South Carolina recently gave Amazon a four year exemption from collecting sales

Question

South Carolina recently gave Amazon a four year exemption from collecting sales tax from its residents in exchange for creating approximately 2000 jobs and investing $125 million. The US Supreme Court previously ruled that a state cannot require a company to collect sales tax unless it has nexus in that state. Amazon generally started collecting sales tax from all customers on April 1. Many online retailers are still not collecting sales tax from customers in all states. Do you believe that online retailers should be required to collect sales tax?

Explanation / Answer

Sales taxes are a fact of life for most Americans and American businesses. Every time someone makes a purchase at a store whose offerings are subject to taxation, that business is required to collect taxes on behalf of the state. When people shop online, however, the rules change. Across the U.S., online retailers collect taxes on some of their sales—but not all. This discrepancy has some arguing for a federal regulation that requires online businesses to collect taxes on everything.

Advantages of Requiring Tax Collection

There are a few fairly straightforward reasons why online retailers should collect sales taxes. First, when they don’t, states miss out on crucial revenue. This collection gap worsens every year as online shopping becomes more popular. Owners of brick-and-mortar businesses also say that this creates an unfair advantage for online businesses. Because sales taxes typically run between 4 and 7 percent, online businesses offer a substantial savings by not collecting taxes.

Finally, this setup pushes more of the sales tax burden onto poorer Americans. Low-income Americans are less likely to have regular Internet access with which to shop online. As a result, they pay more of the total sales taxes at regular businesses while wealthier households enjoy tax-free online shopping.

Disadvantages of Requiring Tax Collection

While the benefits of collecting sales taxes are clear, there are some counterarguments. First, large retailers such as Amazon (which holds property in many states) already collect taxes on most sales. As a result, requiring national collection wouldn’t really affect these businesses. It would, however, affect small-business owners. They would need to register and keep track of taxes for every state in which they make sales, which could be more work than it’s worth. In addition, shipping and handling costs for products sold online knock out any price advantage of not collecting sales taxes.

In addition, some retailers don’t believe it’s fair to have to pay taxes in states where they aren’t physically located. Because they don’t have a physical location, they aren’t benefiting from the government services taxes pay for, such as roads and the fire department.

No matter which direction the country moves, some stores will benefit and others will be hurt. What’s more important is that the government decides soon so business owners are able to predict the taxes on their future online sales and adjust accordingly.

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