I’m not a tax expert by any means, but I know enough (I hope) to keep me legal. I reside in Illinois, and I dutifully charge my Illinois customers the going rate, which I then turn over to the state at the appropriate time as specified by the tax code. My other customers are on their own to report their purchases to their own state taxing authorities.
This arrangement had its roots in the mail order world, where it has long been determined that merchants would find it too cumbersome to calculate and remit sales taxes to the potentially thousands of taxing jurisdictions scattered over the land. Plus (this is just a guess on my part) states in which a vendor had no physical presence would be hard put to find any leverage for collecting the occasional fifty cents that might be due them from one of their citizens purchasing goods in another state, if they even know of such a transaction.
However one may feel about taxes (and I can’t think of anyone that likes paying them), I personally believe that sales taxes are coming to internet transactions no matter what we do. There is already something called the Streamlined Sales Tax. For just a small dip into the waters of this proposed (and apparently in some cases implemented) future internet sales tax system, I recommend reading the FAQ.
It’s scary stuff. While states are required to standardize major portions of their tax codes, every little burg and village is still allowed to have its own tax rate. The system allows for a huge list of “taxed or not” items which will be different in each state, and even contemplates things like tax holidays. Granted, the states are required to provide an accessible list that can be accessed by “remote sellers” to determine tax rates by nine-digit zip code (who collects all nine digits, anyway?), but for someone like me, who might only sell three or four books a year in any given state, it would be a nightmare.
Not that anyone who could do anything about it is likely to listen, but just for the sake of venting, I’m going to provide my own suggestion for a really simplified internet sales tax that won’t cripple small, entrepreneurial businesses:
- There is one rate. That’s right. Just one rate, and it applies to all monies collected from the customer for both product and shipping. I would probably exempt food and medicines, and I’m sure there will still be definitions to work out, but I want it really simple. (States could still continue to require vendors with a nexus in their states to charge a state specific tax, but this would enable them to immediately begin collecting sales taxes on all the other transactions they currently get no piece of.)
- There is one reporting point. All I want to do as a small seller is send a list of zip codes (not nine digit zip codes either!) and receipts in a comma-delineated file to some central point with my check or EFT. That organization can divvy up the money and send it on to the participating states.
Here is how I think it could be implemented:
The Feds could create the central collection agency and reporting mechanism as a service to the states, but states could opt in or opt out. Why the Feds, you may say? I suggest you look over the FAQ for the Streamlined Sales Tax system again. (Even more enlightening, check out a state “matrix” or two to see how much mind-numbing the variations still are.) That’s what we got when 44 states put their heads together and compromised on something they could all agree on. Also, the states, as part of the deal they make to be part of this plan, could pass some enforcement abilities on to the internet taxing agency, and thus create a real incentive for out of state merchants to participate.
I want to note that Nathan Barker makes a similar proposal (in a lot fewer words!) on the Kayleighbug Books blog. I’m not trying to appropriate his ideas, but I have also felt this way for a long time, and I suspect many would agree.
Do I like taxes? Nope. But I’m a realist. I don’t see how states can pass up internet taxes much longer, especially since these would not technically be “new” taxes, but only a new way of collecting the use taxes that their citizens are already required to pay.
The difference would be, they could actually get the money without destroying the small businesses who would be collecting it for them.