States throughout the country are struggling with budget deficits and many
are jealously eyeing what they see as lost sales tax revenues due to Internet
sales. Currently there are 45 states with sales and use taxes, and multiple city
and local taxing jurisdictions within many of the states. The total number or
taxing jurisdictions (more than 7,500) and conflicting rules (some items or
services are taxable in some locations, but not others), led the Supreme Court
to rule in 1992, that the states would have to first simplify tax regulations
before they could require out-of-state businesses to collect their taxes.
Now, a group of states is trying to do that (simplify sales taxes) so they
can move to force online sellers to collect out-of-state sales taxes. In
November of 2002, members of the
National Governors Association (NGA) approved a model interstate agreement
to streamline the nation's sales tax system. The model agreement would establish
uniform definitions for taxable goods and would require participating states and
local governments to have only one statewide tax rate for each type of product
effective 2006.
But most small businesses, particularly microenterprises with limited staff,
limited finances and limited technical capabilities, believe that having to
collect taxes and remit taxes for states other than their own will prove a
burden - in some cases, an insurmountable one. Instead of filing one state tax
return quarterly, having to track sales by state and possibly by item, and file
the appropriate paper work with the appropriate frequency in all states would be
a time consuming and /or expensive nightmare. The cost of compliance would cut
into profits and possibly put some out of business. Lower profits would mean
lower income taxes paid to their own state. And lower profits would mean less
money to spend with other small businesses in their communities - and more small
businesses going under and falling off the tax rolls completely.
So what's the answer? States can't afford to lose increasing revenues to
untaxable internet sales. And small businesses can't afford the burden of even
the currently proposed simplified state sales tax system. Where's the middle
ground?
Business Know-How had asked our readers to send us their thoughts about the
state sales tax issue. As you might expect, we got comments that ranged from
tales of woe to outrage that anyone should have to pay tax. But what the
majority of small businesses want is a simple, hassle free way of conducting
business.
Personally, I think states should consider a single, nationwide sales tax
that is collectible by the company that makes the sale, and payable to the state
in which that business is based. I think few small businesses would object to
collecting and remitting tax in this way. In fact, online retailers and
catalogers located in states such as NY where one is required to collect and
remit tax at the rate an item is delivered to, being able to charge and remit a
single tax rate would be a welcome change.
But, those are my thoughts. We've collected a number of comments from other
small businesses around the country. Some came from my email, some from notes
posted on our message board, and some from
E-Tailer's Digest,
an excellent discussion list run by George Matyjewicz.
Click here to read what
small businesses are saying about an Internet sales tax.
If you would like to talk about the issue or add more comments,
click here
to post a message on our message board.
About the author
Janet Attard is the founder of
the award-winning Business
Know-How small business web site and information resource. Janet is
also the author of The
Home Office And Small Business Answer Book and of Business
Know-How: An Operational Guide For Home-Based and Micro-Sized Businesses with
Limited Budgets. Follow Janet on Twitter at
http://www.twitter.com/JanetAttard.
