Under current Supreme Court precedent, absent a sufficient connection, a state cannot force out-of-state Internet businesses to collect and remit sales taxes.
To illustrate, when a customer in Illinois buys a product from an online vendor based in another state that has no physical presence in Illinois, authorities in Illinois cannot currently compel the out-of-state vendor to send it the Illinois tax on that sale.
An online business based in my home state of New Hampshire that doesn’t have a store in Illinois shouldn’t be required to facilitate sales tax collection for that state – especially when New Hampshire doesn’t even have a sales tax.
But leave it to Congress to try to poke its nose where it doesn’t belong.
Right now, there’s a renewed effort on Capitol Hill to turn millions of online vendors into tax collectors. For the first time, small Internet businesses – such as the small seller operating out of his house – would have to figure out the sales tax rate where his customers reside and then remit that tax accordingly.
Congress isn’t doing this to help small businesses or consumers. This is all about generating new tax revenue to pay for more bloated government.
Beyond infringing on state sovereignty, it would be a compliance nightmare. Small online business owners nationwide would be in uncharted territory, confronted with the daunting challenge of following tax laws in nearly 10,000 state and local jurisdictions. And they’d be open to new liability and audits from tax enforcement officials far away from where they do business.
Inevitably, consumers would see higher prices for goods they buy online. But they wouldn’t get any of the benefits of shopping in a physical store.
And creating new tax collection requirements on small businesses, which is what is being proposed, takes a step toward eliminating competition. While large retailers with more staff will be in a better position to comply with the patchwork requirements of tax authorities nationwide, small retailers will struggle to keep up – causing them to shrink or log off from the marketplace.
At a time when our economy continues to recover, and too many Americans are struggling to find work, it’s hard to understand why Washington would want to place new tax collection mandates on small online businesses. We should be getting out of their way to help them grow and reach new customers – not throwing up road blocks that make it harder for them to simply survive.
Ayotte, a Republican from New Hampshire, is a member of the Commerce Committee.