April 15 is one of the least liked and certainly the most expensive days of the year for many Americans. It is Tax Day when we all must ensure that we have paid our fair share. But, if big-box retailers get their way, every day will be tax day for small online sellers.
At both the federal and state levels big box stores are lobbying for new unfair taxes on our nation’s small internet retailers.
Since the dawn of our nation, retailers have been required to collect sales tax only for states and jurisdictions in which they have a physical presence. However, bills backed by our nation’s largest retailers would force all internet sellers, regardless of physical presence or volume, to collect taxes for about 10,000 local tax jurisdictions and file taxes with up to 45 states.
The result? Small internet sellers will drown in bureaucratic red tape and be unable to compete with the resources of larger retailers, resulting in reduced competition and innovation for U.S. consumers.
While some states are rushing to enact laws, the most harmful bill is the so called “Remote Transaction Parity Act” (RTPA) as it would have implications across all 46 states that impose a sales tax. From both an accounting and auditing perspective, the RTPA (H.R. 2775) is a nightmare for small businesses.
While small online businesses are the losers under RTPA, the biggest winners are the Certified Tax Software Providers (CSP) that would serve as a clearinghouse for tax collections. Under their sweatheart deal, the CSPs reap 5 percent to 8 percent of the tax money collected. One CSP anticipates a windfall of $1.3 billion in taxpayer dollars following the passage of RTPA.
Despite what tax advocates say, the internet sales tax issue is ultimately about big retailers trying to wield their political connections to create hurdles for competitive upstarts. Nearly all of the nation’s largest e-tailers already developed sales-tax collection systems for every state because they have stores there.
They have systems in place to deal with the taxes they must collect based on the fact they have a physical presence in those states. But it’s an altogether different story for small businesses. Many have only a few employees based in one location. And they simply don’t have the capability to comply with a myriad of tax laws across nearly every state in the country.
The complexities of the RTPA cause numerous errors for businesses not equipped to collect taxes for states where they have no employees and no physical presence. And the RTPA allows each state to have its own definitions for taxable products, sales price, rules, and filing forms. That creates a minefield of complexity where businesses will inevitably make mistakes that will be pounced upon state tax auditors.
Do sales taxes need to be collected? Certainly they do. But it has to be done in a way that doesn’t rampage small businesses, restrict competition, and reduce consumer choice.
House Judiciary Chairman Bob Goodlatte (R-Va.) may have an answer that works. His draft legislation would let every business collect and file sales tax based on the rates and rules of where they are based — instead of where the customer lives. Goodlatte’s plan creates true parity between online, catalog, and brick-and-mortar stores. States would route tax collections to where customers reside, so Goodlatte’s plan would help pay for local services, too.
So, as you get set to “survive” Tax Day, imagine if a legislator proposed that every day would be April 15. It would be a nightmare and one that we would not stand for — neither should our nation’s small businesses.
Commentary by Carl Szabo, a senior policy counsel for NetChoice, a trade association of eCommerce businesses and online consumers. Follow him on Twitter @carlszabo.