Letters to the Editor: Reaction to Marketplace Fairness Act Editor's Note
I've been thinking about sales taxes quite a bit lately, just like many other small retailers around the country. Your latest column asked for my ideas, and, believe it or not, I may have even come up with a suitable solution, if only we can get Congress to agree.
First off, it's clear that Sales and Use Tax for end-user consumers and business has been upheld as a valid tax, and one that states definitely need to be collecting (especially in states as corrupt — er, debt ridden, er "financially challenged" — as Illinois, where I'm located. Collection of the tax is needed and required. I think we can all agree to this fact.
The problem for online retailers is having to collect tax for all of the 9,000+ taxing jurisdictions. The biggest problems include:
- not knowing the tax rates in each jurisdiction;
- not knowing which items/services are taxed in each jurisdiction;
- having to file different tax returns in 40+ different states;
- having each state with its own filing frequency, making it difficult to remember when you need to file to avoid penalties;
- dealing with tax-exempt organizations; and
- dealing with states that have no sales tax.
Now, what can we do about these?
First, simplifying the tax rates in each state is a real requirement. Eliminating the various rates by county, city and such should leave a single tax rate per state. This rate should be slightly lower than the current average rate, and it should be standardized across the board at a fixed percentage (say, 4.5 percent). States currently collecting less than this will see an increase in revenues accordingly, while states collecting less than this rate should ALSO see an increase in revenues due to increased compliance. Consumers may complain about paying slightly more, but they will only be those that are currently avoiding or ignoring the tax.
Second, simplifying the list of taxable items is critical. Again, simplification is the key here, such as taxing ALL products and NO services.
Third, simplify reporting. The SAME sales tax form must be used by EVERY state, and it should provide for a simple list of sales:
- taxable sales in each state;
- tax-exempt sales in each state; and
- services in each state.
Essentially, that's 150 separate numbers, which for smaller retailers may be zero for many entries. For retailers that do have sales in many states each quarter, simple financial reporting tools should be able to generate these reports in a heartbeat. For even smaller retailers without computerized systems, keeping a simple tally sheet for each state should meet the reporting needs.
Fourth, simply reporting frequency. Monthly tax filings are a nightmare for smaller businesses. These should be quarterly, just like payroll taxes!
Fifth, simplify tax remittance. By filing ONE form with the sales and taxes due to all states at the same time, we'd ALSO remit all tax revenues each quarter to our own home state. This would work for small businesses or multistate corporations. Each would be able to select their own "home state," and either file based on store location or for their corporate headquarters only. This simplifies tax payments by retailers, since they file only FOUR forms a year, and write only FOUR checks a year. This workload gets even easier with automated electronic reporting systems and electronic payments. Each state then receives the sales tax forms from all retailers in the state and aggregates the totals. So each state knows how much tax was collected on behalf of every other state. A simple Excel spreadsheet can then be used to calculate the net tax due between states. For example, if Illinois owes California $500,000, and California owes Illinois $400,000, then there's one payment per quarter from Illinois to California of $100,000. The rest of the revenues net out, and are already in the state coffers. This simplifies the workload for each state, too, since each state will make no more than 50 payments per quarter, and the typical average will be only 25.
Now, what about states with no sales tax? Instead of having retailers figure all of this out, we keep it all very simple and collect all sales taxes. Then just like with property taxes, consumers and businesses in these states can apply for a tax credit on their state return based on the tax they've paid. Consumers who want a refund can apply for it, and it can be refunded out of the money taken in by the states. As this is surplus funding anyway, this tax rebate is revenue-neutral for the state, and the minor increase in adding a line item to tax forms is minimal (and likely to be covered by those users not applying for the rebate).
Feel free to forward the "Bach Plan" on to anyone else you know, including your reps in Congress. Of course, if you see an area that it doesn't handle easily, I'd be happy to hear about that, too.
Goldstar Software Inc.