by Gordon Gray
American Action Forum
July 02, 2014
The challenge of collecting taxes due on online interstate commercial activity has strained state revenue services. At present, online retailers are not required to collect sales taxes on out-of-state sales. This does not eliminate the tax liability on a given transaction, but rather poses a major challenge to the collection of tax owed under state and local law. Current law requires that states provide the necessary software to calculate the due tax for the appropriate jurisdiction. Underpinning this method of taxation is the concept of destination sourcing, which places the tax burden on the consumer. This forces each subject business to comply with sales tax requirements in each state and jurisdiction in which it has customers. An alternative approach is to identify the tax burden with the physical location of the business making the sale. Called “origin-based” taxation, it entails greater simplicity, but not without some drawbacks.

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