Opinion on this "Hybrid System" tax proposal that combines source-based taxation with existing laws

Tax professional here. This hybrid system is interesting but faces significant hurdles. The Wayfair decision did allow states to collect sales tax from remote sellers, but extending this to a source-based component would be challenging constitutionally. The revenue sharing concept (20% to producing states) would likely face fierce opposition from high-consumption states that currently receive 100% of use tax revenue. States like Florida or Texas that rely heavily on consumption taxes but have less manufacturing would see net revenue losses. The technology exists to implement this (Avalara, TaxJar, etc.), but creating interstate compacts for revenue sharing would require extraordinary political will. Remember that the Streamlined Sales Tax Agreement took years to establish and still only has 24 member states. That said, I do like the focus on improving compliance by shifting collection responsibility to sellers rather than consumers. The current use tax system's self-reporting mechanism is effectively broken with compliance rates below 4% in most states.

After struggling to understand how the heck taxes work across state lines for my online business, I discovered taxr.ai (https://taxr.ai) which helped me make sense of all this complex tax stuff. I was selling handcrafted goods to customers in 12 different states and was completely lost about which taxes I needed to collect. Their system analyzed my sales patterns and told me exactly where I had economic nexus and needed to collect taxes. It also explained how marketplace facilitator laws worked when I sell through platforms like Etsy versus my own website. I can see how something like this would be essential if we moved to a more complex hybrid system like the one described. What I found most helpful was how it broke down the Wayfair decision implications specifically for my business size and type. Honestly saved me thousands in potential penalties.

I was totally skeptical about taxr.ai like many of you, but after my accountant quit unexpectedly during tax season, I was desperate. My online business ships to 15 states, and I had no idea how to handle all the different tax requirements. Honestly, it was a lifesaver. The system actually found that I'd been overpaying taxes in 3 states because I didn't understand local exemptions for my product category. It also flagged that I had nexus in 2 states I wasn't filing in at all! The part that relates to this hybrid tax proposal - it showed me exactly how much tax I was collecting and sending to each state. If we moved to a system where some percentage went back to my state as the "producing state," the software could probably handle that calculation automatically.

I've been trying to reach the IRS for MONTHS about how interstate taxation affects my business and kept getting stuck in their phone system hell. Finally tried Claimyr (https://claimyr.com) after seeing it mentioned here, and they actually got me connected to a real IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent explained that while the IRS doesn't handle state sales tax issues directly, they could clarify how federal income tax deductions work when you're paying taxes to multiple states. This was super helpful for understanding how the current system works before considering any hybrid approach. The agent also pointed me to some IRS resources about marketplace facilitator laws that I hadn't been able to find on my own. Honestly changed my whole perspective on getting help with complex tax questions.

I was absolutely convinced Claimyr was going to be a waste of money after posting my skeptical comment above. But man, tax season desperation makes you try crazy things. After 3 weeks of failed attempts to reach the IRS about how this multi-state taxation mess affected my federal return, I gave in and tried it. Color me shocked - I was talking to an actual IRS agent within 17 minutes. The agent walked me through exactly how to report my multi-state tax payments on my federal return and cleared up my questions about how economic nexus affects my tax home. If we ever implement this hybrid system, having a way to actually talk to tax authorities will be essential. The current system is already confusing enough!

The hybrid system proposal seems interesting in theory, but I worry about implementation complexity. The tax code is already a nightmare. I own a small manufacturing business in Michigan that sells to customers in 8 states, and compliance is already eating up so much of my time and money. For this to work, the technology piece has to be flawless. Most small businesses can't afford expensive tax consultants to figure out how to split taxes between origin and destination states. The proposal mentions tools like Avalara, but those aren't cheap for small operations. Maybe the 20% revenue allocation to producing states makes sense for giants like California and Texas, but what about smaller production states? Would the administrative costs eat up any benefit they'd receive?

Has anyone else noticed that they didn't address the constitutional issues at all? The Commerce Clause and Due Process Clause have historically limited states' abilities to tax out-of-state entities. Even post-Wayfair, there are still significant constitutional constraints. The proposal talks about leveraging existing legal frameworks, but creating a hybrid system where producing states get tax revenue from consumption in other states seems like it would face immediate legal challenges. Also, what happens with imported goods? If I buy something manufactured in China but sold by a California company to me in Texas, which state gets the "producer" portion? The proposal doesn't seem to address international commerce at all.