And that clarification and enforcement is a time bomb waiting to explode. Online businesses fear penalties, back taxes and even criminal sanctions. Instead of fighting a losing battle to avoid all taxation, online businesses need to take the reins and help build an e-commerce tax system that recognizes the strengths and weaknesses of technology. Right or wrong, local governments fear losing revenues to online merchants that sell to their residents, but remit taxes for just one jurisdiction in some other state. The corresponding fear for online merchants, especially midsize and smaller businesses, is that of identifying each customer and dealing with thousands of tax jurisdictions, special charges and exemptions.
Online business is risky enough.
If U.S. online merchants are pushed to collect taxes in this fashion, only big businesses will survive. That's why it's important for online merchants to stop digging in their heels and to work out the details of technology they can live with. Probably the best way to do this is through the nations participating in the Organization for Economic Co-operation and Development. If traditional merchants cry foul, it may be politically necessary to ask online merchants to charge prevailing higher rates in those jurisdictions where the online merchant already has a legal tax presence. Governments should also fund the distribution of standards-based agent software that could communicate with these service bureaus.