Real-Time Sales Tax Collection Is a Costly Fantasy

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Posted by Doug Kellogg on Friday, May 24th, 2019, 12:40 PM PERMALINK

Government is not thought of as innovative, but when it comes to getting ahold of your hard-earned money, officials can start getting very creative. So creative in fact, that they come up with fantastical policy ideas more fitting for a futuristic dystopia than enactment by state lawmakers.

Connecticut is the latest state to consider such an idea in real-time sales tax collection.

Real-time sales tax collection demands businesses collect sales taxes and remit them to government as transactions happen. This policy is completely divorced from reality, as the way merchants and financial institutions currently process payments does not allow for the instant, detailed calculations real time sales tax collection demands.

Here are a few key reasons why real-time sales tax collection is a really bad policy:

Real-time sales tax collection is a fantasy.

The capability and technology to separate sales tax and remit it directly to government does not exist. Payment processors only get the most basic information needed to approve a sale.

Real-time sales tax collection would impose massive costs.

Demanding real-time sales tax collection means sellers, payment processors, and credit card companies all have to agree upon and create new technology at a massive cost. A study of the impact of such a proposal in Massachusetts estimated costs to be north of $1 billion. That burden would be passed on to consumers. 

Real-time sales tax collection has been rejected multiple times.

Arizona, Missouri, and Massachusetts have examined the concept and given it up. Even a National Conference of State Legislators task force did not recommend it.

Real-time sales tax collection would slow transactions, raise security questions.

There is a web of security measures in place to protect information transmitted in sales transactions, overseen by multiple government agencies. Remitting sales taxes would require more information that would require more security – not to mention waiting for all this to process would be a pain for customers.

The bottom line: this is a misguided policy that will create a tax compliance mess and hurt local businesses and job-creators who are already paying their taxes and complying with the law.

On top of all the negatives, governments would not end up with much additional revenue, if any. Better to leave real-time sales tax in the realm of taxpayers’ futuristic nightmares, and bureaucrats’ wildest dreams.

Photo Credit: Pixabay

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