Expanding Remote-Seller Sales Tax Nationwide Means Retailers Must Deal with 22 Different Regulations

Governing features South Dakota’s remote-seller sales tax fight on its website today. The online retailers suing us over Senate Bill 106 say that paying sales tax just like Runnings and Red Rooster would lead to “enormous tax and administrative burdens” for businesses nationwide.

Actually, if every state adopted something like SB 106, and if the courts let those sales tax laws stand, online retailers doing business nationwide would have to deal with maybe 22 different sales tax regulations:

NetChoice’s [executive director Steve] DelBianco argues that requiring retailers to remit a sales tax wherever they make a sale would be overly cumbersome given that more than 10,000 jurisdictions across the country levy a sales tax. But NCSL’s [analyst Max] Behlke said that doesn’t mean a retailer will have to comply with thousands of different taxing regulations. The real total is more like 22 different regulations. That’s because localities generally streamline their taxing definitions with their state, and about two dozen states have also streamlined their sales tax codes with each other. On top of that, he added, software is available to businesses to automate the sales tax collection process.

“It’s a really hollow argument,” said Behlke. “It’s a good tag line, but it’s just not true” [Liz Farmer, “In South Dakota, a Test Case for Online Sales Taxes,” Governing, 2016.05.03].

22 different regulations. Chain retailers with stores in multiple cities and states manage to do it. Online retailers should be able to comply with multiple jurisdictions’ tax rules even more easily, since they operate from a single, centralized website and don’t have to send techs out to stores around the country to reprogram physical cash registers.

As suggested in my comment section under the weekend discussion of this topic, South Dakota could more easily and constitutionally collect more revenue by following 43 other states in imposing an income tax on business activities conducted within its borders. If we’re still afraid of income tax, we could define the taxable nexus on sales not as the location of the buyer but as the location of the seller. South Dakota lets the City of Madison do that with Custom Touch homes, putting thousands of dollars in sales tax in local coffers on homes built in Madison but sold to customers elsewhere. Of course, for that solution to produce the Main Street fairness intended by SB 106, we’d need other states to adopt similar rules, and I get the feeling states like competing for those Amazon warehouses by promising not to charge them sales tax.

One Response to Expanding Remote-Seller Sales Tax Nationwide Means Retailers Must Deal with 22 Different Regulations

  1. Roger Elgersma

    If one does international trade they have to know and understand and pay taxes in those other countries that they are expanding their markets in. So why not have to know and understand the tax rates in other states. If you think the internet is a real cool way to find business in other states you can use the same internet to find out the tax rates in those states. When in Rome do as the Romans or do. So if you want to go to Rome or Kentucky to do business, then follow their rules when dealing with their citizens.

    I also think people should pay their own local taxes. For Madison to charge taxes on out state and out of state customers is just holding down the local business and local workers. Not real smart. They are putting a penalty on their own local business by doing this.