Why Streamlined Sales Tax won’t work
26 Sep 2009
It’s simple. How do you keep up with over 8000 Tax Districts that are not defined by zip code?
Lets forget about SST for the moment and look at what is going on in your State. Here is an article I ran across the other day. http://tinyurl.com/yel67vg It seems a customer bought an item from QVC. QVC charged her 9% sales tax because she had a Myrtle Beach, SC zip code. While Myrtle Beach has a city tax of 3%, it is added to the South Carolina base tax rate of 6%. Problem is, the customer does not live within the city limits of Myrtle Beach. When I contacted the City Manager of Myrtle Beach, I was told that there are actually 3 zip codes that are touched by the city. Unfortunately, all 3 zip codes also have areas within them that are not subject to the city tax. So now we have an angry customer, a vendor who is attempting to follow the law, and a demanding city that takes no responsibility for it’s poor planning.
The City Manager’s solution to collect the correct tax? Ask the customer where they live before the purchase is made. Oh sure. I’ll be sure to do that for that 3AM automated online purchase.
I don’t mean to be picking on Myrtle Beach. This is a State Wide problem, and I’m sure the same problem exists in your State as well. The SC DOR has a State Zip code PDF file you can download. While the information is useful, it is also incomplete. There are over 40 instances of counties and cities that share zip codes, and no way to pinpoint exact locations to match the tax rate. To make matters worse, some counties want additional tax for goods going in, others want it for goods going out, and yes, still others want tax for goods going in AND out.
Legislators have shown that while writing law, they completely forgot about online retail and the way sales information is processed. It is almost impossible to asses and collect the correct Sales Tax. Most online venues (eBay for example) are setup to collect only one tax rate, usually the State’s base rate. Website with shopping carts are mostly setup the same way. WHile there are outside vendors who will process this information for you, the processing charge for this service is cost prohibitive for small business, and without 9 digit zip code data, is impossible to accurately calculate.
So what are the solutions? The easiest and most painless it to exempt online purchases from local option sales tax. Online businesses do not require the same tax load on a City as a Bricks & Mortar store (Fire, Police, Sanitation, Roads) so the argument of ‘fair share tax’ is nullified. There are other options. Above all, I would like to see consistency State Wide with the tax code. Requiring local tax for local needs is fine. Leave the collection to the locals and exempt outsiders from that tax. That’s the fair thing to do.
The system in place now is an extra burden on online retail and consumer alike. Since charging too much for tax is against the law, it is safer to charge the consumer the base rate, and pay the State DOR the difference out of pocket. But is that fair? Well, it isn’t for businesses.
Why won’t SST work? I just gave you one example. Multiply that times 8000 tax districts across the country in 45 States, and these districts are not defined by zip code. Just wait for your first Sales Tax Audit from an out of state investigator.