I encourage the United State Congressman who are drafting new legislation in 2015 to consider an alternative approach. I would be happy to discuss my ideas on a broader basis but here is my solution boiled down to 8 steps (for retail sales).
Here is my solution to #eFairness:
- All remote retail sales would be taxable at the “one tax rate” per destination state. The “one tax rate” per state would apply to ALL “remote retail sales” (that cross state lines) from the “home state” and “nexus” states. Basically, ALL retail products that are shipped in interstate commerce are treated equally by everyone. It “evens out” the playing field on all “remote retail sales.” It would not apply to sales made to dealers that buy then resell. Only the resale to the end user/customer would be taxable.
- No third party software integration would be required. No recoding of any websites. It is simply adding “one tax rate” per state.
- Traditional mail order transactions would also have one tax rate per state. This would capture all offline interstate transactions and the tax would be easy to calculate.
- U.S. Customs would apply one tax rate per state for any inbound INTERNATIONAL retail purchases and forward the revenue on to the states. NOTE: I amended #4 in the comments section below the article.
- States that have no sales taxes could use a host states system or a centralized filing system (such as a Certified Software Provider) to submit taxes.
- Auditing/civil/criminal jurisdiction over a “remote retail seller” is NOT expanded to all the states where a tax is submitted. The federal legislation would delegate that only the “home state” would have jurisdiction over “remote sales.” Each business would be required to claim a “home state” for remote sales. NOTE: I amended #6 in the comments section below the article.
- All retail interstate transactions are taxable at “one tax rate” per state. No exemptions for clothing or other items IF the items cross the state border.
- Tax Exempt Organizations would be allowed to claim a refund on their state income tax returns for sales taxes paid on remote retail sales. This would simplify the paperwork so exemption certificates would NOT be required to be collected by remote retail sellers.
My plan encourages states to compete on sales tax exemption incentives within their own States. How? This approach would make states review their retail sales tax rates on certain products. For example, in Minnesota there is no retail sales tax on clothing. All “remote sales” being delivered into Minnesota from out-of-state would be taxed at the base state retail rate. Both Internet based and brick & mortar businesses located within Minnesota would have the intrastate (in-state) advantage of selling tax free clothing to its population. My plan would encourage states to provide incentives for companies to relocate or expand their physical presence in their state. One incentive might be to exclude certain products from retail sales tax on intrastate (in-state) purchases like Minnesota does. A retailer located in Minnesota still retains the right to sell tax free clothing. For example, Overstock, which does not have “physical presence” in Minnesota would NOT have the right to sell tax free clothing in Minnesota until they establish physical presence in the state. This would encourage the growth of businesses to expand outside of merely one state and encourage tax competition between the states. States could also have agreements on “remote sales tax” collected to provide a portion out to the counties, cities, tribes etc…a revenue share since it is NEW money they was not collecting prior. Everyone would be happy (maybe).