The Main Street Fairness Act (HR 5660) is intended to get states and local governments the sales tax revenue they are owed from Internet sales, but it is the wrong solution to the problem.
Massachusetts Congressman Bill Delahunt, along with five Democratic co-sponsors introduced the bill last month. As proposed, it would allow states to optionally join in a compact that permits them to require all businesses to collect sales tax on every purchase by a customer living in that state. Mercifully, it at least requires states to adhere to certain simplifications of, and provide for, uniformity of the state’s sales tax code in order to join.
The name of the bill and Delahunt’s own press release emphasize the need for this to level the playing field for online retailers. Yet it’s not at all clear this is a boon to local businesses. Repeated studies show that cost is at best a minor reason people shop online. Certainly, there is not a significant number of customers avoiding local stores simply to avoid paying sales tax.
In many states, such as here in New York, sales tax is already required to be paid if the retailer has any brick & mortar presence in the state. Further, the New York income tax form specifically requires you to report Internet or out of state purchases (or estimate them) so that the proper tax may be collected. Therefore, much of the perceived cost savings doesn’t exist anyway.
While part of this bill is certainly intended to boost state sales tax revenues, it is likely to also hurt small retailers trying to do business online. Online business is an increasingly big part of a small specialty shop’s business—even single proprietors. Yet the sales tax laws, even with the proposed simplifications, still vary in both rates and products covered for each state. In many states, the variances are by county. This would almost demand that small businesses use some sort of service to automate the calculation of the appropriate tax to charge, and facilitate getting those funds paid to all the proper taxing authorities. And that service is going to complicate their business and erode already small profit margins. A pain that will less likely be felt by large national operations who already have ample infrastructure in place to handle the complexity.
Online sales are not going anywhere anytime soon. They do erode from traditional local businesses, but they also provide an opportunity for a small business to reach a set of customers they never would have been able to dream of 50 years ago. So rather than trying to prop up the dying business model, let’s try and enable the new one.
That could be accomplished by introducing a national sales tax. That is, the policies for what products are subject to the tax, and the tax rate itself, are set uniformly at the national level. The funds are collected centrally, but then redirected back out in their entirety to the states and counties of the purchasers. This moves the administrative burden to the government (after all, they are the ones who want the money), and makes tax collection simple for businesses.
Politicians keep posturing about helping small businesses. They often say how they are our future, and the means to restart the economy Well here’s a perfect opportunity to put your legislation where your mouth is. It’s time to truly reform an old system rather than just adding more duct tape to the ancient one whose time has long passed.