The Seattle Times editorial board joins the unimaginative chorus of “responsible” politicians and business leaders calling for closing the “Internet sales-tax loophole.”
With the rise of Internet purchases, what used to be a small leak of should-be tax revenues has become a hemorrhage. A state Department of Revenue spokesman said about $794 million in state and local use tax goes unpaid every year. The Washington Legislature should plug the hole by changing a law so the state can become a full member of the multistate Streamlined Sales Tax project. Twenty-one states are participating so far, and about 1,000 retailers have agreed to collect sales taxes.
Yes, this loss of revenue is a huge problem which will only get worse as more commerce shifts to the Internet. And no, I’ve got absolutely nothing against forcing buyers to pay use tax on mail-order purchases.
But the system the Times is supporting would be an absolute disaster to hundreds of thousands of small business people nationwide, essentially making interstate commerce the exclusive realm of only the largest corporations.
I founded and operated a small mom-and-pop software company where the vast majority of our product shipped out of state. About $30,000 a year of that business, and the bulk of my profits, came in the form of individual sales of $50 or less, shipped directly to households in every state in the union. Had I not been able to sell direct to my customers, I couldn’t have stayed in business as long as I did. Had I been forced to file quarterly returns in every goddamn state with a sales tax, I couldn’t have afforded to sell direct.
The accounting burden imposed by the Times’ preferred solution is simply too great for truly small businesses to bear, and makes no workable provision for small businesses like mine. There were some states to which I might sell only a handful of units a year; tell me, how can I afford to file quarterly taxes — even a return with nothing due — over a stinking $14.95 upgrade? And the alternative, forcing us into the maws of some third-party fulfillment and/or tax accounting service would eat up too big a chunk of the revenues to make such small mail-order and Internet businesses worthwhile.
I never would have started my business had this burden been in place. This is a proposal that crushes innovation and entrepreneurship, and discourages the creation of home-based, Internet businesses.
And it completely ignores the real problem.
The real problem is not that WA residents aren’t paying sales tax. The problem is that WA state and local governments rely too heavily on sales taxes to produce revenues.
If WA had a balanced tax system that included an income tax, this would be a much less dire issue. But instead of addressing the real problem and responsibly talking about tax restructuring, our politicians and our state’s paper of record prefer to fiddle around the edges of our broken tax system, willfully oblivious to the unintended consequences of their actions. It’s not that most small Internet businesses don’t want to charge their customers sales tax — it’s that we simply can’t afford to turn ourselves into fulltime tax collecters.
We need bold action on tax restructuring, not cowardly avoidance of the real issues at hand.