Tuesday, April 10, 2012

Internet Sales Tax



While I’m no expert, internet sales tax laws from a small business perspective are confusing. A recent ruling by a U.S. District Judge has declared Colorado’s internet sales tax bill illegal and has struck it down. Apparently it is the job of Congress or the Supreme Court to change taxation of internet sales. This decision has its roots in a Supreme Court ruling back in 1992, Quill Corp. v. North Dakota, 504 U.S. 298 (1992). If you’re not familiar with Quill Corporation they were an office supply company that sold product through its catalogs. I remember purchasing items from them, they had great pricing.


Anyways, Quill Corp. was incorporated in Delaware, like many corporations, and didn’t have a presence in the state of North Dakota. North Dakota on the other hand was trying to get Quill Corp. to collect and remit sales tax. Does any of this sound familiar? The Supreme Court ruled that Quill Corp. didn’t have a “substantial nexus” within the state since their business was conducted strictly by mail. They didn’t have a distribution center, storage facility or employees in the state. Are we starting to sound a lot like internet sales yet? Internet sellers post their products on line for viewing; customers place their items in virtual shopping carts and purchase them on line. Kind of like placing an order by catalog except the catalog can be viewed on a computer. Most items are then sent via a contracted delivery service or the United States mail.


The Supreme Court ruled that Quill Corp. didn’t have to collect and remit sales tax because current federal laws didn’t address this sort of issue. Their suggestion was for Congress to enact legislation for just such an instance. I guess we’re still waiting. Many companies have complied, but I’ve also noticed these companies have a small presence in different states, usually through storage facilities or distribution centers. Some on line retailers are still fighting this, such as EBay, but EBay is a little different as it always reminded me of a giant garage sale. I don’t think people collect sales tax at a garage sale. Many of the items on EBay are previously used and sold by private parties. This would affect the bargain pricing most used items offer.


So while internet sales tax continues to confuse, internet sales continue to grow. Many internet businesses are “Mom & Pop” shops or run by a couple of guys out of their garage. If Congress really wants to make a difference, simplify sales tax laws. Give the small home based business a break. An internet sale gives many people the opportunity to sell their wares internationally and/or all over the country. It gives the home crafter or jewelry maker an expanded market which can contribute to their success. It’s not fair to apply complicated sales tax rules to small businesses with few or no employees. Whatever happened to the nobility of the individual in an agrarian society? While American small business is no longer farmers tilling our soil, we are still crafty people who have products to sell. Help us expand our marketplace without shifting additional burdens on our shoulders, we have enough to bear.

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