actually the online retailer would simply collect the sales tax from their customer, based upon their customer’s local jurisdiction.

It’s an interesting column from a business perspective, and we suggest you head over to BNET to read the entire thing.

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