New Taxes On The Horizon? An Internet Sales Tax Could Hit Soon

Matthew Lloyd/Getty Images

Matthew Lloyd/Getty Images

After the midterm elections back in November, a bill that would institute a sales tax for online transactions was quietly killed off by Speaker of the House John Boehner. The bill would have allowed states to force websites based in other states to collect sales tax on online sales, then remit it. Of course, the logistics of implementing such a task would likely be a nightmare, but it’s a problem that many of the nation’s brick-and-mortar retailers are more than happy to saddle their online counterparts with.

The bill, called the Main Street Fairness Act, was sidelined until this year, when the 114th Congress would be able to pick it up again. So, while Internet retailers have dodged the threat for now, it’s only a matter of time before the issue and proposed law come up again in the legislative docket. “The speaker has made clear in the past he has significant concerns about the bill, and it won’t move forward this year,” said Boehner’s spokesman Kevin Smith last November, PC World reports.

Now that the new congressional class is in session, it’s only a matter of time before the issue rises to the top of the Congress’ agenda. There are obvious reasons that many entrenched interests do not want to see this bill pass, but one of the most glaring is that the very act of setting up a new tax-collecting system that would need to include thousands, if not millions of businesses and tax jurisdictions would not only be costly, but incredibly complex. The tax would also hurt budding Internet entrepreneurs, and many sympathize with the fact that additional taxes could hurt small businesses.

But that doesn’t phase the bill’s supporters, many of whom are from the traditional side of retail and feel as through they are put at a disadvantage. “The bill may change or even be folded into another piece of ‘must-pass’ legislation. The fight is far from over,” tweeted Stephen E. Schatz of the National Retail Federation, according to Roll Call. “We have about three weeks in the lame duck. Anything can happen. Retailers are all in to get this done this year.”

For many brick-and-mortar operations, business owners are required to collect sales tax on Internet transactions, as they have a business operation in states that have sales tax laws. The problem is that if mom and pop store is competing for customers down the street, then Amazon, for example, could have a price advantage because Amazon doesn’t necessarily need to charge sales tax. It’s this disadvantage that has led to a strong push and support for levying the new tax law by the retail sector.

Of course, there are competing views from online retailers insofar that they need to incur large costs for shipping orders, which many brick-and-mortar stores do not need to deal with. But it can also be argued that physical store owners have additional costs on their end as well, including storage and retail space. The question this inevitably leads to: It really the government’s job to ensure that everything is on a level playing field? Every business is going to incur costs, and running an enterprise means spending some money. If brick-and-mortar retailers simply want to pass a tax so that things are, in their eyes, more fair, is that enough reason to actually go through with it?

With our current political system, it seems like if there is enough business and political support for something — and the Internet sales tax concept definitely has it — then it’s almost inevitable that sooner or later it will get passed. Roll Call says that the Obama administration is behind the concept as well.

But the aspect of this whole idea that is being missed is that perhaps some big Internet companies actually want to see an Internet sales tax levied. If the tax is actually instituted, then who’s most likely to be negatively effected? Obviously, brick-and-mortar businesses will get what they want, and see a more leveled playing field. Internet-based businesses will have to take the hit. But only small ones will actually feel the crunch. Companies like Amazon could potentially benefit in that smaller companies may actually bite the dust or dissolve as a result. Larger companies have the resources and capital to deal with the fallout, while small eCommerce operations don’t.

Small Internet companies don’t have the resources to register and get into compliance with every state’s specific sales tax laws, and would need a small army of accountants just to make sure they were paying what they owe at the end of every accounting period. Needless to say, it would be a nightmare. Bigger companies could adapt to that with much more ease. So, with that said, is this bill really nothing more than a corporate Trojan horse? It does have the stench of cronyism attached to it, although that still doesn’t mean that others who support it do so without merit.

Finally, there is the interesting little fact that consumers are already supposed to be paying sales tax on their online purchases. According to the Associated Press, individuals who make purchases online are required to tally up what they owe at the end of every year, and remit that amount to the state along with their tax returns. The fact is, it’s simply not enforced, even when people don’t pay it. Most people are probably completely unaware that they are supposed to.

While online businesses were able to dodge this issue in 2014, it’s only a matter of time before the proposal makes its way back on to lawmakers’ agendas. We’ll see if they can once again delay it in 2015.

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