Some months ago I wrote a few posts focusing on efforts to require collection of sales tax on online sales (for the sake of convenience, we call it the “Amazon sales tax,” though obviously it affects all online retailers). Oh, boy! At the time, I was unaware I was sentencing myself to a bleak future of having to write about this issue again and again. And again. And again. And again.
It’s worth checking in on it regularly, though, being the tangled web that it is. As you well know, Arkansas became this year one of the few states to enact a “nexus law,” which requires online sellers with business relationships in the state to collect and remit sales tax. We were told that the impetus for this new law was to “level the playing field” between online merchants and local brick and mortar retailers.
In response to the new law, Amazon.com and literally scores of other online retailers simply ended their business relationships with affiliates in Arkansas. Ta-da! No more “nexus,” which means no need to collect and remit sales taxes, and so much for that”level playing field” you were promised, brick and mortar guys. What chumps you were to believe that fairy tale.
In the meantime, Amazon turned around and endorsed federal legislation, which in the U.S. House is sponsored by Arkansas Republican Rep. Steve Womack, to establish a standardized federal system for collecting and remitting taxes on online sales.
Early on in writing on this, I pointed out that the reality of this issue was that, though tarted up as a “Main Street” initiative focused on “fairness,” it’s actually a proxy war between corporate behemoths like Amazon and Wal-Mart. (Indeed, Wal-Mart’s desire for the Arkansas nexus law was why the effort garnered support from Republicans in the legislature).
A story in today’s Wall Street Journal (subscription required) is further evidence of our “proxy war” theory, because guess who’s gonna get hit the hardest by online sales tax collection laws? You guessed it—the small players in online retailing!
With a low-level small business exemption in the federal proposal, the WSJ reports, plenty of small retailers are going to get hit. (If you don’t have a WSJ subscription to read the full story, watch the short video at the top of the page, which summarizes it nicely in a tidy three minutes.)
The WSJ checks in with Stacey Strawn, who owns the Virginia-based Silver Gallery, a web retail outlet with sales numbers above the small-business exemption threshold. It turns out Strawn is decidedly unenthusiastic about becoming a multi-jurisdictional tax collector:
But Ms. Strawn, and others like her who operate with just a dozen or so employees, would have to begin collecting and remitting taxes for the more than 40 states that currently charge sales and use taxes, along with thousands of cities and counties across the country, as set forth by a Senate proposal unveiled last month.
That proposal, which has the support of Amazon, includes an exception for small-business retailers with less than $500,000 in annual “remote” sales—a sum so low that it wouldn’t even cover Ms. Strawn’s employees’ wages.
“These are the most small-business-unfriendly measures I’ve seen in years,” said Ms. Strawn, whose Waynesboro, Va., store, Silver Gallery, sells sterling-silver bowls, cups and jewelry. “This is going to cost us big.”
Ms. Strawn isn’t entirely sure what the cost to her business would be. A 2006 PriceWaterhouseCoopers study found local and state tax compliance costs small retailers 13.47% of all sales tax collected, compared to 2.17% for large retailers.
The concerns voiced by Ms. Strawn and other small online retailers highlight a new point of contention in the debate over taxing Internet sales—the so-called small-business exemption in federal proposals is now so small that even many small fry aren’t protected.
But don’t worry! It’s all in the name of fairness!
Are you confused by this issue? Yes? Don’t feel bad—I still find it a little confusing sometimes, even after writing thousands of words about it, but we can boil down the fundamental lessons to two:
Lesson 1) The proponents of taxing online sales will shout from the rooftops that the only thing that motivates them is fairness. Don’t believe it! What it is, see, is they’re looking at this gigantic realm of economic activity that is going untaxed, and they want a piece of the action to, oh, I don’t know, pour into their Medicaid sinkhole. It’s a cash-grab, period.
Lesson 2) American government, at every single level, is completely mired in the thinking of the last century, and so is utterly unprepared to confront the realities of administration in the 21st century. I’m not the first to arrive at this conclusion, but it explains what’s at the root of many of our policy disputes today.
Maybe that sense of dysfunction and futility that attends this issue, that’s why I keep harping on it, long after everyone else’s interest has dissipated. What, am I being cynical there? Hm. Maybe. But really, I’m not sure one can be cynical enough, these days.