Monday, July 16, 2012

Tax advantages for online companies may soon end

Mom and pop stores and companies that are primarily brick and mortar may soon be getting a more equal playing field with their online competitors due to a potential change in public policy and the law. This change is that online companies may soon be required to collect state sales tax for purchases made on the Internet even if the company doesn't have a place of business in the state where the consumer is located.

Some web based companies have relied on this tax advantage to grow their business. However, while online only businesses may have prospered because of this advantage some brick and mortar retailers appear to have been harmed. With the proliferation of instant price checks, social media, and other forms of new technology, this tax and price advantage has been magnified to a level never imagined.

This change in public policy may also help states collect much needed revenue from web based businesses. According to the Wall Street Journal, online shopping accounts for more than $200 billion dollars in revenues. If there is an average of a 6% sales tax on these sales that is $12 billion dollars in additional revenues for state governments that may be utilized to help close budget gaps, pay down debts, reduce layoffs, etc....

The bottom line is that a change in the law to expressly allow states to collect sales tax on Internet purchases is sound public policy. While I am not in favor of paying an additional 6% for goods I buy online as a Maryland resident, I am in favor of seeing more people purchase goods from local businesses whom I believe this public policy change may benefit.

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