To Tax or Not to Tax, that is the Question…

For quite some time now there have been stories about States changing their sales tax laws in an attempt to collect sales tax from online merchant sales. More recently the buzz about this topic has taken a more serious turn with companies such as Amazon making major business decisions in response to collection attempts, as well as legislative maneuvers by organizations such as the Direct Marketing Association (DMA). From the look of things, this “conversation” is going to continue for quite some time with the likelihood of a major increase in tension levels for all involved.

What does all of this mean to the average shopper and ecommerce business owner? As with most things, there are a lot of factors that impact a variety of people in many ways. Based on the information I have read, I have developed some basic thoughts about both sides of this debate. Here is what I have put together:

If I put myself in the shoes of the State, I can certainly understand their motivation for seeking to secure additional sales tax revenue. Everywhere you turn these days there are stories of massive budget shortage and cuts in basic state services like education. If the states are successful in collecting sales tax from the ecommerce companies selling to their residents, then their funding shortfalls may have less distance to fall and citizens could likely reap the benefits through maintained state services.

Being in the business of ecommerce, I also understand the many implications of this change to online retailers. There are, of course, the obvious factors such as a decrease in the customer incentive to shop online. If they have to pay sales tax, they may as well go to the mall and pick it up today rather than waiting for a shipment to arrive. Beyond this concern there are some other implications. If you take a look at the basic business model of ecommerce companies, the lack of sales tax is a significant factor to how the company works. Just like any other mechanism, if you change a major component it impacts the whole machine. Changing something like the Sales Tax factor could be like taking the back wheel off a bicycle and telling the rider to pretend it’s a unicycle. It was not designed to function as a unicycle, so trying to ride that way is going to cause some problems…

Regardless of how I process the information, the end result seems to land in the same place. There is no definitive correct answer to the debate. Both sides have compelling reasons for their actions and the application or non-application of the Sales Tax collection on ecommerce sales hurts one side while helping the other. Perhaps we should apply the democratic process and let the people vote… in the end the final decision most directly impacts them, their shopping options and their government funding. 

For some additional thoughts and perspective, check out these articles:

Internet Sales Tax Impacts Amazon's Affiliates

DMA Legislative Action Center

Sales Tax on the Internet