Sunday, April 28, 2013

When it comes to taxes, treat the internet as its own state

The senate is inching its way closer and closer to an internet sales tax.  The problem is fairly obvious.  Michigan (and other states') residents aren't paying use tax on items they purchase over the internet and many online sellers aren't charging sales tax.

Washington Post

What if the internet was treated as it's own state for sales-tax-purposes?  How easy would it be for a flat 4% to be added to all internet transactions, which sellers would remit either directly to the buyer's state or to the federal government for disbursement to the states?

How hard is it to collect sales tax anyway?  Well, it turns out it's pretty hard.  There are over 10,000 sales tax authorities in the US.  States, counties, cities, and special shopping districts are all authorized to require sellers collect sales taxes.  It's little wonder that only large retailers like Amazon seem able to afford the staff of tax accountants and software necessary to keep it all straight--and they don't even do all 10,000+.

Of course, there's still the problem of remitting it.  Some states require monthly payments, some quarterly.  If the internet were treated separately then perhaps quarterly would do fine for all internet retail sales.

Whatever flat percentage is chosen, it will be lower than it should be for some and higher for others.  The question would be, would states and other taxing districts send the money back if they don't have a sales tax, or would states with higher percentages complain if they start getting revenue they never received before--even if it was lower than they require brick-and-mortar stores to collect?

If nothing is collected today, and if states are understandably reluctant to audit all their citizens for use taxes, then an easily collected and remitted internet flat tax makes sense.  The entire bill would be only a few pages, and not overly favor large retailers at the expense of work-at-homes.