The (Ecommerce) Corner Office

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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