The Pennsylvania online sales tax is not just a big headache for retailers. Online shoppers are starting to feel the annoyance, too. When a Pennsylvania customer tried to purchase a shirt from Arhausjewels.com, a $6.79 sales tax was added to the order. But in Pennsylvania, clothing is not taxed. When the customer called the company to point out the error, the sales representative refused to remove the improperly applied sales tax, insisting that it was correct.
Companies that do business in multiple states must comply with varying state sales tax laws—a compliance nightmare especially for small businesses without teams of corporate lawyers. And that’s where errors occur, like charging a Pennsylvania customer sales tax on clothing when none should be applied. The Pennsylvania Department of Revenue promised higher enforcement of sales tax laws, prompting more online retailers to collect sales taxes even if they might not apply (better safe than sorry), leaving some customers on the hook for taxes they don’t lawfully owe.
PA Department of Revenue spokeswoman Elizabeth Brassell said that when online retailers charge tax on a non-taxable item, the revenue likely ends up in Pennsylvania’s pocket, not the company’s. New online sales tax revenues added $70 million to government coffers. Despite the fact that much of that money could have been collected unlawfully, Pennsylvania is sitting pretty with the new funds and is in no hurry to change the sales tax laws.
Proponents of “Marketplace Fairness” type legislation say that companies doing business in multiple states should be compelled to use government sponsored software to calculate what customers owe in sales tax. But the software is complex and costly to integrate, not to mention the subsequent government audits and potential fines levied for integration errors. Compliance costs for online retailers would soar under the software “solution,” threatening the livelihood of businesses big and small.
Forcing online businesses to take on burdensome compliance costs, especially in a lagging economy, is no real solution. It’s just another scheme to cover up a symptom of the real disease. Instead of forcing out-of-state retailers to collect its sales tax (which hurts business and consumers alike), Pennsylvania should consider lowering taxes on all business to entice companies to set up shop in PA. Pennsylvania would be more competitive among other states and could raise tax revenue from the economic growth, not its current shady practices.