North Carolina’s sales tax just dropped 1% because the legislature allowed a 1% temporary surcharge to expire as of this morning. The tax rate in Forsyth County, where we live, and most of North Carolina’s other 99 counties dropped from 7.75% to 6.75%. I just updated my PayPal profile to reflect that change. People who order our chemistry kits for delivery to North Carolina addresses now pay about $1.50 less in sales tax.
I got to wondering why we have a sales tax at all, and, if we must, why that sales tax is considered to be due from the buyer rather than the seller. (As a business, we’re responsible for collecting the sales tax and forwarding it to the state, but it’s the buyer who’s considered to be paying the tax.)
As things stand, if someone from North Carolina orders one of our kits for $150, we have to collect that $150 plus 6.75% sales tax, for a total of $160.13. Of that total, we send North Carolina the $10.13 sales tax. Nor are we paid for collecting and forwarding that sales tax, which seems inequitable.
I have a brilliantly simple revenue-neutral proposal that would address the problem states have with collecting sales tax from out-of-state vendors on sales to state residents, and would not fall afoul of Constitutional interstate commerce provisions. Abolish the sales tax and the use tax entirely. Replace them with a simple tax on gross revenue on any business within the state.
As things stand now, if someone orders one of our chemistry kits for delivery to an address outside North Carolina, we collect $150, North Carolina collects nothing, and the state where the kit is delivered (probably) collects nothing. If someone orders a kit for delivery to a North Carolina address, we collect $160.13, and North Carolina collects $10.13.
Under my proposal, anyone who ordered one of our kits would pay $160.13 and the state of North Carolina would collect a revenue tax at about 6.32% of $10.13 on every kit we sold, regardless of delivery address. Conversely, when a North Carolina resident ordered something from an out-of-state vendor, North Carolina would collect nothing, nor would they be entitled to do so.
If every state implemented such a tax, which they soon would, it would be each state’s businesses that were paying rather than each state’s consumers. When anyone from any state ordered product from us, they’d be supporting North Carolina government services, just as when I ordered anything from any of the other 49 states, I’d be supporting that state’s government services. Everyone would pay the same regardless of where they lived or where the company they ordered from happened to be.
Tax collection would be dramatically simplified, both for retailers and the government. And there would be no Constitutional complications, because each state would simply be taxing the gross revenues of businesses that operated within that state. States would be motivated to keep that revenue tax rate as low as possible, to keep businesses in their states competitive with those in other states, and would also be motivated to make their states as business-friendly as possible to encourage the growth of businesses that would get them “free money” from customers in other states.