Should the smooth functioning of the Internet rely on the ratio of ice cream to cake in an ice-cream cake? Seventy-four U.S. senators seem to think so. Last week they voted to allow a bill to proceed that would force online retailers to collect sales taxes for the states and localities where their customers live.
John Donahoe, CEO of eBay, sent a blast email to Americans who use the online buying service urging them to tell “Congress ‘No!’ to new sales taxes and burdens for small businesses.” The bill would put at risk the Internet’s status as the vibrant home of low regulation and low taxation.
It would force online retailers with $1 million or more in annual sales to collect and remit state and local taxes, subject to audit by any taxing state where any online shopper lives. Because sales taxes vary by locality as well as state, no one knows for sure how may different rates and rules there are. The Tax Foundation estimates there are 9,646 different sales-tax jurisdictions in the U.S., each one of which can have dozens or hundreds of different tax rules.
Proponents of the bill, which they call the Marketplace Fairness Act, say they’re just leveling the playing field between bricks-and-mortar stores and online stores. It’s true that many online stores benefit from not charging sales tax, but they also don’t use the services of states where they have little or no presence. Online stores would have to do something physical stores have never done for most sales: assess taxes based on where their customer lives. Physical stores apply their own local tax to most purchases.