Internet sales tax is easy, because it's on the Internet

Lately, discussion of the Marketplace Fairness Act has centered on the question of how burdensome it would be for small online businesses to collect sales taxes. I’d like to address this question from a technology perspective — something that, as the CEO of a sales tax management service, I may be uniquely qualified to do.

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First, the question on everyone’s mind: Can software really make collecting sales tax easy for retailers?

Yes. Anyone suggesting that the software can't manage sales tax compliance (or, as I'll discuss later, that such software isn't free) is intentionally ignoring the facts. E-commerce systems already routinely handle significantly more complex tasks than calculating sales taxes. Calculating shipping costs, to take just one example, is vastly more complicated. Shipping costs can vary by origin, destination, speed, weight, the total volume of other packages in transit, the price of fuel and more, but all of these factors are taken into account and a price is quoted to the customer in less than a blink of an eye.

Or, for another example, consider auction and marketplace websites. These sites shape every page you view to display the 20or so items you are most likely to buy, out of hundreds of millions of items for sale at any given moment. These items are chosen based on your buying habits, price-point tendencies, even your upcoming anniversary (because they remember the last anniversary gift you bought).

In contrast, sales tax rates and regulations are not terribly difficult for software to manage. Whether there are 96, 9600, or 96,000 tax jurisdictions makes absolutely no difference — it works exactly the same no matter what.

And it’s worth noting that the other aspects of sales tax collection — filing sales tax returns, remitting sales tax proceeds and handling exemptions, for instance — are also easily automated. Most sales tax management services already offer these functions for retailers.

And what about cost?

An important part of the legislation that isn’t being discussed enough is that it requires states to provide free certified sales tax software for retailers. The cost to a store owner will be zero.

Most online retailers making more than $1 million per year in out-of-state sales — that is, any retailer affected by the bill — are already relying on outside e-commerce and order management systems. It is no secret that e-commerce is constantly changing to respond to evolving threats, payments and security industry best-practices and, yes, legislative requirements. For instance, every time the PCI Security Standards Council issues new data security standards, e-commerce platforms are updated accordingly, without any retailer having to learn encryption algorithms. Similarly, when online retailers have to collect sales tax, the e-commerce platforms they use will be updated to provide ways for them to do so — retailers will not be left to fend for themselves.

An analogy can be made to the automotive industry. There are many kinds of cars on the road today, but almost all of them were produced by an easily identifiable group of manufacturers. In 1968, a federal law was enacted requiring seatbelts in cars. If the law's opponents had followed the playbook that those against the Marketplace Fairness Act are using, they would have portrayed a situation in which every car operator in the United States would have to pay for and install seatbelts in their cars. Obviously that wasn’t the case; nor is it the case that online retailers will need to pay for and install their own systems to handle sales tax collection.

Technology shouldn't be the issue here. Legislators in D.C. and around country can be comfortable knowing that online sales tax collection is not a technology concern; it’s a matter of public policy.

Campbell is CEO and cofounder of FedTax, home of the free sales tax management service TaxCloud.