Untangling the online tax mess

  • 1 April 2019
  • NormanL

The U.S. Supreme Court's ruling allowing states to tax online sales has, predictably, lead to enormous problems for small internet retailers.  States look at these retailers as a potential gold mine of revenue. Even better? They are the kind of revenue source that pays taxes, but doesn't demand any government services in return.

But heaven help those small retailers if they don't pay the taxman they didn't elect. Which is where Congress needs to step in:

The Online Sales Simplicity and Small Business Relief Act, introduced by Rep. Jim Sensenbrenner (R–Wisc.) and cosponsored by Reps. Jeff Duncan (R–S.C.), Anna Eshoo (D–Calif.), and Zoe Lofgren (D–Calif.), would ensure that states cannot require remote online sellers to collect sales tax retroactively on transactions made before January 1, 2019. That gives small businesses at least the rest of this year to adjust to the Wayfair landscape...for sales made during 2018.

More importantly, it would exempt sellers who gross less than $10 million in annual sales from owing taxes to other states. That's a much higher threshold than the 200 transactions/$100,000 standard created in Wayfair...

That exemption would be repealed, the bill says, if states agree to a simplified sales tax compact that is approved by Congress. In the long term, that's probably the best way for states to collect remote sales taxes. Rather than having to comply with all sales tax rules in 45 different states, a simplified compact might see all states agree that cross-border sales will be taxed at a single, flat rate.

That's the hope, anyway. We would have preferred the Supreme Court upheld its old precedent that barred states from taxing sales of companies with no physical presence in their borders. But as that is now history, Congress needs to step in to ensure the new tax system doesn't crush small businesses.