Correcting Myths About Taxation of Online Retail Sales

Myth: Sales taxes do not apply to products purchased on the Internet.
Fact:

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.

Myth: Allowing online purchases to go untaxed gives an unfair advantage to online retailers over traditional, brick-and-mortar stores
Fact:

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.

Myth: Legislation now before Congress to allow states to require online retailers to collect and remit sales taxes sets a reasonable threshold for the definition of “small” – specifying business with total annual out-of-state sales of $1,000,000 or less.
Fact:

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.

Myth: It won’t be that hard for small online retailers to collect state taxes. Not even all the 50 states have sales taxes. You just need to follow a chart of state taxes.
Fact:

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.

Myth: Proposed Internet sales tax legislation would only affect a tiny share of America’s small businesses.
Fact:

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.

Myth: Internet sales tax legislation now being considered in Congress already includes an exemption for small businesses.
Fact:

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.

Myth: The Supreme Court’s Quill decision is outdated; Congress should move beyond it with the tax simplification legislation now on the table.
Fact:

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.