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Posted: June 07, 2013

Rundles wrap up: Following the (online) money

Jeff Rundles

It was only a matter of time until the government got around to forcing Internet merchants to collect and distribute sales tax to states and smaller jurisdictions for online purchases – and even if the Tea Partiers in the U.S. House won’t go along with what the Senate did last month with the Marketplace Fairness Act of 2013, it is, once again, only a matter of time.

Too much money is at stake – some say as much as $23 billion per year and rising – and Republican and Democratic governors alike (not to mention mayors, county commissioners, transit authorities, etc.) generally drop political expediency when there is so much free money so tantalizingly close at hand.  They don’t even have to go to the voters! Duh. No brainer.

Technically speaking, we Coloradans who buy stuff online from out-of-state vendors (or, as they say, vendors with no “nexus”) and don’t pay the state sales tax of 2.9 percent (called a “use tax” in our state if reported later than the actual transaction), are scofflaws. It’s a big, big club. Huge. I buy stuff online and skip the tax reporting, but I don’t go to the Internet to save on sales tax. I go there because I can find stuff I can’t find around here.

I do, however, believe that imposing the burden of collecting sales tax on Internet merchants is the fair way to go, but I object to the proposed new law exempting online merchants who do less than $1 million in annual sales from the requirement.

I mean, c’mon. The idea behind the less-than-$1 million exemption – and some, like eBay, believe it should be  less than $10 million – is that it will be a too-expensive burden on small business to discover all the necessary tax reporting and remittance information required to comply with the law. I don’t buy that argument. Heck, if my telephone’s GPS can direct me to Bob’s House of Pies in Joplin, Mo., through a detour set up last week by the local road department, then digitizing the nation’s patchwork quilt of sales tax jurisdictions would be a piece of cake. As the saying goes, there’s an app for that. Or soon will be. I’m pretty sure that once Congress got serious about mandating sales tax collections and payment for Internet merchants that a kid at Google, over lunch, wrote the program for the app and it will be available on iTunes for $5.99 within seconds of passage.

The problem, of course, will be the various governmental entities setting up a workable system of collecting and distributing the tax payments so that Internet retailers can make a payment to a common pool and not have to hire someone to go through each and every patch of the quilt. “Workable” and government don’t often go hand in hand, so my suggestion is that for a small fee, a slight percentage of the transaction, that the governments hire that kid at Google to figure it out. For the kind of money we’re talking about –
1 percent, say, of $23 billion is $23 million, for instance – the solution will be ready next Tuesday. If the government runs it, it won’t be ready for years and will never really work.

Internet merchandizing has been booming for years, up 16 percent or so annually years on end compared to single-digit growth for retail as a whole, and there’s no reason to believe this pace will slow even when (not if) its sales tax-free status goes away. And make no mistake: Republicans and Democrats at every level possible will get their hands on the money.

The real challenge won’t be governments collecting the tax. It will be them spending it wisely. I wish there was an app for that.

Oops! In my column last month, “Ethical Dunces,” about the growing instances of school administrators cheating on standardized testing scores, I inadvertently included Denver’s Hallett Fundamental Academy among the cheaters. That school and its administrators were ultimately cleared of any wrongdoing. I offer my sincerest apology for the error.   

Jeff Rundles is a former editor of ColoradoBiz and a regular columnist. Email him at jrundles@cobizmag.com.

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Readers Respond

Robert & Michael are correct. If there is no flat tax is completely onerous to figure out sales tax for each entity. It is extremely time consuming to submit sales taxes online for each state. Small business do not have the resources and one app will not fix that. By Diane Kraft on 2013 06 07
Jeff, You refer to this tax as "free money." It is definitely NOT free. We consumers pay it and the wishful thinking that governments will reduce spending is living in fantasy land. Personally, I'm a "starve the beast" kind of guy since I've surrendered to the reality that they NEVER reduce spending unless they are forced to .... and even then, they often don't. If we dumped the current income tax in favor of either a flat tax or a national sales tax, then I'm in on taxing internet sales. However, reform has to come first and it must include a balanced budget amendment to the Constitution. Until then, NO NEW TAXES and no new methods of collection Robert By Robert on 2013 06 07
Bob- While I appreciate your financial concerns, there are OVER 9,000 separate taxing jurisdictions in the US. I am a small business owner, for over 20 years, who collects & pays sales taxes in CO, where I have a physical presence, but currently does NOT collect or remit sales tax on ANY business done outside of CO unless my vendors charge me tax on drop shipments. AS it is now, it isn't an overly onerous task to pay the monthly (CO State) or quarterly taxes (Centennial), but to pay taxes to about 40 other states would be too time consuming and would be a burden on my business. By Michael E Schmidlen on 2013 06 07
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