Taxing Online Sales

The Senate has passed a measure that tells states that they can tax online sales, even if the seller is out of state and has no storefront in that state.  There are a lot of reflexive, "no new taxes" voices on this, but I really don't have a big problem with this, for several reasons.

The most important is equal protection of the law.  Target.com (as well as a lot of single store operations) have to pay sales tax on sales to Idaho residents because they have brick-and-mortar stores here.  Why should Amazon be exempt from charging sales tax that most of their competitors have to charge?  If sales tax seems pretty minor -- our sales tax in Idaho is 6%.  For many businesses, that is more than their profit margin on sales.  That's a huge advantage, and not a fair one.  (Of course, you as a customer are supposed to pay that sales tax for out of state purchases already; in practice, most states will only catch you on this if you buy a car out of state and then register it.)

Another criticism of the proposed law is that a lot of small online retailers are going to have to keep track of sales taxes for all 50 states (and in some cases, for individual counties and cities).  Yes, that's going to be something of an issue.  But the law exempts small sellers:

(c) Small Seller Exception- A State is authorized to require a remote seller to collect sales and use taxes under this Act only if the remote seller has gross annual receipts in total remote sales in the United States in the preceding calendar year exceeding $1,000,000.

 If you are making a million a year in sales, you can afford whatever software revisions are required to your invoicing software to calculate sales tax based on zipcode.  That's a one time investment.

UPDATE: My, what a lot of comments, and many of them quite thoughtful.  (I mean, none of them start out, "Clayton, you ignorant fool.") 

There are some good points, especially about the complexity of sales tax forms from state to state.  I should point out that unless you are making pretty big sales, there is a good chance that nearly all your sales tax returns are going to be from about five to ten states.  The bulk of ScopeRoller's sales in almost any year are California, Texas, Florida, Ohio.  I know that I have never made a sale in Alaska, Hawaii, Wyoming, Vermont, and at least a dozen other states.

I agree that there is an apparent problem of taxation without representation -- an interesting problem.

One commenter suggested that a million dollars in sales might be $25,000 a year in profit, and complying with the requirements for software updates and filing of returns might well wipe out that profit.  I suspect that any online business that is making that little profit is pretty unusual.  I would wonder why someone is working that hard for that little profit.

Another commenter suggested that brick-and-mortar stores should pay sales taxes because they are relying on local governmental services, while Amazon relies on USPS and UPS.  But the trucks from both are definitely not hovercraft; they use local roads, and if there are thefts or robberies of merchandise from UPS or other private delivery firms in the delivery state, that becomes a matter for local police.  There might be a case for a for more service approach to governmental services, but within the current model, it is not clear that Amazon is completely unreliant on distant state governmental services.

The suggestion of taxing goods at point of sales is interesting, and would certainly be simpler.  I rather like the idea.

I suspect that many medium sized businesses already use payment processing capabilities (like PayPal) that will handle this quite automatically.