What is the RTPA, and why does NetChoice oppose it?
The internet has truly changed how we buy and sell products and services. Many businesses have no physical stores, yet consumers anywhere can find these businesses online. The impact of e-commerce has been truly revolutionary for buyers and sellers alike. At the same time, states have grown increasingly concerned about one aspect of e-commerce — collection of sales taxes.
Under current law — and just as a matter of common sense — businesses are not forced to collect sales tax for states where they have no physical presence. The supreme court has held that it is unreasonable to expect that a small business must follow rules and file returns in all 46 states according to different tax rates among 12,000 local jurisdictions. That leaves each consumer responsible to remit “use tax” to their home state on those purchases, an obligation that is politically and practically difficult for states to enforce against citizens.
As a result, states want to foist new tax sales burdens on any business anywhere in America. It’s no surprise that ‘big box’ stores support these new tax burdens, since they must already collect sales tax for all states. The Remote Transaction Parity Act (RTPA) is their favored legislation, and they are pushing Congress to embed RTPA in the omnibus spending bill.
RTPA, however, would raise barriers and burdens on any American business who tries to sell online in competition with big box stores. As a result, American consumers would see fewer choices and higher prices for things they buy online today.
While RTPA starts with an exemption for the very smallest sellers, this protection completely disappears after 3 years. And from day one RTPA gives no exemption for a small business that happens to sell anything on an online marketplace.
While RTPA promises free software to facilitate tax collection, this will not cover the substantial costs of integrating “free” software into the home-grown or customized systems that sellers use for ordering and fulfillment. Nor does it cover costs to map a sellers’ sizable inventory into the different categories used by 46 states tax regimes. 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 present big problems, especially for small businesses.
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 state systems. 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 policy options that would avoid forcing online businesses to do what we would never demand from physical stores. We have proposed alternatives, such as requiring online retailers to do exactly what physical stores do: administer sales tax based on the seller’s home state instead of following rules and filing taxes based on where customers live.
We all want small businesses to thrive, they generate most of America’s job growth and increase consumer choice and competition. However, RTPA will just make it harder for smaller businesses to start and succeed. Those of us who oppose RTPA are willing to work on better Congressional solutions to the online sales tax issue, so that we can empower e-commerce instead of undermining America’s small businesses who sell online.