What is Internet sales tax, and will it cripple e-commerce?

I'll support this just as soon as B&M retailers are required to find out where their customers live and collect sales taxes accordingly as well.

I'm familiar with the inter-state sales tax compliance functions at a number of firms and it is a <i>tremendous burden</i>. Not only most states, but numerous municipalities impose sales tax as well. As the article mentions, the problem is that Use tax[1] obligations are generally not paid by destination-state customers. This actually makes a great argument for why the federal government should collect a national sales tax, that is then distributed back to the states.<p>Regarding the legality of states attempts to collect sales tax on inter-state transactions, we can look to the commerce clause[2]. In the courts, one test that has been used is to ask whether a tax creates an unfair advantage for in-state commerce over inter-state commerce[3]. If you take into account the compliance demands created by an inter-state sales tax, I think the answer is almost always <i>YES</i>.<p>[1] <a href="http://en.wikipedia.org/wiki/Sales_and_use_tax" rel="nofollow">http://en.wikipedia.org/wiki/Sales_and_use_tax</a><p>[2] <a href="http://en.wikipedia.org/wiki/Commerce_Clause" rel="nofollow">http://en.wikipedia.org/wiki/Commerce_Clause</a><p>[3] <a href="http://law2.umkc.edu/faculty/projects/ftrials/conlaw/interstatetax.htm" rel="nofollow">http://law2.umkc.edu/faculty/projects/ftrials/conlaw/interst...</a>

Now I don't really know how well it works in practice but the european model for VAT (the rough equivalent of sales tax) is basically this: if you're a small business, you don't have to collect VAT for the place you're sending the goods; but if you don't, you have to collect it for your own location (rather than collecting nothing). And over a certain business size, you <i>do</i> have to collect it for the destination.<p>The EU has fairly uniform VAT rates (around 20%), so then there isn't a huge difference to where you charge the tax, and so end consumer prices don't vary by a huge amount.<p>Maybe the much more variable rates in the US plus what seems to be more easier ability to move jurisdictions would lead to sales tax jurisdiction shopping a more than in europe.

These laws certainly will not help e-commerce shops, sales will decrease (or more likely continue to increase across the industry but not at such a rapid rate) because the e-comms will now be on a level playing field with brick and mortars.<p>All of this being said, the biggest problem will be simplicity. If there is not a service to easily distill all of these rules and plug into the bulk of shopping experiences (magento, atg, ep, shopify, etc) this will very much hurt small, up&#38;coming e-comms.<p>I'd imagine there is very good opportunity for a company to create an API of all of this tax information and monetize it.

As a CPA with years of experience in specialized state and local tax issues. I can tell you that sales and use tax is very complex and burdensome. But, at the same time internet retailers have taken advantage of the the law's inability to keep up with new business models, so internet retailers have had an unfair advantage over brick and mortar companies.<p>Just giving the issue perspective from both sides.

I have two points:<p>1. So the problem of calculating and distributing use tax is complex... That sounds like a business opportunity for a new kind of web service.<p>2. I think the issue just comes down to online retailers dragging their feet because they want to enjoy their advantage as long as possible.

The pretty obvious solution, which I expect the government will eventually luck into, would be for the Federal government to collect a, say, 5% sales tax on all inter-state commerce. Remit 2% to state A, 2% to state B, keep 1% for itself, and everyone is happy. Easy to administer, easy to collect. Lucrative!