One issue that has divided people and politicians is whether state governments should be able to force out-of-state retailers to aid in the collection of taxes on goods purchased by state residents – and it might be headed for the United States Supreme Court.
Currently, all but a handful of states collect sales taxes. If a person in a state does not pay sales tax on an item, then he or she is supposed to pay a use tax to the state government. However, these laws are typically not well-enforced and consumers often do not pay the use tax.
Ari Armstrong of the Colorado-based FreedomOutlook.com says a lot of extra work is involved to collect online taxes.
"What states are trying to do is to get online retailers – basically out-of-state companies – to either collect the sales tax themselves or to submit paperwork to help states enforce the use taxes, and that's actually more specifically the issue with a Colorado bill, which was passed in 2010," Armstrong pointed out. "That bill has been tied up in state and federal courts basically since it was passed, but just recently, there was a federal court decision that allowed our law – the Colorado law – to be enacted or enforced, and the Supreme Court recently declined to review that decision, basically letting the Colorado law stand."
Armstrong would like to see the Supreme Court take up this important issue.
"Right now, it seems like they're going to open the door to many more states passing these sorts of Amazon tax rules – at least letting states require out of state businesses to file use tax paperwork to consumers and to the states themselves," he explained. "Generally, this is a bad idea because it wrongly gets states involved in the business of people who don't even live in their states, and I think that it imposes a lot of onerous costs – compliance costs on out-of-state businesses.”
As an example, Armstrong said that if an individual has a storefront, he or she might have to deal with federal, state and city governments. But an online retailer – such as a small operation that ships to all 50 states – might have to deal with 45 different state governments in filing this tax paperwork.
"You can imagine that -- especially for a smaller operation – this can become a true nightmare," Armstrong asserted.
Critics of failed congressional efforts to pass the Marketplace Fairness Act agree with Armstrong. Some Republicans favored the legislation, indicating that it helped brick and mortar retailers by creating a level playing field.
However, Armstrong maintains that the argument about fairness is invalid.
"The idea is that states harm local businesses by imposing sales tax, so, if online retailers don't have to pay a sales tax, they have a certain advantage," he reasoned. "That's true to a certain degree, but the only reason that's true is because states decline to enforce the use tax laws."
If states want to take this up with their own residents, the tax expert says they are free to do that.
"Why should they push off those compliance costs to businesses who don't even operate directly in the state?" Armstrong mused. "They only sell to people in the state."
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