NetChoice Warns of Small Business Tax Threat in State Online Tax Expansion

Bipartisan Resolution by Representative Hodes seeks to mitigate threat

WASHINGTON, July 29 /PRNewswire-USNewswire/ -- Today, Representative Paul Hodes (D, NH) introduced a bipartisan resolution to protect small businesses from tax collection burdens that would be imposed by the Streamlined Sales Tax.  The resolution (H. Res. 1570), titled "Supporting the Preservation of Internet Entrepreneurs and Small Businesses," holds that Congress should not impose unfair tax collection burdens that would hurt the U.S. economy and consumers.

The resolution is a response to legislation introduced in July 2010 by Representative Bill Delahunt (D, Mass.) which would force all retailers across the nation to become tax collectors for states that have joined the Streamlined Sales Tax Project (SSTP).

The legislation would force out-of-state sellers to collect taxes for states where they have no physical presence, overturning a Supreme Court ruling that tax systems are so complex that they represent an unreasonable burden on interstate commerce.

"Don't believe it when tax collectors say their software makes it trivial for tiny sellers to collect everyone's sales tax," said Steve DelBianco, executive director of NetChoice. "Small sellers will spend thousands of dollars making changes to their website software, plus endless time and accounting fees to handle exceptions, customer questions, and state tax audits."

Large retailers like Walmart and Target support SSTP legislation because their physical presence already requires them to collect tax on their web sales.  Even just a little simplification helps these big-box stores, while SSTP imposes brand new costs on their small online competitors.  SSTP advocates have failed to meaningfully simplify their tax system and have now done away with small business protections that were initially promised.

In the ten years that states have been trying to meet the challenge laid down by the Supreme Court, SSTP advocates have shown that simplification was only a slogan, not a standard.  Gone are promises of one tax rate per state and a single rule for sourcing sales.  

Instead, SSTP advocates have abandoned simplicity whenever a potential member state insisted on retaining its complex tax policies.

Further undermining SSTP supporters is research by George Mason University Law professor and Brookings Institution Senior Fellow Jeff Eisenach.  The research found uncollected sales taxes on e-commerce in 2008 to be far lower than estimates used by SSTP advocates, potentially capturing less than three-tenths of one percent of state and local tax revenues.  

"The good news is that this problem is solving itself as more online sales come from chains who have stores in most states, such as BestBuy and Walmart," said Eisenach.  "Our study shows that 17 of the top 20 Internet retailers collect in at least 30 states, and 15 collect in nearly all states with a sales tax."

"The growth of 'brick and click' retailing will likely increase the proportion of online sales on which taxes are already being collected — even if Congress takes no action on the Delahunt bill," said Eisenach.  Additional reasons for Congressional action in protecting small sellers from the SSTP can be found on the NetChoice website: http://www.netchoice.org/library

"Representative Hodes and his colleagues are to be commended for standing against a national tax system that would saddle small retailers with new collection and compliance burdens," said DelBianco. "We all support a simpler tax system, but the streamlined sales tax project has become the proverbial wolf in sheep's clothing."  

NetChoice is an advocacy organization that fights threats to online commerce and promotes policies that protect Internet innovation and communication on a state, federal and international basis.  The Washington, DC-based group protects Internet commerce-driven competition and battles rules that hinder consumer choice and hurt small businesses. For more information, see www.netchoice.org.

SOURCE NetChoice