It's only fair that online retailers pay their share of state sales taxes. Figuring out their "fair share" without destroying them is the challenge.
I sympathize when brick-and-mortar retailers complain about paying sales taxes that online retailers don't have to pay. It's an unfair system, and there's no good reason for it to continue. We're way past the point when tax breaks for online retailers equal "promoting innovation," whatever that means.
There's an easy answer to this dilemma: A fair, functional, easy-to-administer federal law governing online sales taxes.
Is there a snowball's chance in hell of Congress passing something that's fair, functional, and easy? You tell me.
As early as next week, however, Congress is going to give it a try. That's when Sen. Dick Durbin (D-Ill.) is expected to introduce the Main Street Fairness Act. The bill is actually quite similar to one introduced, but not passed, last year.
The biggest challenge here is the sheer number and complexity of state and local sales tax laws. There are over 7,500 taxing jurisdictions in the United States, and simply knowing which ones apply to a given online buyer is a colossal task. In many cases, people living on different sides of the same street, in the same city, in the same ZIP code might be on the hook for different sales tax rates.
Amazon.com could solve the problem -- barely -- with loads of expensive tax-tracking software. But smaller online retailers wouldn't stand a chance of navigating this jungle. They're the ones who will get squashed by a half-baked online sales tax plan, not the big online players.
So much for the "fair" part of the deal. How many of the small retailers crying for stricter online sales tax enforcement realize that they can kiss their own e-commerce plans goodbye if things go down this way?
There's a long-term solution in the works. It's called the Streamlined Sales Tax Agreement, and it would greatly simplify the tax picture for online retailers. Basically, when a state signs onto the agreement, it agrees to honor a standardized, streamlined sales tax-reporting process. It's the sort of thing you could bake pretty easily into just about any e-commerce system, and about half of the states have signed on so far.
That's good, but it's not good enough. All 50 states, in my opinion, need to get on board before Congress allows states to tax online retailers -- and those that refuse should be cut out of the deal. Anything less would be a recipe for disaster. And like I said, the big boys aren't the ones who will suffer the most.
Fortunately, the Main Street Fairness Act isn't likely to go anywhere this year. House Republicans aren't going to touch this idea with a 10-foot pole. So we still have time to sort this out. We'll need every minute of it.