David Kirkpatrick

July 12, 2010

Taxing internet sales is still a bad idea

Filed under: Business, Technology — Tags: , , , , , — David Kirkpatrick @ 11:28 am

This PC World article disagrees with me.

From the link (ignore the atrocious grammar in the first sentence):

The Main Street Fairness Act, introduced this month by Rep. Bill Delahunt (D-Mass.), would end the exemption for big Web retailers like Amazon.com and eBay that fear the change would be a body blow to their business. The Web sales tax issue has been debated and litigated for years, and it is hardly a popular cause, but with state and local governments deeply in debt, the chance to add a massive revenue stream may outweigh the political risks.

The seven-term Delahunt will not be running for re-election, but it would be unfair to see the timing as opportunistic. Delahunt sponsored a similar bill in 2008. I don’t enjoy paying taxes any more than the next guy, but Delahunt was right then and he’s right now. The Internet is no longer a baby that needs to be cosseted and protected from the real world, and favoring Internet business over brick-and-mortar ones via a tax exemption is not fair

The author inadvertently makes a point that severely hurts the pro-internet tax argument here:

On the other side are the big Internet retailers, such as Amazon.com and eBay, which have fought hard to maintain a status quo that gives them a marked advantage over local brick-and-mortar merchants. Amazon.com, the largest and best-known Web retailer, has fought efforts to collect sales tax from customers. The company argues that the crazy quilt of taxing jurisdictions — there are approximately 8,500 in the United States — makes doing so impractical.

Nonsense — an industry that can deliver tailored ads to buyers in a fraction of a second could surely solve whatever technical problems exist. And it already has: Reed Hastings, the chief executive of Netflix, told the New York Times, “We collect and provide to each of the states the correct sales tax. There are vendors that specialize in this (we use Vertex). It’s not very hard.” Plus, national brick-and-mortar stores have done this for years.

Um, delivering targeted ads is a top-down affair where the entity serving the ads determines the criteria, runs its algorithms and, hopefully, serves a relevant ad to the site visitor. Meeting the demands of thousands of tax jurisdictions is a bottom-up process where the retailer has to become informed on the exact requirement of each individual tax jurisdiction, meet those requirements with every single transaction and conduct very regular audits to ensure the requirements haven’t changed. The penalty for misapplying any step of the process could be potentially severe. The penalty for not serving a relevant ad? Not much more than a very fleeting missed opportunity.

So meeting the demands of eight thousand-plus tax jurisdictions is nothing like serving targeted ads. Bad analogy and an even worse argument for taxing internet sales.


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