Opinion: Yes, online retailers should collect sales tax, but it’s a complicated situation

Should online retailers have to collect sales tax just like their brick-and-mortar counterparts?

The answer to that question seems so simple. Of course they should!

To what sales tax laws online retailers should to be subject to and how they would pay is where it gets complicated, which is at least partly why congress hasn’t addressed what’s become a long overdue issue. (Like everything else congress debates, everyone has their own opinion and agenda, so little seems to get done.)

A lawsuit by the state of South Dakota against Wayfair Inc. and a couple of other online-only retailers has reached the U.S. Supreme Court. If SCOTUS sides with South Dakota and rules that those online retailers have to collect sales tax on goods shipped to South Dakota, it will likely result in an onslaught of similar lawsuits from other state and local governments looking to follow suit. 

A decision from SCOTUS is expected by the end of June. It’s certainly possible the highest court, fearing the legal fallout, may abstain from intervening and toss the ball back to congress.

The argument for online sales tax enforcement stems from two very simplistic ideas. Here they are and why each is flawed.

Scenario A: Make online retailers subject to sales tax laws where the goods are going, essentially the home of the customer. Here’s the problem with that: On top of the 45 different state sales tax laws, there are countless cities and other designated areas that have their own laws. Talk about a painstaking and expensive task to keep track of all those laws and to distribute those funds where they need to go. Yes, Amazon could do it. But what about the Etsy seller who does $50,000 in sales a year, or the brick-and-mortar who only offers online as a supplement to their storefront business?

Scenario B: Make online retailers subject to the sales tax laws where they are physically located. Problem: big online retailers will move their base operations to where there are no sales tax laws. Governments miss out on their cut and it keeps the playing field uneven for brick-and-mortar retailers. Again, what about the small online retailer who can’t weather such a move? They’re stuck collecting from customers while the big guy skates.

Perhaps the solution is with some sort of annual sales threshold (i.e. if you do under $100,000 in sales, then you’re not subject to online sales tax). The eventual dilemma there is big sellers incorporate as a series of smaller companies to get their AGI down or other simialr loopholes. 

There is no simple solution here, but something is going to have to be done. Allowing big companies, like Amazon, to use a merit system when paying sales tax isn’t good enough.

— Zeke Jennings, Managing Editor

RELATED: States where sales taxes are highest and lowest

Originally posted Thursday, Apr. 26, 2018

Tags: online sales, taxes