Sunday, April 17, 2011

Sales Taxes and Interstate Sales

Nathan Newman argues that Internet sales should be taxed, arguing that the right-wing politicians and commentators who argue against taxation are hypocrites on the issue of federalism. Newman suggests,
In an age of databases, calculating the taxes for different jurisdictions is as easy as, well, dealing with the logistics of shipping goods all over the country -- a challenge these online and catalog retailers already have mastered.
It's easy enough for a company like Amazon to deal with tax collection for fifty states, and even for states (or is it just California) that have local sales taxes to collect and distribute. But there are a lot of small businesses that operate online, and it's simply not the case that it's as easy for them. Are small companies expected to obtain sales tax licenses for every state, then calculate and remit sales taxes on a periodic basis to each state? The amount of work involved for a company that has four, five, or even six figure annual sales could be quite onerous, even with a good database of local tax rates.

If states choose to open a national clearinghouse to assist with the collection of sales taxes, such that small vendors could verify tax rates with and forward collected taxes to a single entity, I would not have much concern. But I am not in favor of a proposal that will unduly burden small businesses, and likely cause many to stop selling across state lines, creating yet another barrier to competition between small businesses and start-ups and massive companies like Amazon and Walmart.

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