image credit: blog.dawog.net
Yesterday Scott French and Elizabeth Slattery at The Daily Signal reported further on the horrible SCOTUS decision to permit sales tax on
Internet transactions across state lines. They also suggested a solution. Unfortunately,
they identify Congress as the branch of government that can legislate that
solution. Here’s the gist of it:
Unfortunately, small businesses
will suffer the most from the ruling. [Chief Justice John] Roberts explained:
One vitalizing effect of the
Internet has been connecting small, even ‘micro’ businesses to potential buyers
across the nation. People starting a business selling their embroidered
pillowcases or carved decoys can offer their wares throughout the country—but
probably not if they have to figure out the tax due on every sale.
Most small businesses are not
equipped to handle being subject to every taxing authority in every location
where they have a customer. There are more than 10,000 state and local taxing jurisdictions
in the country. And these jurisdictions have different tax rates, rules
governing tax exemptions, product category definitions, and standards for
determining whether an out-of-state seller is subject to sales tax in the first
place.
Roberts pointed to a few examples
of how confusing state taxes can be:
New Jersey knitters pay sales tax
on yarn purchased for art projects, but not on yarn earmarked for sweaters …
Texas taxes sales of plain deodorant at 6.25 percent but imposes no tax on
deodorant with antiperspirant … Illinois categorizes Twix and Snickers
bars—chocolate-and-caramel confections usually displayed side-by-side in the
candy aisle—as food and candy, respectively (Twix have flour; Snickers don’t),
and taxes them differently.
Further, the cost of compliance is
beyond the means of most small businesses. Implementation and integration of
software to calculate taxes in all these jurisdictions alone is estimated
to cost up to $250,000.
The good news is that, under its
authority to regulate interstate commerce, Congress has the power to fix this
problem. Congress is the branch of government best able to consider the
competing interests at stake, not unelected federal judges.
Congress should codify the physical
presence rule to protect small businesses from being subject to mandates from
states where they have no physical connection and whose policymakers face no
accountability for the tax and regulatory costs that they impose on
out-of-state businesses.
If state borders truly do matter,
Congress must limit states’ ability to reach beyond their borders to place
regulatory burdens on out-of-state businesses.
Sounds feasible on paper. But perhaps so many small
businesses will suspend sales that Congress will have to respond to their
constituents – for once. We’ll see. (The full report is here.)
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