U.S.: Renewed Push For Internet Sales Taxes

[engine]

U.S.: Renewed Push For Internet Sales Taxes [news.cnet.com]

The halcyon days of tax-free Internet shopping will, if Rep. Bill Delahunt gets his way, soon be coming to an abrupt end.

Delahunt, a Massachusetts Democrat, introduced a bill on Thursday that would rewrite the ground rules for Internet and mail order sales by eliminating the option for many Americans to shop over the Internet without paying state sales taxes.

At the moment, Americans who shop over the Internet from out-of-state vendors usually aren't required to pay sales taxes. Californians buying books from Amazon.com or cameras from Manhattan's B&H Photo, for example, won't be required to cough up the sales taxes that they would if shopping at a local mall.

[akmac]

...

If you can't say anything nice, don't say anything at all...

[ergophobe]

Frankly, it's about time. The current situation is ridiculous. Every state with sales tax requires consumers to report their out of state purchases. The current law shifts that burden from vendors to consumers who, let's face it, never report.

The argument has always been that the vast number of tax districts make it impossible to implement for most merchants (my county has a different sales tax than the county next door, and tax districts don't map to zip codes).

So just say there are 51 tax districts in the US, make merchants collect that tax and stop putting local merchants at a disadvantage and taking money out of the state coffers.

If you want lower taxes, fine. Lobby for lower taxes, not laws that make it easier for people to avoid paying the taxes that are on the books.

Also, the federal government has consistently placed unfunded mandates on state and local governments and, with the current law, have also reduced their ability to generate revenue. It's unsustainable and many states, counties and municipalities are facing bankruptcy.

And that's my three cents (that's two cents plus tax in case you're wondering).

[dpd1]

If they insist on doing it, they should at least make it uniform. However... I'm going to take a wild guess and predict that this, like every other tax addition and/or hike in the history of the country, will not bring any relief to the poor teachers and emergency response workers, which the government always loves using to justify tax increases.

But I love how in all these types of articles, the media always makes a comment referring to the "double dip recession". They just love bringing that up every chance they get.. It's like they actually want it to happen. What a bunch of narcissistic losers.

[Maximus1000]

I am currently in California, and I I have to charge sales tax to residents of California which comprises almost 30-40% of my sales, and which is probably true for most businesses in my field. I think if they pass this bill it will be a good thing for me and probably other ecommerce businesses in California. We have had customers who have told us that they dont want to buy from us because we are charging them sales tax. If this is applied everywhere I personally think it will be a good thing, as people who shop online will continue to do so (at least in my area of what I sell)

[LifeinAsia]

So just say there are 51 tax districts in the US, make merchants collect that tax and stop putting local merchants at a disadvantage and taking money out of the state coffers.

Well, we all know that there are far more than 51 tax districts (probably at least 51 just for California!). To be properly implemented, EVERY online merchant needs to have an up-to-date database of all the various tax rates. Then they need to have a system that maps every single mailing address to one of those tax districts. Then the merchant has to track how much money is owed to every single tax district. Then the merchant has to submit payments to each of the tax districts (where money is owed). Do they all require quarterly payments? What if some demand monthly payments? What is some only want annual payments? How is a 1- or 2-man shop supposed to cope will this reporting and payment burden?

OK, so it sounds like I'm arguing in favor on an Internet tax. I'm not sure that I am, since I don't see how it alleviates the "problem" of tax money being "stolen" from states.

If I, as a California resident, buy something from Arizona, why should California get to collect any taxes on the transaction? (I'm asking from an ethical/realistic perspective, not a legal one- I am well aware of my legal obligation to pay a California use tax on it.) For whatever reason, the business from whom I am buying decided to locate in Arizona. It may be that they decided to locate in Arizona instead of California precisely because of an anti-business climate in California. Losing out on the sales tax revenue because of that is EXACTLY the type of punishment that California (or any state) deserves for having a poor business climate.

[akmac]

A bald faced money grab masquerading as pro business.

Perhaps Rep. Delahunt can explain how 23 billion in new taxes and additional layers of complexity and compliance are going to benefit businesses?

`Main Street Fairness Act'? Oh, please.

Last time I checked, any business in the US is allowed to compete online. That's as close to fair as anyone can reasonably expect.

States facing severe budget shortfalls need to concentrate on how to ENCOURAGE productive business, and anyone telling you that this bill is designed with THAT goal in mind is blowing smoke.

[rogerd]

It would certainly create a burden for startup firms who would have to send money to 50 states. Making rates uniform within each state and providing a clearinghouse entity where one report and one check could be sent would help a lot.

Overall, though, it removes another way for citizens to vote with their behavior. Right now, if they think the sales tax in their jurisdiction is too high, they can shop in another area either by physically going there or by shopping online. Any motivation for states to hold down sales tax rates would be removed if this law passes.

Shipping costs are already a disincentive to purchasing online. (Those costs are there, whether explicit or built into the price.) I would expect that states with very low sales taxes (if any remain) have less of a problem with people bypassing local merchants.

[incrediBILL]

The feds should just keep their fingers out of this.

AFAIK, there are no sales taxes in Alaska, Delaware, Montana, New Hampshire and Oregon in the first place so buying something from those states was never a taxable issue, why should those states be punished?

Shipping costs are already a disincentive to purchasing online.

Not if you you use Amazon Prime, we buy a lot from Amazon because of the annual flat rate shipping.

Likewise, I buy shoes from Zappos or Shoes.com, free shipping! Not only that, I really can't buy wide shoes locally so it's a win-win, no driving around town looking for that 2E width rarely stocked.

Also, need some jeans or a polo shirt? Walmart will ship that item for a mere $0.97 to your door.

You just have to know where and when to shop online and it can be a serious bargain and saves gas running around town to boot.

The government should learn to stop throwing away the trillions they already spend instead of trying to grab more and we'll all be better off.

[digitalv]

If a state wants to change their laws to require businesses selling in their state to collect sales tax from all customers regardless of the shipping destination, they can do that already.

The argument that a state is somehow "missing out" on tax revenue due to online sales is disingenuous. They can change that immediately if they want to. No reason for the federal government to be involved here.

[arieng]

Everyone is already putting additional tax info messaging on their invoices to Colorado, right?

[webmasterworld.com...]

[physics]

This is fine with me - so long as we switch to a sales-tax-only system and stop paying income taxes :p

[ergophobe]

Any motivation for states to hold down sales tax rates would be removed if this law passes

There is still a motivation. It's called an election. In California, though, voters consistently pass referenda to cut taxes and increase services. That, however, is a separate conversation.

Indeed, the entire conversation about "raising taxes" is a red herring. This is about the reporting burdens on internet merchants, as LifeInAsia and rogerd point out. It does not change the amount of tax you owe as a citizen.

What this conversation is about is figuring out how to get citizens to observe existing tax law. The current law is the equivalent of saying there's a speed limit in California, but if you have out of state plates and get pulled over, the cops do nothing except tell you nicely that you're legally bound to report yourself when you get home. Yeah, right.

If you don't believe in sales tax, feel free to move to a state that doesn't have one or vote for politicians who will repeal it.

What irks me is a tax system that functions (sort of) by providing loopholes and ways to avoid tax, legally or not.

Now go check your email for a You're fired letter from the various affiliate programs

This law will achieve the exact opposite. Right now, the merchants fire affiliates because of the physical presence test. If sales tax is due based on customer location rather than affiliate location, this is good for affiliates.

[Bluesplinter]

It'd save me the trouble of filling out that section of my tax forms -- and yes, I do report every online purchase. It's just a paperwork headache I could do without.

[robho]

The European Union faced a similar problem, with VAT, as each country has multiple different tax rates with widely varying rules.

The solution already used there is to charge electronic and mail order sales to consumers within the European Union the rate of the VAT (sales tax) of the SELLER'S location. Sales outside of the EU are exempt from tax (helps exports), as are certain cross-border business-to-business sales.

This is a pro-business solution - e-businesses will locate to where the rates are lower (Ireland and Luxembourg for example). Those places get the benefit of the sales (and the jobs), when a consumer in a high-tax place decides to shop with them. Encourages lowering of tax rates to get inward investment.

The retailer doesn't need to know the tax laws of every little place (for example Mount Athos doesn't charge VAT), just their own.

[motorhaven]

It'll do what raising taxes usually does: pushes businesses to locations where the tax (and paperwork) burden is lower. I could easily see many new Internet shops starting up in Mexico to service US based customers.

[cabowabo]

The real question here is why is there always a big push to get internet sales tax but no discussion on mail/phone order sales tax? Why is only one discussed and never the other? Corruption maybe? The last numbers I saw were that phone orders still trumped Internet sales. Still true?

[lgn1]

I have watch this go on for overy 10 years now. Nothing ever comes out of it, because it is impossible to get every state to work towards a common goal, rather than push their own interest.

Yes Virginia, there will always be tax free internet shopping.

[LifeinAsia]

Yes Virginia, there will always be tax free internet shopping.

There isn't now, unless you live in a state without sales/use taxes.

The tax may not be charged directly, but it is still owed if you live in most (all?) state with sales/use taxes.

[ergophobe]

why is there always a big push to get internet sales tax but no discussion on mail/phone order sales tax?

There isn't. The draft bill states

(1) States should be encouraged to simplify their sales and use tax systems.

(2) As a matter of economic policy and basic fairness, similar sales transactions should be treated equally, without regard to the manner in which sales are transacted, whether in person, through the mail, over the telephone, on the Internet, or by other means.

(3) Congress may facilitate such equal taxation consistent with the United States Supreme Court's decision in Quill Corp. v. North Dakota.

(4)States that voluntarily and adequately simplify their tax systems should be authorized to correct the present inequities in taxation through requiring sellers to collect taxes on sales of goods or services delivered in-state, without regard to the location of the seller.

(5) The States have experience, expertise, and a vital interest in the collection of sales and use taxes, and thus should take the lead in developing and implementing sales and use tax collection systems that are fair, efficient, and non-discriminatory in their application and that will simplify the process for both sellers and buyers.

(6) Online consumer privacy is of paramount importance to the growth of electronic commerce and must be protected.

src: [thomas.loc.gov...]

Section 4.a.1

Each Member State under the Streamlined Sales and Use Tax Agreement is authorized, subject to the requirements of this section, to require all sellers not qualifying for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to that Member State under the Agreement.

Section 4.a.2.B.iii

The following necessary operational aspects of the Agreement have been implemented by the Governing Board... Implementation of an online multistate registration system.

Section 4.a.2.C

Each Member State has met the requirements to provide and maintain the databases and the taxability matrix

Section 7: Minimum Simplification Requirements

(1) A centralized, one-stop, multistate registration system that a seller may elect to use
(2) Uniform definitions of products and product-based exemptions

Clearly there's still 99% of the detail missing and coming into compliance will be an issue, but please quit attributing to the legislation things that aren't even on the table, like treating phone and online sales differently.

You have a few choices
1. let states collect that taxes they are legally owed
2. let states make this up by higher taxes on stuff you buy retail, income and other means
3. let states cut services
4. let states go bankrupt

We probably need some combination of #1-#3, but if this conversation is any indication, we're going to get #4.

If your vote is for #3 only, as seems to be the case here, forget it. First, it won't pass muster at election time (probably). Second, and beyond anyone's control at this point, California is in the mess it's in no small part because the legislature has so little control over spending because of all the things that voters have mandated in referenda. Many of these costs are on 40-year bond issues and they cannot go away without the state declaring bankruptcy and defaulting on its debt.

On the state and local level, voters, egged on by unfunded mandates from the Feds, not politicians, have made this mess.

If you're going to let states collect tax legally owed, the alternative to the proposed legislation is allowing states incredible invasions to your privacy so that they can track your out-of-state purchases and hold you accountable at tax time in accordance with the law.

In theory, by the way, if you were audited by your state tax board, you would owe taxes on all your purchases made online, which should be easily obtainable using your credit card receipts. California Tax Board publication 112 clearly states this and gives the following scenario:

You buy a backpacking tent over the Internet from a company in Wyoming. The seller ships the tent to your home and does not charge you California tax. You owe use tax as soon as you use or store the tent in California.

This is not about a new tax on consumers, it's about enforcing compliance with existing tax law

I respect people here like rogerd and LifeInAsia who worry about the bcompliance burden placed on merchants. That's a serious and legitimate concern. I don't want to minimize that and I certainly think a long phase-in period has to be part of this or some other mechanism entirely has to be thought up. But what's the other mechanism?

That's current law, like it or change it.

[freejung]

The feds should just keep their fingers out of this.

You would prefer that every state make separate, different laws to deal with this (as Colorado just did), and you have to keep up with them all individually?

I agree that for this to be practical for small merchants, some sort of central clearing-house will need to be implemented.

[Trucker]

@ergophobe - I believe existing law is actually that online sellers are not required to collect sales taxes unless they have a presence in a state. This would be a NEW tax law.

Oh, and I like 3 and 4. The state I'm in is near bankruptcy now, and the libs are still trying to figure out how to tax more and spend even more. Go figure. I say let Rome burn. It's the only way the crooks in the state house will learn.

[ergophobe]

@ergophobe - I believe existing law is actually that online sellers are not required to collect sales taxes unless they have a presence in a state.

That is correct. The current law is that online sellers do not have to collect tax, but by law consumers have to pay tax. If you are making online purchases and you live in California (to cite the example I gave earlier) you must pay taxes on all online purchases or be in violation of the law.

So it is not a new tax, it's a new collection method. There's a difference. The tax liability to citizens does not change.

What this does is shift a real and considerable reporting burden to online merchants, which is not to be done lightly, but it does not change the taxes you as a consumer owe.

[lorax]

That depends upon how you define liability ergophobe. The current US tax law is a huge PITA and with the Gov's attempts to slice of a piece of the revenues for themselves, they're attempting to add on a huge level of complexity to the mix. It's unclear to me (at least) how the taxes will actually be collected but the Gov is making it clear they want their share. Plan for big changes in the next few years - especially if the administration changes hands.

[ergophobe]

lorax - which gov?

Again, many many details missing from the draft, but are the Feds taking a cut? I don't see a provision for that.

>>huge level of complexity

Indeed and as I say, that's a totally legitimate concern. The US tax system is impossible and ridiculous. I've known a household with two PhDs who couldn't figure out the most basic tax questions ;-)

But it terms of tax liability as a consumer, you currently owe taxes on out of state purchases (at least in CA). You probably don't pay them, but you owe them.

To me, the current law is just another way of making an utterly broken tax system function (I use the term loosely) by simply not enforcing current tax law.

[akmac]

Ergophobe-two questions:

1. Do you think that the unenforceable nature of existing interstate tax law is by design, flaw, or other?

2. Do you think this legislation (if passed) would help or hinder the US economy in general?

[rogerd]

Akmac, the taxation of purchases has been left to the states. It's the individual state laws which are essentially unenforceable since they have no access to purchase data without the help of out-of-state merchants.

Most states with sales taxes DO manage to capture those taxes on cars purchased out of state because of the license registration process. It's a lot tougher for a pair of shoes.

IncrediBill, I'd agree that shipping deals abound, but the fact that Amazon and Overstock can offer competitive prices with modest shipping fees is in part because of their highly efficient operations that let them absorb some of what UPS charges in their selling price.

[Sgt_Kickaxe]

Of course this will cost buyers more, a politician is pushing for it!

[akmac]

Rogerd- The point I guess I failed to make is that the laws are unenforceable by flaw, but left unenforceable by design. The (admittedly oversimplified) explanation for this is that the WWW defies traditional marketplace conventions, and any entity (state or federal)attempting to implement a sales tax is effectively jumping out the starting gate in a race to see who can become the least competitive.

Race to the bottom!

[ergophobe]

akmac - those are two fantastic questions. I would say I'm not qualified to answer, but since you merely asked what I think, I think you absolutely nailed it here:

laws are unenforceable by flaw, but left unenforceable by design

The problem is, design by whom? Typically it's some interest group gunning for a loophole. We see this with the mortgage tax deduction. Liberal and conservative economists as well as a Bush task force have all said it's bad policy and doesn't promote middle class home ownership (as a mortgage tax credit would). Study after study shows that the benefit accrues to two groups: realtors and bankers. Guess who lobbies every time it comes up for discussion?

So yes, unenforceable by design, but typically because it's hard for politicians to outright give money to their big donors, but it's easy to create shadow subsidies of this sort for them without blowback.

who can become the least competitive

Again, I think that totally hits the nail on the head.

That's why I think we need a national solution and it needs to be based on consumer location, not retailer location (or stupidest of all options: affiliate location), otherwise all mail-order businesses will start to relocate to New Hampshire which, as you say, will lead to a race to the bottom as other states try to compete for that business.

These locally-based "economic stimulation" packages have benefited a few private companies at the expense of existing local merchants and local residents (see David Cay Johnston, Free Lunch, on how Cabela's and such have exploited this). Localities get held hostage by the threat to move next door and these subsidies to Cabela's and Wal-Mart have just had a rapacious effect on local economies. In every case that Johnston could find, they cost more in tax breaks than they return in benefits.

So in short, you're right - it's important that whatever legislation gets enacted not encourage a race to the bottom.