Correcting Myths About Taxation of Online Retail Sales
Sales taxes are already collected on over 40% of products sold on the Internet, because a large share of Internet retail is sold by giant retail chains with national store or distribution centers. States also have existing authority to require consumers to pay “use tax” when they purchase from out-of-state retailers.
Actually, large traditional retailers who also sell online currently enjoy many advantages and are many of the largest online retailers. Of the top 25 Internet retailers, 18 are “brick & click” (having large conventional retail operation in addition to an online presence) and their share of U.S. online commerce is growing each year.
Proportionately, these large “brick & click” retailers have lower shipping costs, lower expenses for medical and business insurance, and lower operating costs generally than is the case for small online retailers. From 2008-2010, those large “brick & click” retailers with sales over $20 million grew their share of online sales from 33 percent to 38 percent; the share for smaller Web-enabled retailers with sales under $20 million plummeted from 69 percent to 51 percent.
The U.S. Small Business Administration – the agency charged with fostering the health of America’s small businesses – already defines “small” in the online retail community as a business with annual sales under $30 million. The agency that houses the Office of Small Business Size Standards has the expertise to determine what a small business retailer is now and in the future.
The task would be far more complex. Within states that have sales taxes, there are a plethora of local option taxes, special exemptions for certain products and other rules that are constantly changing. There are, in fact, about 9,600 different jurisdictional requirements for sales tax collection. The challenge is far beyond the capability of many small online retailers and their limited staffing and technology.
Actually, 60 percent of all small business retailers use the Internet. The Internet empowers small businesses to grow beyond traditional boundaries, compete globally and create jobs in their home towns; that’s why it’s so important not to saddle them with tax burdens that will impede their ability to grow.
The current bills lack a true small business exemption. In fact, they replace the small business exemptions in previous proposals with a “small seller exception” that is arbitrary and does not recognize the importance of online small businesses as job creators. These bills do not protect small business retailers.
The same threats posed to interstate commerce that the Court found in the Quill ruling still exist today. The administrative and financial burdens that would be placed on small online retailers by these proposals would greatly hinder the ability of those businesses to compete against larger “brick & click” retailers and to create prosperity and jobs that benefit their hometowns.