Remote Sales Tax Collection: Sounds Great, But States Will Find It’s Less Filling

Washington, DC  – State tax commissioners have been touting a doomsday scenario from the University of Tennessee to justify giving states new powers to reach across state lines and force remote sellers to collect sales taxes. Today’s analysis by the Direct Marketing Association, based on numbers from the U.S. Commerce Department, shows otherwise. The actual losses from uncollected sales and use taxes are only 15% of what the Tennessee numbers predicted.

Beyond the study’s reduced estimate of tax potential, it’s critical to see that states already have clear authority and incentive to capture most of the remaining portion of potential tax they seek to collect from remote sellers. As we’ve recently seen with several national chain stores, their website sales subsidiaries may well have nexus, by virtue of the business connections between website and physical stores. These connections are driven by more than just the persistence of tax commissioners, since consumers want the added convenience of in-store pickup and returns for items purchased at affiliated websites and catalog vendors.

After capturing sellers with effective nexus, it makes no economic sense to chase after truly remote sellers, where the costs of collection may well exceed the revenues realized. The anticipated sales tax simplification project is just beginning to show how very complex and expensive “simplification” would actually be. It would be better for these tax commissioners to fully use their powers of nexus before asking Congress to extend their reach.