Time is Now for Internet Retail Tax

On the face of it, the bill the Senate is considering to levy taxes on Internet retailers simply makes sense. The states are strapped for cash and we have a bifurcated system that requires local brick and mortar outlets to ante up while letting out of state online retailers off scot free.

Internet tax, online tax

On the face of it, the bill the Senate is considering to levy taxes on Internet retailers simply makes sense. The states are strapped for cash and we have a bifurcated system that requires local brick and mortar outlets to ante up while letting out of state online retailers off scot-free.

The Marketplace Fairness Act of 2013 (S.743) would level the playing field by making it possible for states to require larger online retailers to pay taxes on goods delivered within their borders, even if the retailer has no physical presence in the state.

That makes states salivate because the National Council of State Legislatures estimates they are missing out on some $23 billion per year in potential tax dollars. (Total e-commerce sales for 2012 were $225 billion, 5% of total retail sales, according to the U.S. Department of Commerce.)

The devil, of course, is in the details.

[ MORE: Internet taxes: Is the inevitable about to happen? ]

For example, there are nearly 10,000 tax jurisdictions in the U.S. "How can we possibly know the tax rates in [those] jurisdictions?" The Washington Times quoted Overstock.com CEO Patrick Byrne saying. "In one jurisdiction, cotton candy is food; in another, it's entertainment or candy."A

The bill seeks to address that problem by requiring states that want to pursue these taxes to streamline their requirements and provide "software free of charge for remote sellers that calculates sales and use taxes due on each transaction." But even then online retailers face the daunting task of filing returns in up to 46 states (the number that collect retail taxes), and heaven help those that get audited.

Recognizing that the change would pressure smaller online operations, the bill exempts shops with less than $1 million in sales. That covers 99% of Internet sellers, Rachelle Bernstein, a vice president at the National Retail Federation, said in a PBS interview. Her organization favors the bill.

eBay opposes the bill, but at the very least would like to see the exemption limit set at $10 million to ensure the taxes don't curtail small business growth. eBay's senior director of global public policy, Brian Bieron, says in that same PBS interview that $10 million is the level recommended by the Department of Treasury Office of Tax Analysis.

A compromise on this exemption would be a good way to get this going. Starting with a smaller set of larger retailers would limit the exposure and give us time to work out the kinks.

But what it comes down to is this: If not now, when? It isn't like the growth in online retail sales is going to slow anytime soon. It isn't going to be easy, but it is time to level the retail playing field.

The longer we wait, the more likely our town centers become retail ghost towns.

Read more about data center in Network World's Data Center section.

This story, "Time is Now for Internet Retail Tax" was originally published by Network World.

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