Much of what can be seen at the Consumer Electronics Show, or at least that which is most hyped, is wearable computing, though televisions of various sizes and clarity still fill the largest booths. Some of these wearable devices are already well known, such as Google Glass or watches that connect to the Internet. Accenture recently conducted a poll and found that the public is broadly interested in wearable technology, with 46 percent interested in smart watches and 42 percent interested in Internet-connected eyeglasses.
But that’s just the tip of the iceberg. For example, a recent BusinessWeek article discussed the creation of shoes that can guide the wearer to their destination, or helmets that can send alerts and the location of the wearer to police in the case of a motorcycle or biking accident. In addition, there is already a wide variety of wearable health-and-fitness monitoring devices in the marketplace, not to mention the debut of children’s pajamas that will tell the kid a bedtime story.
So what does this newest round of technology application have to do with tax? Plenty.
For the last decade or more local, state and federal tax structures have groaned under the stress of an increasingly mobile society. Just to take one example, several big retail businesses are pushing legislation (to the detriment of small businesses) that would force the merchant collection of sales tax across state lines, and would place non-residents under the tax audit thumb of remote governments.
The idea is contrary to the U.S. Constitution because states never have had the power to tax and audit out-of-state residents. In fact, it was this very action of looting across the state lines, taxing without representation, which led to the need for something better—the Constitution’s Commerce Clause, which was meant to stop overly aggressive states from interfering with interstate commerce.
Especially with our increasingly mobile society, state lines are becoming even less relevant to how we live and transact business. As we wear “always on” clothing or accessories while moving about through some 7,600 tax jurisdictions in the U.S., century-old tax processes will increasingly become a barrier to activity, much as the legislation to allow extra-jurisdictional taxation will do.
Of course, taxes are necessary for government, so what should be done? The answer is easy even if the solution is complicated.
Policy makers and tax collectors alike are at least a decade late in devising tax systems that are suited to our new economy and the digital age. Instead, most have wasted time trying to cram new innovations into old tax schemes or reimagined definitions of taxable items and events that were never contemplated so that they could now be taxed.
The result is a tax mess most often driven by tax authorities with the desire for greater revenue rather than an efficient, sensible approach to raising state revenue.
Thoughtful tax reform is needed around the country and it is time to do the hard work to get it done.