The Remote Transactions Parity Act (RTPA) would force businesses with no physical presence in a state to pay sales taxes on purchases by customers in those states. And just like the “Kill Quill” laws described in iAWFUL #1, small businesses would suffer most from the new burdens.
Tax advocates and big-box retailers tried to attach RTPA to the omnibus spending bill that Congress approved in March, and nearly succeeded. Still, RTPA will remain in Congressional conversations whichever way the US Supreme Court rules in the South Dakota case (see iAWFUL #1).
RTPA would raise barriers and burdens on any American business that tries to sell out-of-state, over the phone, via mail-order, or online. But RTPA tries to hide its problems like a wolf in sheep’s clothing:
- While RTPA starts with an exemption for the very smallest sellers, this protection completely disappears after 3 years. RTPA also removes all protections for small businesses the moment they sell a single item on an online marketplace.
- While RTPA promises free software to facilitate tax collection, RTPA doesn’t cover the hundreds of thousands of dollars to integrate the “free” software into home-grown or customized systems that sellers use for ordering and fulfillment. A study of these integration and setup costs for small and mid-sized businesses reveal initial outlays of $80,000 to $290,000, plus $48,000 to $160,000 in annual upkeep. These costs will put these businesses at a competitive disadvantage versus the big-box stores who designed and advocate for the RTPA.
- While RTPA says that software vendors will absorb audit risks from 46 states, it’s the businesses who bear risks of back taxes and penalties if they make mistakes in mapping their inventory to each state’s definitions. And mistakes will be made, since many items are classified and taxed differently among the 46 states.
RTPA is far from the best way for states to collect tax on purchases their citizens make from out-of-state businesses. Congress has other policy options that would avoid forcing online businesses to do what we would never demand from their physical counterparts.
NetChoice has proposed an alternative that requires online retailers to do what brick and mortar stores do: administer sales tax based on the seller’s home state tax rules, and let the home state transfer funds to the customer’s state of residence. House Judiciary Chair Bob Goodlatte has championed this approach in Congress.
We all want small businesses to thrive since they generate most of America’s job growth and increase consumer choice and competition. But while pretending to protect them, RTPA makes it harder for smaller businesses to start-up and succeed.
Regardless of protections it claims to create for small businesses, RTPA makes out-of-state businesses responsible for sales tax. This is fundamentally discrimination against online stores, vis-à-vis physical ones. This blatant attempt to undermine the competitive online ecosystem is why RTPA ranks #2 on our iAWFUL list.