Online Sales Tax Reform

The debate over whether or not online businesses should be required to universally collect sales tax gains momentum.


ARTICLE ANALYSIS:
You may have wondered why many online retailers charge sales tax when a purchase is made, while others do not charge sales tax to their customers.  The legal reason is that in 1992, the U.S. Supreme Court ruled that online businesses are not required to collect a sales tax from customers who order products that are to be shipped to a state where their company does not have a physical presence.  Given the choice, most companies will not want to collect sales tax, because doing so places additional administrative workload on their information/accounting/processing systems, which ultimately will cut into their bottom-line.  In addition, not charging sales tax reduces the final price that a customer will pay for their product, which makes their business a more appealing choice.


For almost 20 years this has been the status quo, and it has created at least two inequalities:


1) It gives sales tax-exempt online retailers a competitive advantage over their brick-and-mortar counterparts.  Many customers go to a store just to get their hands on a product, with no intention to actually buy that product from said store.  By then ordering that item online, they won't be able to get the item right away, but the cost savings from the lack of sales tax is usually lucrative enough to endure the wait.  So, a customer is using the facilities that the retailer has paid for (the building, the utilities, possibly the employees) and the retailer receives nothing in return.


2) Online stores such as Amazon (who currently only charges sales tax to 5 states) have a competitive advantage over other online stores who are required to charge sales tax to the majority of buyers.


However, applying existing tax laws to all online purchases would mitigate these inequalities and better equip all stores to compete on a level playing field.  Amazon has historically been opposed toward the universal application of tax for the reasons previously mentioned.  However, as the company realized that it is going to eventually lose its tax battle (notably with the state of CA), it has now reversed its standpoint and is pushing for all companies to be bound by the online tax.  Amazon's competitors argue that the company is flip-flopping on the issue to hurt smaller business that may not have the technological capacity to process the collection of the tax as efficiently as larger companies can.


MY OPINION:
From a consumer standpoint, I'm not thrilled with the prospect of losing the ability to order goods from the Internet without paying any tax.  From a business standpoint, I agree that it will probably prove difficult for some businesses to implement the collection of sales tax.  From an objective governmental (& legal) standpoint, I believe that it is not only fair to collect sales tax from all consumers, but it is also a missed fiduciary opportunity not to collect taxes in accordance with pre-existing laws.  Just because the sales medium has evolved over the recent decades, why shouldn't our laws be applicable to those areas?  Not to mention the fact that states currently lose an estimated $23 billion aggregate, annually, in lost sales tax revenues due to online purchases.  Especially at a time when most states are struggling so severely financially, governments cannot afford to disregard such a large source of legitimate income.  Ultimately, I think my desire for fairness of policy wins out over my desire to be able to save a few bucks on my next purchase.


Original Article