Let States Mandate Tax Collection by Out-of-state Retailers

Whether you're running the government or a business you need to be able to project a revenue stream, says Thomas Secor, president of Durable Corpor...
Thomas E. SecorJuly 21, 2015

In my opinion the answer is yes. I believe the current determination of nexus is flawed in an internet world. The idea that a physical presence is a determining factor in sales transactions today is unrealistic and unfair. If a company produces a website offering products for sale on the internet, what difference is there between it and the local store, which many times offers free — and possibly next day! — delivery?

Thomas E. Secor

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In my opinion, today’s companies use website development and ad placement no differently than what used to be the building of new store locations. Business itself is still the same, involving a buyer and a seller, while the means of transaction has transformed with technology. It’s time for our tax system to catch up.

I am not a big-government individual. But I do recognize that whether you are running the government or a business you need to project a revenue stream to operate on. The continuity of purchases has been shown to produce a reliable source of sales-tax revenue – but not when the tax is escaped through internet purchases. The services provided by government are still required, but now new revenue sources must be created to support them, and thus we end up with a variety of complex new taxes. This not only creates a very inefficient tax collection system but also impedes business development.

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Opinion_Bug7What will be required for a state to require out-of-state sales tax collection will be that it must first have some uniformity in its sales tax code. In Ohio we have a multitude of taxing districts, which creates a level of complexity in the numerous sales tax rates that would seem to be extremely onerous in applying it to the internet environment. Additionally, there are some constitutional issues in providing consistent application methods of collection – i.e. destination sourcing vs. location sourcing. Obviously the out-of-state seller does not have an in-state location to charge tax from and thus could only charge the rate based upon the destination, while the in-state sellers charge based upon its location.

A possible solution would be for the out-of-state rate to be a uniform rate equal to the lowest rate charged by an in-state seller. Therefore, the out-of-state company would never be held at a competitive disadvantage to an in-state seller, and there would be an incentive for the state to work toward uniformity within all the taxing districts. This ultimately would create a much less complex system in the first place and hopefully diminish the need for many of the unique local taxes.

While any state would seem to want to collect this money, inter-state taxing districts must work together to create a system that is uniform enough to apply broadly. This may present the biggest challenge.

Thomas E. Secor is president of Durable Corporation, in Norwalk, Ohio, and a member of the National Small Business Association.