Tax Analysts Blog

Should States Just Enforce Use Tax Collection?

Posted on Jan 16, 2013

As the 113th Congress is being sworn in, I can’t help but wonder whether they will take a fresh look at remote seller legislation. Undoubtedly, federal legislation will be introduced in this Congress that requires remote sellers to collect sales tax despite a lack of physical presence in the taxing state. Dick Durbin and Lamar Alexander, sponsors of the Marketplace Fairness Act (S. 1832) in the 112th Congress, have indicated they will introduce legislation again this year, but that it may or may not look like that bill.

Of course, even if it is introduced no one knows whether legislation will move. The three remote seller bills that were introduced last year gained significant traction, both politically and publicly, but in the end, failed to move during the lame duck session (I suppose everyone was preoccupied with the whole fiscal cliff debacle).

Any bill that is introduced will open fresh debate on whether federal remote seller legislation is the right answer to the problem of states losing out on sales tax revenue from online sales. So to start off the debate, what about the use tax? Why shouldn’t states just enforce use tax collection? I am a big fan of federalism and think that states should be able to develop their own tax systems, set their own tax rates, and collect their own tax. So really, if states just enforced use tax collection, the whole remote seller debate would be moot. But, then again, is it realistic to think that states could enforce use tax collection, given that taxpayers would have to voluntarily begin doing something they have been able to avoid for years? And are states’ current sales and use tax systems (with numerous taxing jurisdictions and varying definitions of what is taxable and what is not), simply too complex?

In addition, there are a number of sticking points for federal remote seller legislation, including the small seller exemption. I will admit, I always thought of the small seller exemption as a good thing in that it protects the smallest of retailers from the burdens of sales tax collection. But if a federal bill is passed, which mandates a uniform, simplified system, do we really need to protect any online retailers? Shouldn’t all retailers, large and small, be put on equal footing so that no one is advantaged or disadvantaged? A small mom and pop retail store is collecting tax, so why shouldn’t a small mom and pop online store?

I don’t necessarily know the answers to these questions, but I love the debate.

Read Comments (2)

edmund dantesJan 16, 2013

The use tax is a dumb idea. There is no way for citizens to comply with it
honestly, it amounts to charity.

Good, easily administered taxes apply at the moment money is changing hands--as
with the income and sales tax. A use tax is a tax on an undocumented past, and
is unenforceable therefore.

Forcing remote sellers to collect sales taxes won't save brick-and-mortar
stores. Yes, the sales tax hurts local stores, but it's their terrible service
and limited selection that is killing them.

ray in mdJan 17, 2013

Enact a small VAT (1%) & let the States add their share. Analyze whether the
funds should be remitted to the Treasury & remitted to the States or whether
the companies should deal with the States directly.
It will probably need to be some combination of the ICC and IRS/Treasury to
administer the tax collection.

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