Practical Ecommerce

Internet Sales Tax Isn’t About Fairness

If you listened to the politicians tell it, the story of main street retailers needing online stores to charge and collect sales tax is all about fairness. To again quote McEnroe, “You cannot be serious!”

Here’s the “argument” presented by stupid politicians as proxy for the main street retailer. Online stores don’t have to collect sales tax, therefore customers aren’t buying from Uncle Bob’s Gift Store because Uncle Bob’s must charge sales tax. Therefore, in order to make things “fair”, all online stores should be forced to charge and remit sales tax.

This issue inflames my sense of logic, but let’s put their logic to the test and, once and for all, solve all of the discrepancies between online and brick and mortar stores. Let’s make everything 100% fair. And let’s use taxes to do it!

My store can never allow someone to touch or smell the item they’re interested in purchasing. We can only offer pictures and video which are poor substitutes at best for actually holding an item. Go check out an Apple Store if you don’t believe me. Therefore, I propose a tax on brick and mortar stores so that I can afford to offer holographic and smell-o-vision services to my website visitors! Now, this could be costly, so the tax will be hefty. But, hey, no expense should be spared in the name of fairness.

Second, brick and mortar stores enjoy steeply lower credit card processing rates than an online store. An online shop’s rates are two to three times more expensive than the “card present” transactions enjoyed by brick and mortar stores. That equates to about a 2-3% difference (per transaction!) that my online store must simply eat. Ghastly unfairness!

Furthermore, our incidence of fraud is far higher than brick and mortar stores. We have to eat those costs as well. This can’t be, you say? Well, do not fear because we have a weapon of mass unfairness destruction at our disposal. Taxes!

I propose brick and mortar stores pay a 2% Credit Card Processing Rate Fairness Tax.

Third, our customers need their purchase shipped to them. This is an extremely costly endeavor for the merchant that is passed on to the customer and oftentimes far exceeds the cost of sales tax. For example, a shipping fee of $5 on a $40 purchase is a 12.5% “tax”. It also makes it impossible for our customers to receive their purchase as quickly as a brick and mortar shop. Despite all the hullabaloo regarding same day shipping, the reality is that it isn’t practical for any online retailer except those that already have brick and mortar stores!

Even Amazon has said that they couldn’t roll out same day shipping on a large, national scale. Well, Amazon must have forgotten about taxes! I propose a Same Day Product Delivery Tax. It is a 5000% tax on all brick and mortar purchases. I know that sounds hefty, but we’re talking about fairness.

So, I think for the sake of our children and our grandchildren, that we must make this sacrifice now. The funds will be diverted to both public and private institutions of higher learning to invent a teleportation device so that online purchases can be delivered the same instant they are purchased.

The point here is that there are countless differences between online and brick and mortar stores. These differences typically equate to costs that the online merchant must bear that a brick and mortar shop doesn’t. Online stores must pay to photograph their inventory, hire web developers and copywriters, pay web hosting fees, fork over PCI compliance fees, and many more.

Once you bring “fairness” into the equation, you’ve thrown capitalism out the window.

Simply put, stating that online stores not having to collect sales tax puts them at a distinct advantage over brick and mortar stores is ludicrous. The reason why online shopping is popular is because it is more convenient for many customers. They like the experience. No tax policy will ever change that.

In fact, the end result of all of this won’t be that Uncle Bob’s sales will increase. They’ll stay the same. Actually, they’ll probably continue to erode as online shopping continues to become more and popular. All we’ll accomplish with this “fairness” tax is funneling more money from consumers and businesses into the hands of government. Sounds good for an economy on the mend and governments with no concept of budgets! I can just hear the politicians bellowing, “Feed me! Feed me!”

Obviously, the only motivation for this “fairness” issue is money. States are cash-strapped, so they trot out this nonsense about “fairness”. It sounds good. But politicians don’t realize that online stores are not virtual. I do not work out of my house. I have a physical facility. I have employees. I ship physical products. There is nothing virtual about my business.

For a politician to claim that I am successful because of not having to charge sales tax outside of Missouri is ignorant and reeks of arrogance. Many online businesses, just like brick and mortar shops, succeed and fail everyday because of the quality of their operation, the dedication of their employees, and the soundness of their business plan. The taxing policy of politicians (many of whom have never run a business in their life) have little effect on this struggle. To suggest otherwise is to live in a fantasy world.

Proponents of an online sales tax often forget about “use tax”. This insidious monster was created because states were pissed that their constituents were crossing state lines to avoid paying sales tax on large purchases. All citizens are supposed to report and pay use tax on items they purchase from out of state. The use tax rate is almost always equivalent to the sales tax rate. Basically, states want their “cut” on anything you purchase regardless of where you purchased it. I told you it was insidious.

The problem for the states is that nobody reports their use tax. Well, who’s fault is that? Every state employs hundreds (if not thousands) of tax workers and what they’re basically saying is that they are unable to enforce their own laws. So, they want to force businesses who do not reside in their state (and who do not benefit at all from the taxes collected!) to do their job for them. But it’s all about “fairness”, right? Give me a break.

Unfortunately, online stores are an easy scapegoat. It wasn’t that long ago that every news story warned consumers that shopping online could easily result in their identity being stolen. This newest “argument”, that state budget crises could be fixed by eliminating the “advantage” enjoyed by online stores, is being pushed (seemingly paradoxically) to the forefront by the world’s largest online store, Amazon. So, if Amazon is for this new tax, it must be OK for all online retailers, right? Bah!

As Amazon continues to open more and more warehouses across the country, they are being forced to collect sales tax in more and more states. This puts them at a pricing disadvantage to other online stores because Amazon’s main competitive advantage is price.

Therefore, Amazon is trying to force Congress to do what they can’t – beat their competition on price – all in the name of “fairness”. Go figure.

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Comments ( 8 )

  1. LexiConn April 26, 2013 Reply

    Great, great post Jamie! You hit the nail squarely on the head on the points you’ve made about how "un"-fair the online sales tax would actually be.

    And yes, I agree, Amazon’s motive’s here are purely to gain an "un"-fair advantage over other online retailers. No altruism here at all.

  2. Megan Hughes April 26, 2013 Reply

    Perhaps the most over-used trope of this debate are the words "level the playing field." Fact: Bob’s store will continue to collect sales tax for that one location, in that one state. Same as he always have. But I believe we have somewhere in the neighborhood of 10,000 tax jurisdictions, once you factor in cities, counties, municipalities, districts, and so on. And what this bill is asking for is online retailers to abide by all 10,000 of those districts.

    What’s taxable differs from state to state, district to district. 6 food items may be a bulk food purchase and non-taxable in one state, but considered fully taxable in another. Online retailers are supposed to know that, how, exactly?

    Sure, someone will write some software, and it will then become another cost for business owners to bear. As it gets more complex, it will probably cost more, and there won’t be an awful lot of competition. It will have to be integrated into thousands of website shopping carts. That will be fun.

    It also opens up online businesses for secondary tax nexus claims by states who say if you sell into our state, we want a piece of your profit too, not just the sales tax. Don’t kid yourself — this is already happening, and has been for years. Google "economic nexus" and be afraid.

    But hey – Bob’s Store will be just fine. We won’t have leveled the playing field. We’ll have laid waste to it.

  3. Elizabeth Ball April 29, 2013 Reply

    The brick and mortar retailers complain about our unfair advantage not charging sales tax and that they’re going out of business. It has nothing to do with us not paying sales tax.

    I spent 3 weeks in the US and did a fair bit of shopping (your clothes are so much cheaper than in Australia) in the malls, outlets and boutiques. However, the insidious sales tax they slug at the checkout inflated the price of the item every time. This I became used to although I did wonder why they couldn’t just offer a flat price and adjust it in accounting etc.

    But I never got used to the lame, sulky service from most of the shop assistants (are you listening, Adidas?) with a special exception for Sephora who train their staff very well. The immediacy of being able to take the trainers, makeup, shoes, jeans, shirts or whatever meant I had to tolerate it. But just once. Armed with the product code etc I will just buy it online now.

  4. Jay Feichtinger May 2, 2013 Reply

    Ridiculous read. Online businesses have much lower operating costs and reside in lower rent properties. Often located in ares that have low property taxes too. If they are paying higher credit card fees, they are running a poor business. Sales tax in most states pays for education, public services and roads, bridges…….. I have an online business and a brick and mortar store. The lack of internet sales tax is an increasing problem for the main street business and local governments.

  5. John Todd May 2, 2013 Reply

    I have to completely disagree with you Jay. It completely depends on the industry the brick and mortar business is in. Sure, some may have lower costs, but no way do all of them. Saying they reside in lower rent properties and lower property taxes is pure speculation. Prove it to me!
    FYI online marketing isn’t cheap, unless you’re doing it wrong.

    It is much more expensive and much harder for online businesses to gain customers. The competition online is far greater than that of a brick and mortar business. Hundreds or thousands of people drive past a brick and mortar store everyday of the week (common knowledge), unless it’s in the middle of nowhere. So it’s pretty clear that online businesses have the disadvantage. Online businesses have to compete for traffic, so why should they get penalized because they have to find traffic outside of their local state? That makes no sense at all.

    The government wants this sales tax for one thing and one thing only….. more control. It’s a matter of, every time something thrives in this country, the government wants a piece of it whether they ruin it or not.

  6. Jamie Salvatori May 3, 2013 Reply

    Jay –

    Yeah, you’re probably right. The 5000% Teleportation Tax may be a bit extreme. How about 4500%?

    On a more serious note, you missed the point of the entire article. The issue isn’t about fairness and the absurdity associated with following "fairness" to its logical conclusion.

    Rather, sales tax or no sales tax, brick and mortar stores are on the decline and online shopping is increasing.

  7. DaveGerard May 3, 2013 Reply

    If the debate is that e-tailers are getting a free ride by not having to charge sales tax when brick and mortar establishments do, then my question is this, "Do brick and mortar shops have to charge shipping?" Shipping can account for a much higher percentage than sales tax. Second question, "Is there anything on God’s green earth preventing a brick and mortar shop from creating their own site and selling interstate and tax free?" Nothing?

    If the debate is that ma and pa sites don’t have to charge sales tax when sites like Best Buy and Walmart do when they are located in the same state as the buyer, when then my question is this, "Would the Best Buy and Walmart sites of the world have to charge sales if they were not located in the same state as the buyer?" The answer is no. If ma and pa decides to expand their brick and mortar facilities to other states then in many states they would have to charge sales tax if the buyer is from the same state. Technically Best Buy could close all of their facilities except for one state and have the same privilege and ma and pa, but that would hurt their pocket book.

    This is nothing more than larger conglomerates fencing out their miniscule competition and whining about it to make themselves appear to be victims. So what do they do, spend millions on lobbyists in Washington to buy our political leaders into making laws in their favor. Good for them, good for government. They are no different than the moneychangers who crucified Christ.

  8. Jason July 7, 2016 Reply

    Not to mention that by taxing online sales across the board, it is actually going against current tax law!

    I will explain by examples…

    Sales AND use tax is collected per state for sales of tangible items and the end user is taxed.

    So as a business, you supply your re-sales certificate and do not pay sales tax on…. Let’s say a frame you are putting a print in and selling as a whole “framed print” for a profit. So you don’t pay sales tax on either the print or the frame. Now you sell that to a client and charge them sales tax on the whole amount you are charging.

    Now let’s say you buy the same frame and print as a studio sample. You again don’t pay sales tax…. But you SHOULD pay a use tax… Same rate as sales tax.

    Now as a individual you go online and buy a stock print and frame….

    If the online store is in the same state as you , they should be charging sales tax! But if they are in a different state, you as an individual (not a business) should pay use tax on that purchase to your state.

    Likewise if you are purely brick and mortar and you ship to a client out of state and their billing info is from out of state… You should not charge sales tax…. Ship to someone in state and you should charge sales tax…

    Hope that makes sense