Friday, May 3, 2013

The Internet sales tax - Why so complicated?

Once again government is making something more difficult than it has to be.  There’s a lot of talk about the Internet sales tax.  It’s not an “Internet tax” as some have tried to portray it.  It’s merely a tax on all sales made through the Internet.  As the laws stand now, you don’t have to pay a tax on an item unless the company selling the item has a physical presence in your state.  Lawmakers are wanting to force any retailer with sales over $1 million annually to collect sales tax for each state.

Opponents argue that it’s too burdensome and on that point they’re right.  But we do, in the name of fairness, need to close this loophole that allows some items to go untaxed.  Congress, as usual, is making this far too complicated.

Let’s say I walk into an antique shop in Kentucky and I see a little antique box that I just have to have.  Let’s say it’s $30.  I whip out my credit card and do the deal then pack the box into my car and drive off.  The store where I bought the item charges me Kentucky sales tax and sends the money to Frankfort.  Neither the store owner nor the state of Kentucky cares that I’m from Tennessee.  Why should a mail order or Internet sale be any different?  If I find that same antique box online and that store ships it to me then I should pay Kentucky sales tax, not Tennessee sales tax.

Some have argued that the tax is on the customer, not the business.  That’s true but it’s still on where the customer is doing business and, technically, the business is being transacted in Kentucky.  That computer program that I’m using to fill in the pertinent information and turn my credit card info over to belongs to the business in Kentucky.  The order is being processed in Kentucky and the item I’m ordering is in Kentucky.  Kentucky should get the sales tax just as if I were standing at their register.

Asking businesses to send tax revenue to 50 different states is asking a bit much. It turns businesses into tax collectors for states with which they otherwise have no connection.

If we do decide to go the common sense route and collect the money where the item is sold and send that tax revenue to the state where the business is located some argue that will drive businesses to relocate to states with lower or no sales tax.  Perhaps but I think that’s way down on the list of why businesses are in the states they’re in.  I would suspect the foremost reason a business is where it is is because the founder lives there.  Beyond that, businesses might relocate to states with no income tax since the CEOs will have to pay it but a sales tax is not a tax on the business or anyone else within the company.  It’s a tax on the consumer.

Most states are pretty close on sales taxes except for the handful that don’t have a sales tax.  Most states are in the 6 to 9 percent range.  That means if I buy that $30 antique box I’ll pay a sales tax ranging from about $1.80 to $2.70.  That’s probably not enough to discourage me from making the purchase.  On the larger items you’re as likely to be worried about shipping costs as you are sales tax.

I just don’t see it as a big deal but if we’re going to do it at least let’s make it simple for a change.


  1. If you live in Tennessee and buy an item from a store (online or brick and mortar by mail order) it seems to me that that item is being exported from Kentucky to Tennessee. The US Constitution Article I, Section 9 contains this line: No Tax or Duty shall be laid on Articles exported from any State.

    So it seems to me that this tax is unconstitutional.

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