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Author Topic: Republican senators push for Internet sales taxes
JWatts
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It's past time this tax loop hole was closed. As nice as it is to not pay the taxes, it's having a significant negative effect on state tax revenues and it's fundamentally unfair to the businesses that have to collect sales taxes.

quote:

CNET has learned that two Republican senators are preparing to introduce new legislation that would allow states to force Amazon.com and other out-of-state online retailers to collect sales taxes.

Mike Enzi of Wyoming and Lamar Alexander of Tennessee are currently putting the final touches on their bill, which is backed by Wal-Mart Stores, Best Buy, Home Depot, and other companies that are currently required to collect sales taxes.
...
The justification for the measure is a reprise of arguments that state tax collectors have made for at least a decade: they claim that Amazon.com, Overstock.com, Blue Nile, and other online retailers that don't collect always collect taxes are unreasonably depriving states of revenue, and that they enjoy an unfair competitive advantage over local retailers that must collect taxes.

CNet
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Pyrtolin
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Sales taxes are only second to head taxes in how regressive they are, but yeah- if they're going to be implemented, they should be consistently applied, and not used to give selective advantages as well.
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Wayward Son
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We'll have to see if they get away with it. [Smile]

I expect that Norquist will condemn it as a tax hike, as he did when Arkansas required on-line retailers to collect their sales tax back in March:

quote:
The proposed change faces heavy opposition from Americans for Tax Reform. Grover Norquist, president of the anti-tax group, told lawmakers in a letter dated Wednesday that the change would harm businesses more than level the playing field. In the letter, Norquist said as many as 1,800 online affiliates could lose business if Amazon and other retailers severed the contracts in response.

If no online retailers sever their ties with affiliates, the proposal would amount to a net tax increase, Norquist warned.

Both Enzi and Alexander signed Norquist's tax pledge. So there may be two more RINOs added to the Senate roster in the next few weeks. [Wink]
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Dave at Work
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Just a little stream of consciousness on the subject.

Ideally, if a sales/use tax is to be collected for a product it should be collected in a consistent manner regardless of point of sale. So either everyone should pay it to the retailer who should remit it in the proper manner, or everyone should pay it directly to the state / county / city themselves without involving the retailer. Obviously in the latter case we are looking at an honor system which is going to be inconsistently reliable at best. The former is easier for a retailer selling at a physical location to comply with than for an online retailer or catalog retailer due to the sheer number of tax authorities involved.

If I owned a retail store which made all of its sales face to face with customers that walked into the store and walked out with their products, it would be easy for me to calculate the correct tax to collect and to deliver it on time to the correct agency, because I would only have to learn the tax requirements for the products that I am selling for my state, county and city. If I create an online store selling exactly what the physical store sells to anyone that visits my electronic shop and shipping the products all over the country and possibly all over the world, I would have to find, for each product, the correct tax to charge for the location of my customer. Again that tax would probably be an aggregate of state, county, and city authorities tax rates and each of those might be different for different classes of products. The retailer with the physical presence can calculate this just once for each product, until a tax rate changes, but an electronic retailer has to do it for each product he sells for each location he sells it to. As things have stood, the ground is slanted against the physical retailer, but with proposed changes things slant against the electronic retailer.

I see an opportunity for a business or businesses to put together a database product which they would would have to keep up to date. This product would have to take the delivery address or billing address as appropriate and the type of product and determine which taxing authorities can charge a tax, what that tax is, what different rates apply to different product classes, and so on and so forth with the result being a custom calculation of the sales/use tax for the given basket of products for the given location, as well as where and when such tax needs to be remitted. After all, if I remit sales tax intended for Honolulu Hawaii to the State of Illinois, do you really think that Hawaii will ever see a penny of that tax? If electronic retailers could subscribe to a service like I just described and the cost was reasonable it would make the collection of sales/use taxes a simple job for everyone and there would be no reason for all this debate.

So why hasn't Amazon or Google or IBM or anybody for that matter created such a product? For all I know, maybe they have. If they haven't, why not? Are there legal issues that I haven't thought of? Liability issues? It seems to me that this is a problem with an obvious solution.

An interesting question just popped into my head on the subject. Were I an online retailer, physically located in one state and a customer from a different state purchased something from me, who exactly is owed what in terms of sales/use taxes? For example, If I cross the boarder into a neighboring state to buy a car, boat or other big ticket item, I would pay the sales tax at that location, but if I recall correctly, I would have to pay the difference between the sales tax I paid there and the sales tax where I live and plan to use the big ticket item to my local taxing authorities as a use tax. Is this part of the complexity online retailers don't want to deal with? Would they have to look up the tax at the destination and their own local tax plug them into some complex formula and pay part of it to one place and part to another? I'm sure there are other issues as well. In any case I'm sure that someone could make a lot of money providing a clearing house of data, and possibly even remitting services to make things easier on the online retailer.

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Pyrtolin
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There are already some services along those lines that tie into most of the major shopping carts for retailers that do have to manage sales tax for online business.

http://www.zip2tax.com/

I found that one on a quick search.

There's also this:
http://www.streamlinedsalestax.org/
Which is also working to try to encourage a bit more standardization of sales taxes to make it easier to manage them.

The logic of the Quill case that allowed catalog companies to bypass sales taxes is really starting to break down- I wouldn't be surprised if it got overturned without the need for a new law if a case about it was pressed strongly enough.

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Pyrtolin
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For the second part- on most big ticket items, neighboring states tend to hammer out taxing agreements between them that set the rules for how to work out who gets what portion of the taxes. It can get a bit messy, but I think most of the mechanism is handled on the administrative side by the states themselves, and the retailers don't have to worry about it.

(Example: if you buy a car in the next state and it has a lower sales tax, often yo're just responsible for the difference in sales taxes in your own state, and that's charge when you file for your vehicle registration.)

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JWatts
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Pyr, is right that there are several different software packages that can calculate the right amounts. The calculation's are trivial.

It's more complex to get the money to the right location. Every on-line retailer can't easily mail out a check to 10,000 counties every week. Part of the legislation deals with simplifying the payment process.

[ November 02, 2011, 06:26 PM: Message edited by: JWatts ]

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Dave at Work
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Since there are services along those lines, I think we should move toward requiring electronic retailers to collect sales/use taxes just like operators of physical stores already do.

Yes with big ticket items there are existing mechanisms for dealing with the use tax issue which generally work well. But the same issue has repeatedly been brought up with much smaller ticket items, namely gas and tobacco products, in recent years. For example, people living close to the boarder between Illinois and Indiana tend to cross from Illinois to Indiana to buy gas and cigarettes due to the considerably lower state gas and tobacco taxes in Indiana. The state of Illinois has been known to send out intimidating letters to its citizens to make sure that they pay their use tax on tobacco and gasoline purchased in Indiana. They have even gone so far as to make recommendations for estimating the use tax that you owe, and according to some stories that I have heard people have had their state tax return flagged for auditing because they didn't include any estimates for such use taxes while living near the boarder. Not an issue concerning e-commerce retailers and sales tax directly, but just something that popped into my head when I was writing my previous post.

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Dave at Work
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quote:
Originally posted by JWatts:
Pyr, is right that there are several different software packages that can calculate the right amounts. The calculation's are trivial.

It's more complex to get the money to the right location. Every on-line retailer can't easily mail out a check to 10,000 counties every week. Part of the legislation deals with simplifying the payment process.

Yes, That is a big issue. I think that there are two basic approaches that could be applied to the problem. One is that at some level of government, a clearing house is created where retailers would send in their sales/use taxes along with paperwork indicating to which taxing authorities it is owed. This could be at the federal level covering all states and territories, or it could be a collection of such agencies formed by groups of states and/or territories. Another is that private businesses, perhaps that same ones that provide the services for calculating the taxes, could act in the same manner, taking the taxes and documentation and making sure that the correct amount gets sent to the correct tax authorities in a streamlined and efficient manner. In the case of the government clearinghouse idea I imagine that it would be payed for by a percentage of the taxes processed, while I imagine that the private clearing house idea would probably be funded by charging a fee to the retailer for their services, which might be some kind of annual thing, or a straight percentage of the amount being processed.
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G2
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quote:
Originally posted by Dave at Work:
If electronic retailers could subscribe to a service like I just described and the cost was reasonable it would make the collection of sales/use taxes a simple job for everyone and there would be no reason for all this debate.

So why hasn't Amazon or Google or IBM or anybody for that matter created such a product? For all I know, maybe they have. If they haven't, why not? Are there legal issues that I haven't thought of? Liability issues? It seems to me that this is a problem with an obvious solution.

Unfortunately, it's not quite so simple. There are literally thousands of sales tax laws at state, county and city levels. What is taxed changes from place to place and item to item. Some foods are taxed, others not and that changes from area to area. Some services are taxed, others not. Most services only provide the base rates, not the items that are not taxed. Zip2Tax, mentioned earlier says, "We do not currently provide rate or rule data for specific products or services." and:
quote:
There are a few locations within certain states that have more than one tax jurisdiction for a single ZIP code. This can make it tricky to determine which rate to use based solely upon the 5 digit ZIP code.
It would be a huge effort to collate all that and then track when it changes, it would require constant monitoring. All that would be expensive and time consuming likely making it cost prohibitive for small business.

Then there is verification on the consumer end. Consumers are required to report their online purchases and pay that tax - typically called a "use tax". What would it cost to enforce compliance? Probably more that would be collected, that's why it's hardly enforced now except for the big ticket items; typically those over $1000. What if I live in a state that has a sales tax but can maintain a shipping address in a nearby state that does not have one(or have a good buddy or maybe I have an office there), how does that get enforced?

If you create the software that does all that and it's wrong, who's liable? The seller? The buyer? The company that created the software? Read your EULA! The company that maintains the database? There's a lot of liability.

Finally, there is an entire body of legal precedent saying this is unconstitutional:
quote:
This taxation is not prohibited by federal statute, but rather by a series of U.S. Supreme Court decisions including Quill Corp. v. North Dakota (1992). Those cases held that state taxation of in-state sales by vendors with no significant physical presence in the state violates the Commerce Clause of the U.S. Constitution.
Anyone claiming all this is relatively simple does not understand or have any experience in how these things work. It's crazy complex, which would require a massive bureaucracy to regulate, and has been consistently ruled unconstitutional by the Supreme Court.
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Pyrtolin
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One ruling is not a consistent ruling. And the basis for that ruling was that, in the absence of any explicit federal law requiring such taxes to be honored, such a requirement would impose a significant enough burden on the businesses as to violate the implicit Dormant Commerce Clause of the constitution. There was never any findings on whether a federal law enforcing interstate collection of sales taxes was illegal because no explicit federal law enforcing them was ever passed. What's more, the current state of modern computer technology, as well as groundwork laid by a large number of retailers who have a nexus in every state, have pretty much rendered the reasoning behind the ruling moot. Solutions to the issue, while somewhat complex in the details are ready enough to make working out the last few details a fairly easy process overall, especially for online retailers where the process of even submitting the taxes could easily be handled on the fly electronically by the software that processes the sales transaction, taking even more of the burden off of the retailer. Most of the work of figuring out what is taxable in a given locality is already codified in UPC databases, so more detailed fiddling would only needed for uncoded or newly coded products.
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Pete at Home
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quote:
Originally posted by G2:
Anyone claiming all this is relatively simple does not understand or have any experience in how these things work. It's crazy complex, which would require a massive bureaucracy to regulate, and has been consistently ruled unconstitutional by the Supreme Court.

Did I break their law?
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TheRallanator
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quote:
Originally posted by Dave at Work:
Since there are services along those lines, I think we should move toward requiring electronic retailers to collect sales/use taxes just like operators of physical stores already do.

Yes with big ticket items there are existing mechanisms for dealing with the use tax issue which generally work well. But the same issue has repeatedly been brought up with much smaller ticket items, namely gas and tobacco products, in recent years. For example, people living close to the boarder between Illinois and Indiana tend to cross from Illinois to Indiana to buy gas and cigarettes due to the considerably lower state gas and tobacco taxes in Indiana. The state of Illinois has been known to send out intimidating letters to its citizens to make sure that they pay their use tax on tobacco and gasoline purchased in Indiana. They have even gone so far as to make recommendations for estimating the use tax that you owe, and according to some stories that I have heard people have had their state tax return flagged for auditing because they didn't include any estimates for such use taxes while living near the boarder. Not an issue concerning e-commerce retailers and sales tax directly, but just something that popped into my head when I was writing my previous post.

Now I'm not a law-talkin' guy, but Illinois' actions sound kinda vaguely illegal.
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JWatts
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quote:
Originally posted by TheRallanator:
Now I'm not a law-talkin' guy, but Illinois' actions sound kinda vaguely illegal.

Well, Illinois is a suburb of Chicago, so different standards of legality prevail.
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