Pennsylvania Clarity Adds Wrinkle to Online Sales Tax

Unlike other states that passed big, contentious sales tax bills targeting online retailers, Pennsylvania took a more subtle but no-less misguided route. On Thursday, Secretary of Revenue Dan Meuser announced that certain online retailers will have until February 1, 2012, to become licensed to collect sales tax. The clarification is targeted at online retailers who establish nexus with a physical presence in Pennsylvania.

“There have been many questions about when businesses are required to collect sales tax, and this bulletin spells out the law for remote sellers so they better understand how to comply,” said Revenue Secretary Dan Meuser. “It’s simply a matter of fairness under the existing law, and it’s essential that both e-commerce retailers with nexus and brick-and-mortar stores in Pennsylvania, many of which are small businesses employing thousands of Pennsylvanians with retail jobs, are treated equally.”

According to the bulletin, this announcement doesn’t actually add to Pennsylvania law so much as it reminds people of already existing laws. If companies fail to meet the February 1 deadline, the state has indicated that it will pursue “escalating enforcement options over time, including audit, assessment, lien and/or referral of the case to a collection agency or the Office of Attorney General.” The bulletin also reminds Pennsylvania residents of their obligation to submit “use” taxes for any purchases made online or in other states.

“Our goal with regard to e-commerce and remote sellers is two-fold. On one hand, we’re clarifying nexus and informing retailers with nexus they should begin collecting sales tax. On the other hand we’re providing a clear and simple reporting mechanism for individuals to report and pay use tax annually, when sales tax wasn’t paid,” said Meuser. “The department’s uniform collection and enforcement of sales and use tax is key to fostering fair competition among e-commerce and brick-and-mortar businesses.”

Pennsylvania’s move to get more aggressive with collecting both online sales and use taxes is a reminder that states all around the country are looking for revenue wherever they can. It doesn’t hurt that states also trot out the fairness argument for local businesses to support their case. States seem to oblivious to the fact that, historically, such initiatives in Illinois and Rhode Island have yielded no additional tax revenue. Their actions also hurt local affiliates and bloggers who lose taxable income when merchants sever ties to avoid such tax initiatives. It only deepens the irony that such local “fairness” initiatives are often backed by Walmart and Target as a direct move against Amazon. While there’s a valid argument for streamlining and simplifying sales tax collection (e.g., making it “fair”), it seems unrealistic that a piecemeal approach state-by-state will accomplish such an objective. At the moment, Pennsylvania’s “clarification” seems like just one more move on the sales tax chessboard that leaves the match at a stalemate.

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