Washington Post op-ed: Close the tax loophole for online retailers

Washington Post Opinion: Close the tax loophole for online retailers

Washington Post Opinion: Close the tax loophole for online retailers

A new Washington Post opinion piece by Dan Crippen, executive director of the National Governors Association, and former director of the Congressional Budget Office, criticizes Congress for the tax exemptions given to special interests and makes a strong argument for ending the sales tax collection exception for online retailers:

Even now, as states struggle with lagging revenue, increased needs and balanced-budget requirements, there are numerous bills in Congress to exempt special interests from state taxes — for rental cars, cellphones, online travel services and “digital goods.” Such efforts [justify] the exemptions as preventing “discriminatory” taxation. But in reality, they all preempt state taxing authority to give special tax treatment to the politically well-connected.

The most pernicious erosion of state sales tax bases is the proliferation of the sales of goods and services on the Internet — goods and services that if purchased from a local business would have sales tax collected. In other words, Internet sellers receive a tax subsidy for much of what they sell. (emphasis added)

But according to the piece, it’s not just a matter of fairness—of leveling the playing field so that all retailers play by the same rules. It’s also a matter of acknowledging the benefits local retailers bring to communities that can’t be replaced or replicated by online retailers:

This is unfair to local retailers that not only collect sales taxes but also contribute to the local economy, pay state and local taxes, operate as showrooms for Internet sales and technical services, create most of our jobs and contribute to our communities by sponsoring Little League teams and more.

Embedded within that quote is a problem we’ve heard small business owners talk about over and over: Shoppers are visiting local stores, browsing the shelves and asking clerks questions, and then actually making their purchases online. It’s a huge problem for local retailers that are struggling anyway in this economy.

We’re thrilled that this piece counters two of the arguments that are most often levied against online sales tax collection, that it’s a tax increase (false) and that it would be too difficult for businesses (also false):

Of course, it is not a tax increase — it is a means of collecting taxes owed. In most states, the consumer is legally responsible for reporting and paying sales tax on out-of-state purchases. As such, the Internet encourages tax avoidance; the lack of an effective system to collect sales taxes at the time of purchase causes many Americans to incur — but not pay — the taxes they legally owe. This legislation is no more a tax increase than when a company that has not paid into the Social Security system on behalf of its employees is made to do so. . . .

Administrative complexity is the closest that opponents come to a legitimate argument. Indeed, the Supreme Court ruled against states in Quill v. North Dakota [in 1992] precisely on the grounds that it would be too hard to collect all of the different state sales taxes. Since that ruling, at least two facts have changed: (1) the proliferation of computers to calculate taxes due on sales — just as shipping costs are determined based on Zip code — and (2) a state agreement on streamlining and simplifying sales taxes so that there is only one point of collection per state and only a few tax rates per state. Does anyone really believe that a business that operates on the Internet cannot also compute the amount of tax owed?

We would add, of course, that if an online retailer is struggling with sales tax for any reason, services like TaxCloud are available to take that burden off their hands, at no charge.

The piece also points out what exempting online retailers from collecting sales tax ultimately means for taxpayers:

Allowing Internet sellers to escape sales taxes also means that state and local governments will be forced to rely more heavily on personal and corporate income taxes, undermining consumption taxes that economists mostly favor.

It’s a wonderfully thoughtful, cogent article by  someone who knows what they’re talking about, and it’s particularly relevant in light of California’s recent legislation. We highly recommend you head over to the Post and read the entire thing.

2 Responses to Washington Post op-ed: Close the tax loophole for online retailers

  1. Kumar says:

    With our grid-locked, polarized and dysfunctional politics, it is unlikely to happen.

    Proponents of e-fairness should look to the same place that naively caused this problem to exist, the Supreme Court, by using Amazon’s appeal on New York state’s Amazon Tax legislation as a vehicle to get the court to reverse its Quill vs. N.Dakota decision.

    Here is a blog post echoing the same pessimism:
    http://robertkugel.ventanaresearch.com/2011/07/
    “Recently, I came across a piece of research from a well-known IT research firm that was published in 2000 on the topic of applying sales tax to Internet purchases. It was amusing that the report forecast that by 2005, the streamlined sales (and use) tax agreement (SSTA) would be in force and states would be raking in taxes from out-of-state purchases. More than a decade after this prediction was made, it still hasn’t happened.”

  2. […] outlets are coming to the same conclusion. We’ve blogged recently about editorials in the Washington Post, the Press Enterprise (Riverside, CA), the Baltimore Sun, and the Mississippi Press, and we expect […]

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