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Handing your teenager your ATM card and the keys to a Ferrari is a bad idea. Teenagers are impulsive and don’t always think, or care, about how their actions will affect others. Teenagers want it all and they want it now, and patience is not among their virtues.
In that respect, teenagers are a lot like state tax collectors, who are now demanding the power to turn the Internet into their state’s ATM.
The Senate is rushing to pass legislation that gives state tax collectors new powers to reach across borders and force businesses in other states to pay their sales taxes. Senators say they’re doing it for fairness, but really they’re doing it because states want more tax money.
State tax collectors aren’t particular about how they get the money; they just want it. They assure business owners that the tax will be painless and easy, but let’s be honest, when has creating an entirely new tax system been anything but expensive and onerous?
We’ve been here before. Remember the 1099 fiasco from two years ago? The 2010 health care law expanded 1099 reporting requirements, requiring every American business to compile data and file reports for every vendor paid at least $600.
The outcry from businesses was substantial and, just a few months later, 1099 reporting was repealed with overwhelming congressional and White House support. That outcry was over one annual filing with the IRS. Imagine how entrepreneurs will feel if they’re required to file monthly with 46 different states.
The legislation raises many more questions than it answers, and the Senate floor is never a good place to design tax policy. For example, will states be allowed to have different tax rates for each of their thousands of tax jurisdictions and will each state be allowed to have unique rates for food, goods and still another for services?
Supporters of the new tax assure us that magical software will appear to handle the whole mess, but each state can provide its own unique tax collection software. Who will pay all the costs that a business would incur to integrate 46 new pieces of software into their ordering, fulfillment and accounting systems?
Each state will be empowered to demand payments and audits of any business anywhere in the U.S. So what’s to stop states from adding even greater complexities and costs, once Congress gives tax administrators new powers to reach into all 50 states?
Any of these questions should be enough to stop supporters in their tracks.
For more than a decade, states have been unable to agree on how to simplify their sales tax systems. Had they simply decided to adopt a simple and streamlined system, they could be collecting remote taxes today.
Instead, governors are using their Senate connections to ask for a blank check. It is useful to look at how far these tax proposals have evolved over time. In years past, legislation proposed by Internet tax advocates had a $5 million small-business exemption (a clear acknowledgement of complexity) and a requirement that states adopt the same definitions and rules before getting new tax powers.
How things change. Under this legislation, states are entrusted to design a tax system of their own after they are granted taxing authority.