Has the internet become taxing on small business?

The Supreme Court of the United States ruled that States can force businesses in other states that do not have a physical location to collect sales taxes and pay those to each city, county, jurisdiction, etc. which comes out to about 10,000 different locals that would have to be paid.

I question the constitutionality of this though and the practicality of the “carve out” of the decision. It stated that South Dakota was allowed to give it’s people a pass on up to $100k in sales transactions.

Here’s the dilemma, say the tiny internet seller made $90,000 in sales there in one year, and of course is not responsible for paying sales tax in that location where buyers made purchases. The next year seems like it’s going to be the same, until November when a certain product carried by the seller gets national press and suddenly millions of people are ordering it. Now he goes over that $100,000 threshold for that area in South Dakota but he didn’t collect sales tax on any of those $10,000 in transactions, suddenly he owes maybe 10% of that to the state, plus the additional orders that just came in where he could adjust and collect the tax knowing that he’s going over the threshold.

This is not fair to a business. He cannot go back to those customers and collect the tax on $100,000 of sales because he thought he was going to be under the threshold, and thus never collected the salesĀ  tax. He cannot legally collect tax if he does not have to pay it as that would be fraudulent but because he didn’t that puts him in a loss for what could be 10% of that. Maybe these locals would only demand anything over those threshold amounts?

Los Angeles charges a business that does not have a physical presence when it does business in it’s locale. If the business makes over $100,000 selling a service, they suddenly are taxed for the entire amount of services sold, but this is not collected from consumers as a tax, it’s just income tax, not sales tax. It’s just calculated at the end of the year and paid.

The other thing that concerns me is the repetitive claim that the internet has destroyed brick-morter businesses, that is those with a physical location. It’s blamed for causing inner city decline even though decline has happened before the internet. It’s blaming the death of bookstores, yet bookstores still remain, they are not extinct.

These wild claims that internet is the cause and taxation is the solution is typical political drivel. There are always swings in business.

In the case of losing big corporate book sellers like Borders, Amazon came up with a better product, a better way to find out about books and deliver them. Any one of these small bookstores, and even big ones like Borders could have done the same thing, they didn’t because they simply did not have the knowledge, the wit, etc.

It’s not the internet that caused that collapse of that and other businesses, it’s the fact that businesses failed just like has happened throughout history when some better way of doing business came along and they could not do the same thing. Small mom and pop food stores suffered this decline as bigger stores like Wal-Mart came in nearby. The odd thing about that though is Wal-Mart can come into the city limits, the store collects the city tax, but those who are buying the product do not live there, in reality, they should only be paying the tax that is due where they live.

Why is this not being talked about??? This is entirely not fair to the township that would not be able to then go to Wal-Mart and demand that tax.

In contrast, that town would with this Supreme Court decision be forcing the collection of taxes on an internet business based in downtown that would sell their product to a customer ten miles out of town. This view seems to make clear that this decision by the court is incorrect.

Another interesting comparison to look at when addressing this matter is looking at car sales. I was going to buy a car in Cathedral City, California where they have a lot of dealers, but I live in Palm Springs, and thus I pay the sales tax not where the business is located, but where I live.

Thus it’s not like there isn’t precedent for this kind of new requirement but to have a threshold seems to be problematic. There should be no threshold. All states, counties, townships should be required to require the exact amount even if it’s just one penny to be paid them. That would be fair. Otherwise we have unfairness to those who have to pay out of their profits if they go over these arbitrary thresholds.

According to TaxCloud which has an online API that can do the work for you for free, “Your system asks TaxCloud to determine the sales tax amount due for each item the customer is purchasing, based on the address provided in step 1. TaxCloud res[p]onds with the total amount of sales tax due for each item in the transaction.”

Wal-Mart and all other physical location businesses should then if we are to be fair, base sales tax on products sold to where that customer lives otherwise this system is unfair and likely unconstitutional and will make a lot more laywers rich as it’s developed, implemented, and challenged in courts.

In the mean time, as these lawyertraneurs get all this new money, they drive up real estate prices using money that they then use to buy up properties, 2nd and 5th homes and such, and our society then creates more homeless, and no one seems to be able how to solve this new problem that has gone on for years and is getting worse than ever.


Feature image by Alvin Decena see more works here