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  Should Internet Vendors Charge Sales Taxes

Dateline, L.A. 2012

Back in August 2008 a columnist from a newspaper back east (I can't remember who or where) wrote an editorial claiming that now is the time for local governments to start demanding sales taxes from internet sales. His claim was that cities are losing revenue because so many people are buying from the internet rather than from the local stores. So it's only fair that cities should collect sales taxes from internet vendors to make up for the loss of revenue caused by the internet vendors.

Then in October 2012 another columnist at the L.A. Times, wrote a similar story, complaining that Amazon should quit stonewalling and start paying its due share of sales taxes because it isn't fair that physical stores have to and Amazon doesn't.

These heart warming stories sound like the honorable thing to do, but they are grossly out of touch with economic reality. As such, I wrote a letter to the Editor of the L.A. Times expressing my disagreement. The L.A. Times never printed my letter, so I'll print it here, for your reading pleasure.
Letter to LA Times, Oct 2012

This is a pathetic piece of journalism. The the problem with this law isn't Amazon, it's the thousands of mom-and-pop operations who will be out of business if they have to determine the location of their invisible customers. If my business e-mails my book to a customer who paid via PayPall, how on earth do I determine where that person is sitting. And even if they give me a physical address, how do I determine the tax rate of, say, Carbondale Colorado? Laws like this effectively prevent us small-timers from testing out a new business. And we do not have an advantage over the brick and mortar stores - while I skip a dollar in taxes, I pay two dollars in shipping! And to state that Amazon has sunk to a new low is ludicrus - this is what corporations everywhere do, they fight for tax advantages.
The attitude of the columnist is out of touch with the reality of the internet. The cost of sales tax isn't much of a problem, but determining which district a customer is in, and then sending payments to possibly thousands of these districts would put most small time outfits out of business.

There are ten thousand taxing districts in this country, and even if the vendor knew where his customer is sitting, it'd be nearly impossible for a vendor to identify the rate for thousands of district across the country. The columnist is quick to point out that there is software and service providers who can identify and pay the taxes to the proper districts. But it's a expensive kludge to a ridiculous plan - pay the taxes and then pay a service organization to figure out who to pay.

It's easy to determine the taxing district for a physical storefront, but it's not so obvious for an internet storefront because the the transaction takes place in several locations at the same time. A typical internet business could have a single transaction taking place in all these locations at the same time:

1. the registered address of the business.
2. the physical address of the store owner.
3. the physical location of the merchandise.
4. the physical location of the web site.
5. the development location of the product.
6. the mailing address of the customer.
7. the credit card address of the customer.

Physical stores are taxed partly because they require infrastructure support. If you apply that reasoning to an internet store then the only tax location that makes sense is the physical address of the merchandise. All the other locations are questionable for any reason other than to gouge customers for taxes.

When I was selling my trailguide on the internet, I was a registered business in Colorado with my business address in Colorado Springs, my web server was in Edmonton Alberta Canada, and most customers were in states bordering Colorado. I paid sales tax to Colorado, without regard to the customer location.

And what if multiple districts want a cut of the pie? In Ohio, I was already paying income taxes to both the city where I lived and where I worked. And it's not hard to picture the states where my business is registered and where my customer is sitting will both want sales taxes on my product. And then add the tax service organization fees to that.

I only sold about 100 books a year off my web site and if I had to determine taxing districts it would flatly put me out of business. The same applies to nearly every small startup, this would prevent thousands of mom and pop operations from ever getting started.

How many potential taxing districts:
  50 states
  3,144 counties
  about 30,000 incorporated cities