Further Thoughts on Sales Tax

Well, all I can say is wow!  I communicated with a large number of people yesterday as it relates to sales tax.  Between the comments here, Facebook, Twitter, and in person I gathered tremendous insights.  On Twitter a friend of mine, Rob,  who owns a motorcycle shop (Speed Demon Cycles, Bloomfield, CT) said simply, “something needs to be done to level the playing field”.  I was walking through Middletown in the afternoon and I ran into Bill, one of the owners of my local bike shop, Pedal Power.  Bill was walking his dog and told me he was reading my post on his phone and comes at it from the opposite point of view.  We spoke for quite some time while enjoying the nice weather.  Both Rob and Bill face a competitive disadvantage because they have to collect sales tax at the point of sale.  They provide expertise, inventory, and have to collect sales tax.  Their customers can, and sometimes do, use their expertise and then buy elsewhere to avoid paying sales tax. After reading all of the comments and talking to various people I think it is important to clarify what this bill in the senate is and what seems, to me, to be an appropriate course of action.

The senate bill in question, S.793, simply allows the states to collect sales tax from out of state vendors selling goods into their jurisdictions.  The way it works now is that the sales tax on purchases made out of state is still due.  But it is supposed to be paid by the consumer.  This is not practical and for the most part, this tax goes uncollected.  This bill simply changes the method of collection.  As I stated yesterday, at face value that seems fair.  I agree, it is fair.  What is not fair is the fact that web and mail order companies will have to comply with the various rules and reporting requirements of all 9600 sales tax jurisdictions. A traditional “brick and mortar” retailer has to comly with one set of sales tax rules.  Web based companies will have to comply with thousands.  A bike shop in Connecticut needs to know to collect tax on bicycles but not helmets for example.  A web based company will have to know what is taxable and not taxable in alll 9600 different jurisdictions.

Some have suggested that there be a national sales tax on online transactions.  This tax would then be distributed to the states evenly with one set of rules.  While simple to comply with, it doesn’t really account for the various ways different states collect revenue.  For example, New Hampshire has no sales tax, but much higher property tax rates as an alternative.  To charge New Hampshire residents sales tax, when they already pay more in other taxes, doesn’t take that into account.

Horton Brasses point of view on this issue is simple.  We agree with the principle that there does need to be a level playing field for e-commerce and traditional commerce.  In order for that to happen, there needs to be uniform set of rules and regulations in place.  I don’t know if that is possible.  But I do believe that before congress changes the rules they need to think this through and create a framework where all of the various taxing authorities can work together to create a simple system that works.  To do otherwise is wrong.