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by Daryl Cornell, CEO, Triton Systems
Last Friday the Supreme Court agreed to hear a case arguing that states can require internet retailers to collect sales taxes regardless of physical location. This is a Big Deal for the ATM industry.
Triton and ATMGurus believe that the Supreme Court should not side with the states — but not for the reasons you might think. We also believe that readers should be aware of the other side of the story, which is not being told.
The retail ATM industry, like many other industries in the U.S., is both fragmented and specialized. IADs all over the country purchase their ATMs and parts from a network of manufacturers and secondary suppliers.
These companies generally operate with a physical retail presence in only one state. Orders are placed over the phone or via the web and then shipped to customers or ATM sites nationwide.
This specialized market is not served by the likes of Amazon or Walmart. The nationwide implementation of an internet sales tax would increase costs tremendously, almost certainly decreasing competition.
Now we are not arguing that internet sales should be tax-free. However, requiring online merchants to collect taxes on all sales, and to comply with the 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 will be crushing, which is why this initiative is being supported by Amazon, Walmart and other internet elephants able to afford armies of accounts, 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 in which 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. An internet sales tax will impose significant costs on merchants who, in exchange, will receive neither representation nor public services.
Proponents of internet taxation tout "easy-to-use" software that supposedly automates 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 actively audit nationally for additional sales tax dollars will simply be ignored?
As in the ATM industry, the vast majority of web-based retailers are small to medium-size purveyors of specialty goods, with national or global customer bases that cannot be served economically 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.
It is the opportunity to now cripple these nimble, internet-based competitors that has united the big box retailers and mega-internet participants.
Governments of all sizes, enticed by the promise of more tax revenue, have been recruited and are active in this effort. Now the Supreme Court is entering the fray.
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.
Hopefully the Supreme Court will resist the law of unintended consequences in what may appear to be a simple fix to the internet sales tax problem.