Tuesday, December 01, 2009

Cyber Monday and the Internet Tax Debate...

Yesterday was Cyber Monday - the online equivalent of Black Friday and the best-selling retail day of the year for websites. The results are in. According to CNN, even amidst the recession, Cyber Monday sales rose 14% this year compared to 2008 and consumers also bought nearly 30% more items per order versus last year. Also, shoppers bought 10% more items per order online than they did in stores on Black Friday.

This sounds like a success story for online retailers. So what better time to pull the rug out from under them with new tax requirements of online sales?

A New York Times editorial this weekend suggests exactly that. It argues that, since online retailers don't collect sales tax, they have an unfair competitive advantage over their bricks-and-mortar counterparts and, additionally, that state budgets could use the extra money for their coffers.

Fair points. However, requiring online retailers to collect sales taxes would be a logistical nightmare. The Supreme Court was right in 1992 when it ruled that "it would be unduly burdensome for retailers to collect other states’ sales taxes". The problem is that most small online shops don't have the technical resources to implement such a collection system at a reasonable price. You've got to know the different accounting rules and regulations in all 50 states, then continually adjust your software code to reflect all of them. Small mom-and-pop shops will find that task insurmountable, and it will chill new businesses from ever launching.

I'll admit, I enjoy not paying sales taxes on my online purchases. But the truth is that those savings are nullified by the cost of shipping. Consumers really aren't coming out ahead; it just keeps online retailers on an even keel with their real-space rivals. After all, let's remember the original intent of the Internet Tax Moratorium... to encourage and foster entrepreneurship in nascent cyberspace industries.

That still makes sense today, particularly in these economic times.


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