Internet Sales Tax Would Be Crushing to Budding Businesses

Apr 29, 2013

May 6 may be a somber day for budding businesses and for some of the fastest growing industries in the country.

That is the day the Senate is expected to vote the so-called Marketplace Fairness Act, which would require a myriad of online businesses to collect and remit the applicable sales tax for their customer's home state.

This new internet tax cartel would be a massive burden to these businesses both because they would take a financial hit (which would be passed onto consumers as well) and because they would have to take numerous cumbersome steps to comply with the law.

Pro-tax advocates of the bill brush these concerns aside asserting that free computer software will be provided to online businesses to help them calculate taxes due and create a single entity to collect taxes for all jurisdictions in their state.

But once that number is obtained, does the tax owed just magically appear at the proverbial doorstep of 45 different states and the District of Columbia? Not at all. In fact, we've pointed out how hellish this tedious process would be for business owners.

The reasons to oppose this tax are clear, and they keep piling up.

Heritage also notes that several of the fastest-growing industries in the country, most of which are internet companies, will be adversely affected by this legislation. This is very problematic, especially in light of our ailing economy:

Popular and growing online businesses providing goods consumers purchase on the Internet, from fashion samples to shoes to household furniture, would have to comply with the laws in each of these locations. There is nothing fair about this, because brick-and-mortar stores would still have to collect sales taxes only where they are physically present. Plus, online businesses could face up to 46 different tax audits (from the 45 state governments that collect sales taxes and the District of Columbia).
Washington should be looking for ways to reduce the government's burden on growing businesses and budding industries. The Marketplace Fairness Act does the exact opposite.

Moreover, the Marketplace Fairness Act does not explicitly mention digital content, but "leaves interpretation up to state law."

You can bet that digital content will be the next target for state governments as a new source of taxation and revenue:

Given the potential revenue on everything from e-books to apps, more taxing of digital content may be inevitable. "There's no question more states will see it as a source of more tax," says Brian Kelleher, tax director with accounting and consulting giant Deloitte. U.S. e-book content revenue is expected to reach $3.19 billion by 2015, according to Deloitte. Consumers will download 56 billion apps in 2013, ABI Research estimates. "We're seeing a movement of states to tax digital content," says Ferdinand S. Hogroian, legislative counsel at the Council on State Taxation, a nonprofit trade group.

In states where digital content is already taxed, the Marketplace Fairness Act would require online companies to collect that tax. Remember, always look beyond the bill title.