Do You Shop Online? Say No to the State Simplification Tax Project!

February 2, 2007

What’s one of the big benefits of shopping online? No sales tax right? Well an initiative called the State Simplification Tax Project (SSTP) looks to put an end to these tax-free purchases.

On a Mission to Tax
The mission of the SSTP as stated on their website is to “develop measures to design, test and implement a sales and use tax system that radically simplifies sales and use taxes.” Basically, the SSTP would require merchants to collect sales tax on purchases via the Web to customers in states where the retailer does not have a physical presence.

eCommerce Taxation
The SSTP is being led by a group of US States that are looking to increase state government income by tapping into the huge market of online retailing. The initiative is being opposed through information campaigns by major e-commerce players such as eBay. The eBay site explains why we don’t have to pay sales tax for most online purchases and how the SSTP is looking to change that.

“In 1992, the Supreme Court ruled that forcing remote sellers to collect sales tax in states in which they do not have a physical presence would constitute an undue burden on retailers and commerce in general.

Since that ruling, states are prohibited from collecting remote sales tax until they have simplified their tax regimes enough to lift the burden on remote sellers.”

The SSTP is attempting to simplify state and local tax laws in order to comply with the Supreme Court ruling so that they can begin to charge sales tax on internet sales.

Business Effect
According to the information from eBay the proposed SSTP does not succeed in simplification but instead allows for a different rate for each zip code, potentially 49,000 different jurisdictions. eBay warns those that sell online of the potentiAl consequences of the SSTP:

“Small entrepreneurs like you will be disadvantaged by a distant sales tax collection regime that forces you to comply with thousands of different rates, laws, filing instructions, and audit procedures.

Moreover, this would place you at a competitive disadvantage vis-Ã -vis your offline counterparts, who are only required to collect and remit taxes in one jurisdiction. This could force thousands of Internet businesses like yours to shut down.”

Consumer Effect
The way I see it, the SSTP project has the potential to hurt consumers in several ways. The most obvious would be if states “simplified” the tax codes and were allowed to charge sales tax on online transactions. A good example of this is the growing number of people that do their Christmas shopping online every year. The extra sales tax would put an even heavier burden on already strained budgets during the Holiday season.

If the SSTP were to deter individuals and small businesses from selling online I think we would experience fewer choices and fewer good deals. With fewer people selling things online the variety of items would decline. In addition, smaller sellers usually have to charge lower prices to compete with more well known large retailers. If the small guy left the marketplace we’d have less to choose from and not as many low prices.

What can we do?
Let your member of Congress know that you oppose the State Simplification Tax Project and checkout www.streamlinedsalestax.org to keep up to date on the status of the project.

Ben

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Ben

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn’t like the other kids… His addiction to personal finance has paid off for his family and now he’s helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.


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Comments

4 Responses to Do You Shop Online? Say No to the State Simplification Tax Project!

  • Blaine Moore (First Time Home Owner)

    You mean, you don’t pay your state’s use tax?

    I’m not sure if every state is this way (I think so), but you are supposed to pay tax on purchases made out of state in which you did not pay a local sales tax when you bring the item back to your state of residence.

    Personally, I think that the entire tax system needs an overhaul. I would like to see a study done on a consumption tax rather than our current system, where you pay higher sales taxes but have no income, property or other taxes. If you want to pay less in taxes, then you do not purchase as many things. I would tend to think that online ventures would collect taxes relative to their local jurisdiction rather than relative to the residence of the consumer. Whether that would work or not, I don’t know, but I’d like to see some numbers.

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