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TheStreet Open House

Morici: It's Time to Start Taxing Online Sales

As anyone owning a small business knows those services are far from perfect. Many have received erroneous assessments and penalties, owing to mistakes made by payroll services, and those take some considerable time and effort to resolve.

For payroll purposes, small businesses must deal with their home state and a few neighboring jurisdictions, but for the purposes of sales taxes the potential expands to more than 5,000 state, city and county governments. Imagine running a rare books store in Boston with an online presence and receiving a few hundred erroneous notices of assessment from jurisdictions as far away as Alaska.

Not surprisingly, Amazon.com is in favor of the legislation. It could handle these issues much as Xerox (XRX) handles employee payroll taxes all across the country -- its small competitors could not. Paying sales taxes in all 50 states adds to its costs but the benefits to its bottom line of driving out small competitors easily makes up the difference -- with a big profit.

The Senate bill excludes retailers with annual sales less than $1 million but that is a pittance in retailing, and bears no parallel to definitions of small business in other federal legislation. For example, local restaurants and other businesses with fewer than 50 employees are exempt from Obama Care mandates to provide employee health insurance, and supporting 50 employees can easily require sales north of $10 million dollars.


Although it is far from a perfect solution, raising the threshold for retailers that must collect sales taxes outside their jurisdiction to $10 million would do a lot to more to preserve small businesses -- including brick and mortar retailers -- than requiring virtually all retailers to comply.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.
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