Mobile Sales Tax

Mobile shopping on CyberMonday was huge! According to the PayPal data there was a 552 percent increase in global mobile payment volume on Cyber Monday 2011 compared to 2010. The global mobile payment volume also experienced a 154 percent increase over the average Monday throughout the rest of the year, and was 14 percent higher than this year’s Black Friday.

What happened to the sales tax charges for all these purchases? There was none, and therein lies the problem. There’s a fight brewing over the subject of sales taxes, and it’s taking place not only in the halls of Congress, but between online retailers and traditional brick and mortar stores. The introduction of mobile wallets will only help add fuel to the debate.

When the Internet was a nascent industry, it was in the best interest of the government to encourage growth. In so doing, a 1992 Supreme Court ruling prohibited states from collecting sales tax from online merchants unless they had a physical presence in the state. This was fine and dandy until recently when mobile commerce skyrocketed and state debt followed suit. Mobile sales now account for a greater portion of e-commerce, so the line between online and physical sales has become muddied because of the various mobile apps that allow price comparison shopping.

The increase in mobile payments usage may provide an avenue for a proposed national legislation for sales tax to be incurred on goods and services sold through online channels. Last month, S.1832, The Marketplace Fairness Act, was introduced which would authorize states for the first time to require all online retailers to collect sales tax from in-state customers, including in states where they have no physical presence.  Retailers with less than $500,000 in annual sales from customers in states where the retailer has no physical presence would be exempted.  Lawmakers believe the bill could capture some $23 billion in tax revenues for state and local governments from online sales.

This legislation probably won’t go through in its current form because of the complexity involved to implement its proposals on a national scale. However, I do think that the motivation to collect sales tax for online purchases is valid and mobile payments will only help to increase scrutiny.

Technology no longer needs government subsidies in the form of tax holidays to thrive. Besides, if a national sales tax were put into effect it may spawn the growth of a new industry to process and handle tax collection and remittance. While some companies such as eBay have fought against such legislation, it may be a boon to create new technologies to capture sales tax through payment channels.

I’m sure Verizon wouldn’t be so quick to block Google Wallet if it realized that there was a possibility of adding another tax onto an already bloated phone bill.

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