COLUMBIA — Imagine you have developed a new and improved widget.
Your widget is lighter and stronger than the current models. You received startup money from the Columbia Angels, wealthy neighbors who see a profit in their investment. Your marketing guru has been able to place you on the major news shows as a technology breakthrough, and there is great interest from the general public who want the new and better widget.
At the beginning of your second year, your guru suggests that you expand your retail sales and sell the new widgets via the Internet as well as in stores. You agree, purchase the software needed for e-commerce, hire a Web designer and prepare to launch your site next month. Your expected second-year sales are $1.2 million.
The brick and mortar store only worries about the taxes collected at the site. As an Internet company, you collect taxes from those who live in Missouri. Those who live outside the state are not subject to sales tax. Even with shipping, the advantage usually goes to the Internet company.
As of today, the law is simple for the new and existing Internet retail marketers. If the product is sold in the state where it is based, sales taxes must be collected. This is difficult enough, for even a single city and county has multiple tax levies. Columbia, as example, has different sales tax rates among its 14 special economic districts. If the tax is based on where the purchaser lives, one would need a comprehensive map.
In fact, Missouri has about 700 such tax districts. Now imagine if the law were changed and your new business would have to collect sales tax from those who live in other states as well.
This means spending more money to open your doors, purchasing even more specialized virtual store software, which would have comprehensive maps showing the nearly 90,000 tax districts in the continental U.S. alone. You would need to account for the sales taxes for 50 states, the District of Columbia, the U.S. Virgin Islands, Guam and other U.S. territories.
Don’t blink. While the Senate and House are fighting about paying our national bills and keeping the government open, U.S. Senator Mike Enzi, R-Wyo., introduced SB-743, the “Marketplace Fairness Act.” This in itself is somewhat confusing — aren’t Republicans in both chambers of Congress against taxes? What make this more confounding is that SB-743 had broad bipartisan support to collect more taxes.
The legal gobbledygook says the Marketplace Fairness Act will “require all sellers … to collect and remit sales and use taxes for remote sales (other states) under the provisions of the Agreement. …” There is an exception for businesses with gross sales of less than $1 million. The medium (you) and large retailers are simply out of luck.
The final Senate vote showed 69 “yeas” and 27 “nays” with both Missouri senators, Roy Blunt and Claire McCaskill, voting for the bill. And we thought the political parties could not agree on anything. Sure they can: new tax collections.
If I have a choice of buying a book at BarnesandNoble.com or its store in the mall, my math skills would come into play. My book sells for $17 online. In the store, $20. Online, I would pay taxes plus shipping; in the store, taxes alone. I am spending 65 cents less in the store with the added factor of instant gratification. Advantage goes back to the brick-and-mortar store.
Why collect this money? According to MU's Truman School of Public Affairs, the Show-Me state would gain some $468 million, and that, my friends, would certainly help our schools, build roads and support public safety. But there is another matter. Other states would be collecting sales taxes from us, and I am not too crazy about giving my hard-earned money to pay sales taxes in South Carolina or Texas.
Do we need the money? Sure, but at the expense of the growth of small businesses and in support of another state’s government? And, there is the rub.
Yes, I buy online when the deal saves more than 20 percent or I cannot find the item locally, which is rare. But I would rather buy locally, supporting Columbia business and pay my sales taxes here, even with a bit of trepidation. Wouldn’t you rather pay taxes where you live than to another state?
David Rosman is an editor, writer, professional speaker and college instructor in communications, ethics, business and politics.