Ari Armstrong, Business/Economy, Coronavirus, Exclusives, Featured, Taxes, Uncategorized

Armstrong: Sales tax rules harm business, undermine COVID effort

Wiggy’s, a western Colorado producer of sleeping bags and other outdoor and military gear (the owner of which is a personal acquaintance), now sells a “Virus Protection Face Mask.” There’s just one problem: Due to Colorado’s insane sales-tax rules, Wiggy’s cannot practically ship its products to people in Colorado. If you live anywhere else in the world, great: Wiggy’s will ship to you. But not in Colorado. Last year the company announced, “Effective June 1, 2019 Wiggy’s will not accept any on line orders from residents of the state of Colorado because of the new tax laws.”

The problem is that businesses that sell goods outside of their local tax zones are supposed to collect and remit sales taxes for all the overlapping local, county, and other regional tax zones to which they ship or deliver. The organization Simplify Colorado Sales Tax, which has been pushing for reform, says, “Colorado businesses face 756 specific geographic areas with different sales tax structures, making the calculation and collection an onerous burden.” Complying with this is a paperwork nightmare, which is why some businesses simply stopped shipping within the state.

These anti-business sales tax rules are outrageously stupid in normal times. In the middle of a global pandemic, they put people’s health and lives in danger. By actively discouraging businesses to ship or deliver goods, these rules encourage shoppers to crowd into stores or at least to drive more, which means more trips to gas stations where people spread germs through touched surfaces. In this way, state policy actively undermines the social distancing that Governor Jared Polis says is necessary to slow the spread of COVID-19.

It’s not just Wiggy’s. I saw a receipt from a Denver manufacturer announcing that, “due to changes in State of Colorado sales tax law,” the company “will no longer deliver material to job locations outside the City of Denver, unless the job is either re-sale or exempt.” A brewery near my house now can deliver canned beer—this is one emergency provision that should be made permanent—but the brewery initially would not deliver to my house because doing so crosses city and county lines and so involves extra sales-tax hassles.

A couple of years ago Jake Jabs of American Furniture Warehouse described the enormous hassles associated with paying separate sales taxes to every home-rule city and taxing entity across the state. “It’s a lot of work on the retailer’s part,” he noted. And compliance can be treacherous. “We have a room just for auditors” to come in from different cities and examine the company’s books, he said. “The loss of productivity, it’s bad for business,” he noted. At least Jabs’s company is large enough to handle the hit. Some companies just give up and stop shipping or delivering or never consider it in the first place.

I’d love to see Polis declare, as an emergency measure, an end to this cross-jurisdictional taxing nightmare, at least for smaller companies. I suspect that cities, with their insatiable greed for sales tax revenues, would apply their full lobbying pressure to stop this from happening. I hope I’m wrong. After all, people’s health, lives, and livelihoods are at stake. Of course this one measure would help only a little, but in these dire times every little bit counts. You’d think that if Polis can shut down entire industries for weeks on end, he could at least lift these sales tax burdens from the shoulders of business owners.

Longer term, this problem needs a permanent solution. The legislature’s approach to the problem is to eventually make it easier for businesses to calculate and pay the many sales taxes. Ultimately, the goal is to have a single web “portal” that registers and tallies all the sales tax proceeds and lets a business pay a unified bill. Then the state would sort out the funds and send proceeds to the many taxing authorities. Part of the problem is that this needs cooperation of home-rule cities to work. This seems to be the best possible approach within the confines of existing tax law. But that system is not set up yet.

Last year the legislature passed Senate Bill 19-006 to set up the “electronic sales and use tax simplification system.” The state also put in a “small retailer threshold” such that a business with less than $100,000 in retail sales is exempt from the cross-jurisdictional compliance burdens. This exemption is temporary until the information system comes online, a representative of the Department of Revenue explained to me. I do appreciate the legislature’s efforts to make the sales tax compliance burdens less oppressive for businesses.

The legislature’s approach still leaves substantial compliance costs, it just shifts some of those costs onto the state while leaving a still-complicated process in place for businesses. Sales taxes have become a tangled mess nationally. I personally think the institution of sales and use taxes was a gigantic mistake from the outset. I’d rather eliminate them altogether, even if other sorts of taxes were increased to make up the difference. Sales taxes basically force businesses to act as tax collectors for government, which is morally offensive and which undermines trade. But I recognize I’m not working within Overton’s Window here. So we should applaud efforts to make the current system less damaging.

I don’t need to remind anyone that many businesses have been devastated during this global pandemic. Relieving Colorado businesses from tax compliance costs while encouraging deliveries would be one small step toward recovery.

Ari Armstrong writes regularly for Complete Colorado and is the author of books about Ayn Rand, Harry Potter, and classical liberalism.  He can be reached at ari at ariarmstrong dot com.


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