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Pros and Cons of Internet Sales Tax

Home » Blog » Pros and Cons of Internet Sales Tax

January 2, 2025 By john

I know what you’re thinking, “how can there be a ‘pro‘ to a tax?” But that’s exactly why the nuances of the internet sales tax might surprise you. Since it’s a state-level tax (not a federal one), there are regional differences and even potential tax trade-offs in other areas. Let’s explore some of the benefits and drawbacks.

Pro: Provides funds for the state

When state governments have a new revenue stream, they’re less likely to make cuts to essential public services. These services—whether related to safety, health, or infrastructure—add real value to your community. By ensuring consistent funding, states can:

  • Maintain or even improve current programs.
  • Avoid raising other taxes to cover budget gaps.

But wait, aren’t you paying more anyway because of the internet sales tax? Not necessarily.

Pro: Prices Don’t Always Go Up

Contrary to popular belief, businesses don’t always pass the tax onto customers by raising prices. Some absorb the cost by reducing their profit margins instead. While this might seem like a loss for the business, it helps customers avoid higher prices and maintains stability in the market.

Con: Hindering Free Market Competition

For many small business owners, this is a big concern. Larger companies with more resources can easily absorb the added costs of a sales tax, while smaller businesses may struggle to stay competitive. This creates a disadvantage for entrepreneurs and small shops, which can feel at odds with the free-market spirit many Americans value.

Con: Increased Administrative Burden

From a business owner’s perspective, the administrative challenges of a new tax can’t be ignored. Tracking, collecting, and remitting the internet sales tax adds complexity to accounting processes.

  • Compliance risks: Failure to account for the tax properly could result in penalties, even if it’s an honest mistake.
  • Staying informed: Tax laws change frequently, and business owners must stay updated to avoid accidental violations.

This makes hiring an experienced accountant or investing in up-to-date tax software more important than ever. While these tools can ease the burden, they also represent an additional expense for small businesses.

The Takeaway

The internet sales tax is a mixed bag. It brings much-needed funding to state programs and doesn’t always result in higher prices, but it also adds complexity for businesses and can create an uneven playing field for smaller players.

Whether you’re a business owner navigating these changes or a consumer wondering how this affects your wallet, understanding both sides of the coin helps make sense of this ever-evolving tax landscape.

Photo by Jadon Kelly on Unsplash

Filed Under: Taxes

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