Online Sales Tax Collection Might Not Be Worth It

Before jumping on the bandwagon and trying to snag sales tax revenue from out-of-state online retailers — which a recent U.S. Supreme Court ruling now allows — Nevada should crunch the numbers to make sure it is worth the effort.

Overturning previous case law the court ruled 5-4 in a case out of South Dakota that local jurisdictions may collect sales taxes from online sellers of goods even if the business has no physical presence there. It has always been the law that the buyers could pay the sales tax, but almost no one ever does.

Nevada Democrats immediately began salivating over this potential source of new revenue to spend on their pet causes.

The major online retailers Amazon, Walmart and Target already have a presence in every state and pay sales taxes, though third-party vendors who use those platforms and ones such as eBay and Etsy are less likely to pay the tax.

According to a press release put out by Nevada Department of Taxation Executive Director Bill Anderson and reported by The Nevada Independent, “In terms of the direct impact on General Fund revenue in the Silver State, this increase in taxable sales has the potential to increase the State’s 2 percent sales tax collections by nearly $30 million annually above what they would otherwise be.”

The potential.

But the state currently collects almost $1.1 billion a year in sales taxes, meaning the increase would amount to less than a 3 percent increase. What would be the cost of trying to collect from thousands of disparate and sometimes hard-to-find retailers?

The cost of collecting and enforcing such sales taxes could easily outstrip the revenue very quickly.

Then there is the question of just how long these sheep will be around for the fleecing.

The Wall Street Journal reports that there are more than 10,000 taxing jurisdictions in the country, which prompted members of the House Judiciary Committee to issue a statement calling the court ruling a “nightmare” for American businesses, adding that the decision would “stifle online commerce, close businesses, and ultimately harm consumers.”

You can’t collect from sellers who no longer exist.

A spokesman for Democratic gubernatorial candidate Steve Sisolak told the Las Vegas newspaper, “The businesses owned by and employing Nevadans are the backbone of our economy. As governor, Steve will work to ensure that brick-and-mortar stores and Nevada’s small businesses are on equal footing with online retailers.”

The campaign of Republican candidate for governor Adam Laxalt was more cautious. “This will have to be looked at in more detail now that the Supreme Court has ruled on this,” a Laxalt campaign spokesman said in a statement.

The total sales tax rate in Nevada varies by jurisdiction. The state collects 2 percent for itself, plus 2.6 percent for funding education, thus the rates in the counties varies from a low of 6.85 percent to a high of 8.25 percent.

Complying with all those different tax rates would be a huge and possibly impossible burden for small online businesses.

Perhaps the best answer is for Congress to step in and use its Commerce Clause power to write rules that either bar sales tax collection for smaller retailers and individuals or at least make the rules uniform across state and local jurisdictions. —TM