In his column “Taxdodge.com: How the on-line loophole cheats cities and states out of big money” (Commentary, July 20), John McCarron chides Time magazine for missing the story regarding on-line shopping by not discussing how on-line sellers are not paying sales taxes.
In most cases it is not the seller who is liable for the sales tax, it is the buyer. The seller is doing state and local governments a favor by collecting the tax and paying it over, thus saving the state or city the trouble of collecting the tax. Contrary to what Mr. McCarron implies, a sale made over the Internet is not tax-free if the seller does not have “nexus” (a store, a warehouse, a distributor) with the state. It merely shifts the responsibility to the buyer to remit a “use tax” when sales tax has not been collected. As it can be difficult to track down state residents who are making purchases over the Internet or through mail-order, and because these state residents can vote, state and local governments often choose to go after out-of-state sellers who never even set foot in the state.
Although Mr. McCarron discusses how local retailers are “getting clobbered” by the out-of-state Internet sellers, he does not address how out-of-state Internet and mail-order sellers can get clobbered by the administrative burden some states have created for companies selling into the state. An Internet seller could, in many states, have to comply with the sales tax rules of every taxing jurisdiction in the state (state, county, city). These jurisdictions often will have differing tax rates, tax bases, tax reporting rules, tax returns, etc.
It seems rather disingenuous for states and cities to cry that they are getting swindled out of their justly earned revenue by Internet sellers, when most have, so far, made no effort to alleviate the tax compliance burden for Internet or mail-order sellers.
