Tuesday, May 07, 2013

Arguments in favor of Internet Sales Tax are all wrong

I've been listening to the arguments being made in favor of the Internet sales tax - a bill passed by the Senate and now headed to the House that would mandate the collection of sales tax for any on-line purchases from a company with more than $1 million in gross sales.

The claim by large, national corporations is that it will 'level the playing field' when it comes to collection of the tax because most of them already do this.

The problem is that the sales tax varies by jurisdiction with 9,646 different jurisdictions and a tax that is dependent upon where the purchaser lives.

Under current law, sales tax is collected by the merch ant based upon where the merchant is physically located and charged on on-line purchases only when a merchant has a physical location in a state.

It's a regulatory nightmare and companies with $1 million in GROSS sales might not have the NET profit to be able to afford the cost of the mandate. Then is also the possibility of purchasers giving a friend or relative's address in order to avoid paying a higher tax rate. What's to prevent someone from Toledo (with a 6.75% sales tax) from using an Erie, Michigan address (6%) in order to save the .75% difference?

The bigger question that bypasses all the arguments is this: why are merchants being used as a tax collector for the government?

The government is the person to whom the tax is owed. They are the ones who want the money and they are the ones who have the authority for penalizing the non-payment. Why is there even a middle-man in the first place?

Many entities use a company that specializes in collecting past-due bills. Those companies are paid for their services, either in a set fee or contract or by a percentage of what is collected.

But merchants don't get paid or compensated for collecting the government's bill of sales tax.

Ohio has a law that requires individuals to report on-line orders and then pay the appropriate sales tax on them. The state uses the yearly income tax form for doing this.

So why not just expand that procedure to all purchases?

Clearly, it's because government can't rely upon self-reporting of purchases and it may be unrealistic to expect individuals to keep track of the taxable vs. non-taxable purchases they make.

In fact, it's because the government doesn't trust individuals to self-report that they're not trying to expand their tax collection to entities that don't even live within the state.

Because certainly if individuals can avoid paying taxes, they do, regardless of how much they may support taxation in general or additional taxation on 'the rich.'

So we have a conversation about how merchants can be forced to be bill collectors for the state.

Anyone else see anything wrong with this?

1 comment:

James said...

Senator Portman, our senator from Ohio, disappointed me with his vote to tax Internet sales. He joined a bunch of Republicants and Democrats to screw us.

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