Internet Sales Taxes and Effects on Security

Congress is currently debating and working through legislation to allow states in the US the ability to collect sales taxes from all sales over the internet.  This legislation will have a recoil effect.  Not only will it push smaller resellers out and pave the way for a few larger resellers (can you imagine a small business tracking sales tax laws in 9600 jurisdictions?) it will most likely open security holes in many businesses. First, let’s go over the history of Sales Tax in the US.  Currently sales tax laws are clear.  If you have a location in a state, referred to as nexus, you are required to collect sales tax.  This precedent was determined by a US Supreme Court ruling already in effect so any legislation would be an attempt to overrule that law.  The purpose of sales tax is to provide revenues for the states to fund police, fire, and other services.  It is the responsibility of the citizens to pay taxes, not the businesses.  States just require businesses to collect because it is easier at the time of the transaction.  Years ago we would send around tax collectors, the business now serves that role.  And it honestly makes sense to do it this way.

So a business in Ohio has no benefit of the sales taxes paid in North Carolina.  That is to say, a citizen in Milwaukee does not benefit from sales taxes in Los Angeles since they will never need an LA cop at their house.  This is separation of the states.  We can sell between states because of fair trade and interstate commerce laws.

So if the sales tax legislation goes through all businesses will be required to collect sales taxes in all jurisdictions, not just internet retailers as they are referred to in the media.  People hear that and they think Amazon or CDW or eBay.  It will mean a stay at home Mom who makes jewelry in her spare time will be required to collect sales tax on the 10 transaction she has a month selling her necklaces.

What’s more, this will lead to a grey market of sales.  This will include but not limited to the sale of computer hardware and software.  When this happens (Chinese’s laptops, used hardware, unlicensed software that can’t be updated) we will have a lot of devices out there that cannot be protected.  Thus creating a potential for security risks.

Eventually, we will need yet another government agency to police this market.  Much like we have the ATF to track the illegal sale of cigarettes that don’t have revenue stamps.  So to fund that, we will need more taxes.  And the circle continues.