New Sales Tax Law Will Create Opportunity

When President Obama signs the Marketplace Fairness Act he will be creating an administrative nightmare for small businesses that sell on the Internet. He will also be creating an opportunity for enterprising individuals to set up sales tax clearinghouses of a sort for these small businesses. By collecting together lots of small businesses’ sales and doing to sales tax processing, the problem can be solved economically. I believe a nimble development shop can get this done faster than the established players who ought to do this like credit card processors and other payment clearinghouses.

Now if I’d been one of the heads thinking about this problem, I think I would have stolen the NRA’s line on gun control: All we have to do is enforce the existing laws better. It’s far easier for a small business owner to report to each state what it sold in their state in the previous year. Think of a retail equivalent of an IRS form 1099. Since most states that collect sales tax also have a Use Tax that its citizens are supposed to pay for items that they purchased without submitting sales tax, the problem seems to be that we all know the state can’t find out what we purchased so we have little motivation to pay. With the sales tax 1099, the state could know. They could check your tax return to be sure you submitted use tax on the total purchase volume reported by online retailers.

The whole thing bewilders me. The authors of the bill say they want to level the playing field for small businesses because they are losing out to online sellers because buyers don’t have to pay sales tax. The sales tax difference is way down on the list of reasons that I order online. Convenience is right up there at the top. It’s hard to beat direct home delivery. That’s why I eat more Jimmy John’s than Subway. Not price. Convenience.

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