I recently learned of H.R. 5660, a bill first introduced last July, more commonly known as “The Main Street Fairness Act”. It is likely to be reintroduced in the 112th Congress, in a bi-partisan effort. This bill, if passed into law, would require internet retailers to collect sales tax for and remit to all 50 states. Read the text HERE.
Most shoppers are aware that purchases made over the internet, from sellers not having a physical presence in the same state as the purchaser, do not have a sales tax collected with them. For example, let’s say you order a $100 coffee grinder from us via the internet. If you are not from North Carolina, we do not collect sales tax for your state, and your bill is $100, plus shipping. If you are from NC, we collect NC sales tax (most likely $7.75, but if could be $8.00, or it could be $8.25, depending on the county in which you reside), and remit it to Raleigh, so your bill is $107.75, or $108, or $108.25, plus shipping (if applicable). North Carolina residents would pay us the same amount whether they made their purchase from us in person or over the internet.
Lawmakers are claiming that this discrepancy is costing states billions of dollars (collectively somewhere between $21 and $34 billion, to be precise) in missed revenue that need for essential services. And by God, they want their money.
Their argument, however, is that the current “exemption” puts brick-and-mortar sellers at a disadvantage compared to internet sellers. It is worth noting that the current system came about from a 1992 Supreme Court decision (Quill Corporation v North Dakota) which found that the patchwork of complex state and local sales tax rules were a burden to interstate remote retailers, and therefore, Internet and catalog retailers should be exempt from collecting sales taxes unless they have a physical presence, such as a store or warehouse, in the purchaser’s state.
Amen, brother. We only report sales taxes in one state currently. I can tell you firsthand that the patchwork in North Carolina alone is a pain in the ass at best, and a likely source of unwitting noncompliance, at worst.
I hope that you, like us, will oppose this bill. Truth be told, I don’t care about the money. We have never made low prices a core strategy of our business, and candidly, most customers who buy from us will be insensitive to paying the tax, because they buy from us because of quality, diversity of choices, trust, or other reasons that are not linked to paying a few percent more or less on any given transaction.
We oppose this bill for four reasons:
- In most cases, consumers are already obligated to remit the sales tax due on out-of-state purchases to their state, as part of their state income tax filing. The groups in favor of this bill euphemistically suggest that consumers “don’t know” they have this obligation. Don’t know? Bullshit. If you can read, you know. If you signed your tax return, you attested to its accuracy. So this is another case of already having a law that is not enforced. It’s simply a matter that government would rather prosecute businesses than individuals, for obvious reasons. I say no. If you think I’m a tax cheat, come get me as an individual.
- We are both a brick-and-mortar retailer, and an internet retailer. Is it true that internet retailers place brick-and-mortars at a disadvantage? Hmmm. Well, technically, I guess it might. But the modern reality is that retailers MUST be both to satisfy consumers and be competitive. To have the government desire to protect retailers that choose not to sell online is ludicrous. It’s akin to protecting buggy whip manufacturers from automobile manufacturers. It’s crazy. I want to live in Mayberry, too, where we all take Sundays off, go fishing with cane poles, and come home to a big chicken and dumpling dinner made by a smiling mom in high heels, a skirt and pearls. But wishing it doesn’t make it reality.
- It will create a very real and painful administrative burden on business, especially small business. For North Carolinians alone, we must determine the county of residence of every online purchase (there are 100 counties in NC), and assess the proper tax rate. Our web site wasn’t originally constructed to figure out your county (it wasn’t a requirement when we built it four years ago), so now we do it manually. It takes hours every month. Not to mention that because 83 of 100 counties collect one rate, we assess that rate, and if you ordered from one of the 17 who assess a higher rate, we pay the difference from our pocket. It is truly a pain in the ass. In the US, 45 states have a sales tax. So now we’re going to need to multiply the NC burden by 45, and that’s after we figure out how to do it the first time, which will not be trivial. Let’s say we spend just one hour per month on NC sales tax administration (it’s a little more than that, but not too much more) – we’ll now be looking at a full work week just to report and pay sales taxes. Obviously that’s not workable, which means some investment in upgrading our web site and accounting systems will be required. There are 29.6 million businesses in the US, 99% of which are small businesses, according to the SBA. If each one spends an additional $1209 per year on compliance (which seems like a perfectly plausible outcome), the entire benefit of collecting the “avoided” tax is evaporated.
- The states’ argument that they are somehow missing out on revenue is based on the likely erroneous assumption that the tax savings realized by their citizens by out-of-state online purchases is not somehow spent in state. For example, if I save $8 in taxes by buying my grinder from an out-of-state online retailer, I am very likely to spend that $8 on something in state, whether it’s extra tools from Home Depot, or a sandwich from Neomonde Deli. So I don’t believe for a nanosecond they are missing tax revenues.
Please contact your representative to tell them how you feel about this bill (even if you don’t agree with me, tell them that). Use the “Write your Representative” link on the right side of this page. But please don’t let this thing pass into law just because nobody cares enough to point out the flaws in their logic and the harm this is likely to inflict.