Taxation without representation: As bad an idea as ever
Lithograph by Sarony & Major, c.1846, 'The destruction of tea at Boston Harbor,' courtesy Library of Congress
by Daryl Cornell, CEO, Triton
Internet Sales Tax. It seems that not a day goes by that we don't hear or read about how states should require all companies to collect sales tax on internet sales.
ATMGurus believes that this is a terrible idea — but not for the reasons you might think. We also believe that readers should hear the other side of the story that is not being told.
The retail ATM industry, like many other industries in the U.S., is both fragmented and specialized. ISOs around the country purchase their ATMs and parts from a network of manufacturers and grey market suppliers.
These companies generally operate without a physical retail presence, meaning that orders are placed over the phone or via the web and then shipped to customers or ATM sites.
While ISOs do have a choice of ATM and parts providers, this specialized market is not served by the likes of Amazon or Wal-Mart. The nationwide implementation of an internet sales tax would be bad news — both for ATM and parts suppliers and for ISOs — increasing costs far beyond any incremental sales tax and almost certainly decreasing competition.
Now we are not arguing that internet sales should be made free of tax. However, requiring online merchants to collect taxes on all sales, and to comply with myriad rules, regulations, reporting requirements and physical audits from an estimated 9,600 taxing entities nationwide surely ranks among the most anti-business, job-killing proposals ever.
The costs of compliance for all but the largest web-based merchants would be crushing, which is why this initiative is being supported by Amazon, Wal-Mart and other internet elephants able to afford armies of accountants, tax lawyers and audit defense teams.
Both "brick and mortar" and internet merchants currently pay taxes on sales within the jurisdiction of the cities, counties and states where they reside. Under this arrangement, all merchants have political representation where they collect and pay taxes.
Merchants also receive public services provided to them by these same taxing government entities. The imposition of an internet sales tax will impose significant costs on merchants who, in exchange, will receive neither representation nor public services.
Proponents of internet taxation will point to the fact that there could be "exemptions" for small internet retailers below a certain size. Can there be a stronger disincentive for growth and job creation than avoidance of whatever the ultimate threshold might be?
Supporters will tout the "easy-to-use" tax compliance software that supposedly automates all sales tax chores including collection, disbursement, reporting and audit compliance. "Magic software" is fairy dust conjured up by folks who have never had to deal with government taxation.
Perpetually short of cash, state and local taxing authorities have grown increasingly aggressive, sending out auditors and claiming nexus and unclaimed property nationwide. Does anyone really believe that the opportunity to audit nationally for additional sales tax dollars will simply be ignored?
As in the ATM industry, the vast majority of web-based businesses are small to medium-size purveyors of specialty goods, with national or global customer bases which cannot be economically served through a "bricks and mortar" business model.
Other web-based businesses have attacked narrow segments of the large retailers' offerings, competing more efficiently without the associated overhead. While tax-free has undoubtedly benefitted internet commerce, it is not the sole reason for the explosive growth of this segment.
The opportunity to cripple these nimble, internet-based competitors has now united the big box retailers and mega-internet participants. Governments of all size, enticed by the promise of more tax revenue, have been recruited and are active in this effort.
Tax laws in most states already require internet customers — you know, the ones with political representation and who actually receive municipal services — to disclose internet purchases and to pay sales taxes on those purchases.
Widespread ignorance or avoidance of internet tax laws by consumers has meant that these taxes have gone largely uncollected. This leaves politicians in the uncomfortable position of having to crack down on the very constituents who vote them into office.
Better to pretend that requiring internet businesses to collect sales taxes nationwide is really no big deal than to face an angry electorate. But beware the law of unintended consequences in what may appear to be a simple fix to the sales tax problem.