Online sales taxation -- leveling the field or slaying the golden goose?

[Charles Kozierok]

As many folks here know, at present, companies that do not have a "presence" in a particular state (the definition of which varies) do not have to collect state sales taxes. This is great for consumers and for online retailers; it's not so great for state governments nor for competitors that reside within the states in question.

Some states are now trying to "rectify" this with new legislation, and I think some have even tried to address it at the national level. The proposals are pretty simple: force companies to collect sales tax based on the state of residence of the purchaser rather than the company's "presence".

The main argument for this is that it levels the playing field between online and "offline" retailers. The argument against is that it raises costs for consumers and could harm the online sales industry.

Most consumers oppose the idea of this sort of change, largely out of self-interest. Can't really blame them -- who wants to pay more?

But from a more objective standpoint, I find it hard to argue with the reasoning. Why should I pay sales tax based on where the seller is located?

Furthermore, the industry has changed a lot. Fifteen years ago, part of the counter-argument was that online companies were new and young and making it harder for them to compete could kill Internet business before it takes off. Now we have arguably the opposite situation -- behemoths like Amazon are driving brick-and-mortar and local businesses to bankruptcy.

So, much as I wouldn't like it personally, I have to support an equalization of state sales tax policy.

 

[fskimospy]

There is no rational argument that I am aware of where places such as Amazon should be given a competitive advantage over physical businesses in the area of a customer.

If we're going to have a sales tax, it should apply equally to all parties making a sale.

 

[randomrogue]

It should apply online. It does in other parts of the world. With that said I really like saving all that money and am perfectly happy with them not charging sales tax. Brick and Mortar businesses charge so much more than online stores as it is that they're uncompetitive regardless in many/most cases.

Convince me that they'll use tax revenue wisely and I might be more gung-ho about them doing this.

 

[Charles Kozierok]

The other problem is that shoppers are utterly unethical in terms of how they treat brick-and-mortar and online establishments these days.

I just saw a thread in OT about Best Buy, which had this graphic that perfectly sums up the problem:

 

[Gonad the Barbarian]

There is no rational argument that I am aware of where places such as Amazon should be given a competitive advantage over physical businesses in the area of a customer.

If we're going to have a sales tax, it should apply equally to all parties making a sale.

I agree, which is why I think the optimal alternative would be for states to find ways to reduce/eliminate their own sales tax. Not only is it a terribly regressive type of tax, it deters economic activity even when on a level field. Consumption is one of the main drivers of economies, it's about the last thing that should be taxed. I have no doubt VAT is contributing to Europe's own economic woes in no small way.

 

[JulesMaximus]

As many folks here know, at present, companies that do not have a "presence" in a particular state (the definition of which varies) do not have to collect state sales taxes. This is great for consumers and for online retailers; it's not so great for state governments nor for competitors that reside within the states in question.

Some states are now trying to "rectify" this with new legislation, and I think some have even tried to address it at the national level. The proposals are pretty simple: force companies to collect sales tax based on the state of residence of the purchaser rather than the company's "presence".

The main argument for this is that it levels the playing field between online and "offline" retailers. The argument against is that it raises costs for consumers and could harm the online sales industry.

Most consumers oppose the idea of this sort of change, largely out of self-interest. Can't really blame them -- who wants to pay more?

But from a more objective standpoint, I find it hard to argue with the reasoning. Why should I pay sales tax based on where the seller is located?

Furthermore, the industry has changed a lot. Fifteen years ago, part of the counter-argument was that online companies were new and young and making it harder for them to compete could kill Internet business before it takes off. Now we have arguably the opposite situation -- behemoths like Amazon are driving brick-and-mortar and local businesses to bankruptcy.

So, much as I wouldn't like it personally, I have to support an equalization of state sales tax policy.

I would have no problem with it if it were as simple as just collecting a flat rate for each state. The problem is there are multiple tax regions within many states. California has literally hundreds of different sales tax rates based on the ship to city. Plus, they keep changing the rates. We had 2 rate changes last year and then the rates changed state wide as of January 1st. There are cities within a county that charge a local tax on top of the county tax on top of the state tax. Los Angeles county has over 200 cities, each with its own tax jurisdiction, granted, most of them fall under the L.A. rate but some of them have city tax on top of that.

I prepare sales and use tax returns for 4 different divisions of the company I work for. Right now we file in CA, WA, TX & NY. CA and WA we file monthly, TX just changed to quarterly and NY we file annually. I can't imagine doing this for 50 states, we would need to hire more tax accountants for sure.

I guess if you work in tax accounting or auditing it would be a good thing though. :biggrin:

 

[waggy]

I would have no problem with it if it were as simple as just collecting a flat rate for each state. The problem is there are multiple tax regions within many states. California has literally hundreds of different sales tax rates based on the ship to city. Plus, they keep changing the rates. We had 2 rate changes last year and then the rates changed state wide as of January 1st. There are cities within a county that charge a local tax on top of the county tax on top of the state tax. Los Angeles county has over 200 cities, each with its own tax jurisdiction, granted, most of them fall under the L.A. rate but some of them have city tax on top of that.

I prepare sales and use tax returns for 4 different divisions of the company I work for. Right now we file in CA, WA, TX & NY. CA and WA we file monthly, TX just changed to quarterly and NY we file annually. I can't imagine doing this for 50 states, we would need to hire more tax accountants for sure.

I guess if you work in tax accounting or auditing it would be a good thing though. :biggrin:

agree.

If they had a flat tax to cover everything I wouldn't mind.

as it is i don't care. i don't mind paying my share of taxes and i still will order online..Nothing beats shopping in my undies! i tried it once at walmart. sad part is nobody noticed =(

 

[Charles Kozierok]

Jules makes a good point I hadn't considered.

But it could be limited to the state-level sales taxes, and it's all done by computers in most cases anyway, is it not?

 

[Demo24]

I've always hated how products almost never show true cost after sales tax. Places in Europe do that and you know exactly what to expect when you go to the register.

However the inherent problem is that it's an unfair tax in the first place. Those with enough funds to buy what they need and want are typically not going to be all that concerned about it. Buying a 1k TV, oopps didn't factor the sales tax..well, oh well already got this far another 70-100 won't be terrible.

I saw recently in the tax thread that you could deduct sales tax paid, although I don't know the restrictions on that or if that's always been allowed? If so that's about the only way to make it more fair for people at line.

However I think its about time more states look at ways to get rid of sales tax all together.

 

[waggy]

However I think its about time more states look at ways to get rid of sales tax all together.

won't happen. it's a huge source of income for states. Right now they need it more then ever.

The idea is that its a "fair" tax. you buy more expensive stuff? you pay more in tax.

 

[JulesMaximus]

I've always hated how products almost never show true cost after sales tax. Places in Europe do that and you know exactly what to expect when you go to the register.

However the inherent problem is that it's an unfair tax in the first place. Those with enough funds to buy what they need and want are typically not going to be all that concerned about it. Buying a 1k TV, oopps didn't factor the sales tax..well, oh well already got this far another 70-100 won't be terrible.

I saw recently in the tax thread that you could deduct sales tax paid, although I don't know the restrictions on that or if that's always been allowed? If so that's about the only way to make it more fair for people at line.

However I think its about time more states look at ways to get rid of sales tax all together.

Where does the revenue come from then? Your state has expenses for education, roads, police and fire, etc. That revenue has to come from somewhere.

Jules makes a good point I hadn't considered.

But it could be limited to the state-level sales taxes, and it's all done by computers in most cases anyway, is it not?

We file online and pay by bank transfer but there is a lot of review and reconciliation before you file that takes time. Plus, if you make a mistake the state will penalize you and they audit you periodically too. There are other considerations too. Inventory used for R&D is taxable and you have to accrue for that, A/P purchases that are not inventory and the vendor didn't charge you sales tax, you have to accrue for that. Make a mistake and you get penalized. These are for a business in the state it is established in though. Out of state sales you just have to withhold and pay the correct sales tax on items you ship to that state so it isn't as complicated.

What if you have no sales in many of those states? Would you still would have to register and file a no tax return?

 

[Gonad the Barbarian]

won't happen. it's a huge source of income for states. Right now they need it more then ever.

The idea is that its a "fair" tax. you buy more expensive stuff? you pay more in tax.

Yeah, "fair" does need to be in quotes.

Family #1
$50,000 household income
$30,000 annual consumption expenses
$3,000 paid in sales tax @ 10%
15% tax burden on the $20,000 after expenses

Family #2
$100,000 household income
$30,000 annual consumption expenses
$3,000 paid in sales tax @ 10%
4% tax burden on the $70,000 after expenses

Add the law of diminishing marginal utility and that compounds that burden even more. That same $3,000 burden hits family #1 far harder than family #2. Same would go for a flat income tax.

Family #1
$50,000 household income
$30,000 annual consumption expenses
$5,000 paid in flat income tax @ 10%
25% tax burden on the $20,000 after expenses

Family #2
$100,000 household income
$30,000 annual consumption expenses
$10,000 paid in flat income tax @ 10%
14% tax burden on the $70,000 after expenses

These "fair" taxes are anything but.

 

[soccerballtux]

Shipping is already a tax.
Wonder if it's not enough.
I guess this will encourage local consumption.
The time-delay involved with shopping online/shipping is enough of a tax.

 

[Murloc]

Sales taxes are paid in the place where the sale occurs, by the seller, before giving out the product. As such, they should be paid in the state where amazon is located.
Consumption taxes aka VAT is paid by the consumer, usually through the seller, or if he's importing an already bought item from abroad, upon passing the border. In Europe usually there's a max limit of stuff that you can import without paying the VAT, and you usually can get the VAT you paid abroad given back by the state when exiting it with the item, if you request to do so, and then pay the VAT of the state you're importing it to.
VAT should be paid to the customers' state, because it's a tax on consumption, not sales. Rich people spending lots of money? Lots of VAT money for the state. That's the point.
So in this case, I think that in US states it should apply the rule too, so when amazon sells directly to a customer out of state, the customer and amazon should pay no VAT, and the package should pass through customs and a have duty to be paid upon delivey added to it. This is how it's done here.
Making amazon take taxes directly for the various states would create jurisdiction problems and stuff, and doing it through the federal government would cost money, I'm not sure it'd be worth it. But you also don't have internal customs officers so that would cost a lot too.

The swiss solution: the federal government gets the VAT. This is the perfect equalizer and removes these international-like conflicts between member states.

Just make the highest level of government collect a unique VAT and don't allow the states to collect it.
Of course, this means that the federal gov will have to reduce the other taxes, while the states will have to increase them, but all in all the fiscal pressure will stay the same.

On the fairness of the VAT: gonad you're assuming that richeies family spend the same as poorer families. Where does the rest of the money go? Under the mattress? Nope.
Also you can set a different VAT for primary goods such as food. It's proven that poor people spend a higher % of their wage on food. This would make it fairer.

 

[Charles Kozierok]

Yeah, "fair" does need to be in quotes.

Family #1
$50,000 household income
$30,000 annual consumption expenses
$3,000 paid in sales tax @ 10%
15% tax burden on the $20,000 after expenses

Family #2
$100,000 household income
$30,000 annual consumption expenses
$3,000 paid in sales tax @ 10%
4% tax burden on the $70,000 after expenses

I don't understand where your 15% and 4% numbers are coming from here.

Also worth noting that many states have exemptions for basic goods to help make the sales tax effectively more progressive.

Shipping is already a tax.

Shipping? People still pay for that?

$75 a year and I never pay for shipping from Amazon. (Plus their video service as a bonus now, though that sucks and I wouldn't pay for it separately.)

Two weeks ago I ordered a dutch oven on sale on a Saturday afternoon, with free 2-day shipping. Shouldn't have been to me until Wednesday. But despite the 20 pound weight of the box, it was on my doorstep noon Monday.

 

[Gonad the Barbarian]

I don't understand where your 15% and 4% numbers are coming from here.

$3,000 tax/$20,000 after expenses
$3,000 tax/$70,000 after expenses

The $30,000 in expenses was an arbitrary number, but there's that first chunk of everyone's income that goes to the necessities of just living a life before any excess beyond that and it's not really fair comparing incomes without taking that into account.

 

[soccerballtux]

I think Debate Club should avoid polarizing thread titles.

General thread titles would work better. Example, Online Sales Taxation. Fifty States with Equal Population. The Minimum Wage.
Things like "leveling the playing field or slaying the golden goose" (particularly the last part) sound more loaded/charged.

Perhaps making the threads seem binary in nature is what bothers me. It's polarizing.

 

[soccerballtux]

Sales taxes are paid in the place where the sale occurs, by the seller, before giving out the product. As such, they should be paid in the state where amazon is located.
Consumption taxes aka VAT is paid by the consumer, usually through the seller, or if he's importing an already bought item from abroad, upon passing the border. In Europe usually there's a max limit of stuff that you can import without paying the VAT, and you usually can get the VAT you paid abroad given back by the state when exiting it with the item, if you request to do so, and then pay the VAT of the state you're importing it to.
VAT should be paid to the customers' state, because it's a tax on consumption, not sales. Rich people spending lots of money? Lots of VAT money for the state. That's the point.
So in this case, I think that in US states it should apply the rule too, so when amazon sells directly to a customer out of state, the customer and amazon should pay no VAT, and the package should pass through customs and a have duty to be paid upon delivey added to it. This is how it's done here.
Making amazon take taxes directly for the various states would create jurisdiction problems and stuff, and doing it through the federal government would cost money, I'm not sure it'd be worth it. But you also don't have internal customs officers so that would cost a lot too.

The swiss solution: the federal government gets the VAT. This is the perfect equalizer and removes these international-like conflicts between member states.

Just make the highest level of government collect a unique VAT and don't allow the states to collect it.
Of course, this means that the federal gov will have to reduce the other taxes, while the states will have to increase them, but all in all the fiscal pressure will stay the same.

On the fairness of the VAT: gonad you're assuming that richeies family spend the same as poorer families. Where does the rest of the money go? Under the mattress? Nope.
Also you can set a different VAT for primary goods such as food. It's proven that poor people spend a higher % of their wage on food. This would make it fairer.

$3,000 tax/$20,000 after expenses
$3,000 tax/$70,000 after expenses

The $30,000 in expenses was an arbitrary number, but there's that first chunk of everyone's income that goes to the necessities of just living a life before any excess beyond that and it's not really fair comparing incomes without taking that into account.

Flat tax hitting lower incomers harder by effect is different from progressive tax hitting higher incomers harder by design. This ideological difference is, in general, what conservatives find most frustrating about democrats and is enough to keep them voting republican for a very long time. At least from all the rural folk I've met, this is what's going on.

I think an interesting thread would be one that explores alternative tax schemes that avoid directly taking money from people based on how much money they make (ie by design), and rather by some other metric. And then compensate for the unfair-effects on the lower income earners. What options are there?

A lot of Republicans and Conservatives view Democrats' tax plans as field-levelling. Which, considering the taxes never existed in the first place or were supposed to go away (income tax after WW1 for example, or Highway Tolls in Illinois after paying for the roads), conservatives believe is building on an already bad foundation with more bad reasoning (IE half the field was un-level in the wrong direction, so making the whole thing go in the wrong direction simply to level it doesn't make any sense).

 

[fskimospy]

Flat tax hitting lower incomers harder by effect is different from progressive tax hitting higher incomers harder by design. This ideological difference is, in general, is what conservatives find most frustrating about democrats and is enough to keep them voting republican for a very long time. At least from all the rural folk I've met, this is what's going on.

I think an interesting thread would be one that explores alternative tax schemes that avoid directly taking money from people based on how much money they make, and rather by some other metric. And then compensate for the unfair-effects on the lower income earners.

You wallet doesn't notice a difference if a dollar comes out of it by effect or design.

I also sincerely doubt that the urban/rural divide comes from tax ideology.

 

[Gonad the Barbarian]

Flat tax hitting lower incomers harder by effect is different from progressive tax hitting higher incomers harder by design. This ideological difference is, in general, is what conservatives find most frustrating about democrats and is enough to keep them voting republican for a very long time. At least from all the rural folk I've met, this is what's going on.

I think an interesting thread would be one that explores alternative tax schemes that avoid directly taking money from people based on how much money they make (ie by design), and rather by some other metric. And then compensate for the unfair-effects on the lower income earners. What options are there?

A lot of Republicans and Conservatives view Democrats' tax plans as field-levelling. Which, considering the taxes never existed in the first place or were supposed to go away (income tax after WW1 for example, or Highway Tolls in Illinois after paying for the roads), conservatives believe is building on an already bad foundation with more bad reasoning (IE half the field was un-level in the wrong direction, so making the whole thing go in the wrong direction simply to level it doesn't make any sense).

Make the thread so we don't derail this one.

 

[soccerballtux]

You wallet doesn't notice a difference if a dollar comes out of it by effect or design.

ya very true.
But it's better when a criminal is sentenced to 10 years by jury than by monarch. The criminal is guilty in both situations and deserves the 10 years, but it's better, in principle, when done by jury. This isn't about comparing criminalization to taxation, but about finding some agreeable means (I think we could do it) to get to the end (taxation of wealthier people).
It takes a lot of education and maturity to settle down (conservatives consider it legislated injustice), set aside the means being used and simply judge the taxation based on the end accomplished.

I also sincerely doubt that the urban/rural divide comes from tax ideology.

Not that it comes from the divide, just that there is a divide, and along that divide I generally find that rural folk are much more opposed to the notion of taxing rich people to level the field, than urban folk are; and they'll vote Republican out of that ideology (of not using the wrong means to get to one's end), until they figure out just how much Republicans aren't doing for them and their middle class life.
The perception, real or not, of Democrats wanting to tax the rich more to level the field, blinds most of them, and makes it very hard for them to see this reality (that the end is the same) clearly.

 

[soccerballtux]

Make the thread so we don't derail this one.

someone please move the posts over

 

[Gonad the Barbarian]

someone please move the posts over

I'll just keep this short (and sloppy) instead of waiting on the new thread. There are completely practical reasons behind having the tax burden based on income and increase as income goes up. One is as I said earlier, to not deter consumption with a sales tax, which in a consumption based economy, is a bad thing. A second is that the higher the income, the better you are able to absorb the tax without it affecting your other economic decisions. This hits on the third, the more money you make, the less each dollar is worth to you (diminishing marginal utility at work). So even if the rate is the same between two incomes, the person with the lower income is having more of their wealth taxed away. A fourth is that higher income tax on higher income primarily hurts private investment capital, which in a fiat money system is largely irrelevant as an economic growth factor. The banking system will always have enough capital to lend (whether they are actually lending it or not).

 

[soccerballtux]

I'll just keep this short (and sloppy) instead of waiting on the new thread. There are completely practical reasons behind having the tax burden based on income and increase as income goes up. One is as I said earlier, to not deter consumption with a sales tax, which in a consumption based economy, is a bad thing. A second is that the higher the income, the better you are able to absorb the tax without it affecting your other economic decisions. This hits on the third, the more money you make, the less each dollar is worth to you (diminishing marginal utility at work). So even if the rate is the same between two incomes, the person with the lower income is having more of their wealth taxed away. A fourth is that higher income tax on higher income primarily hurts private investment capital, which in a fiat money system is largely irrelevant as an economic growth factor. The banking system will always have enough capital to lend (whether they are actually lending it or not).

Yeah consumption tax revenue is bad.
Agree with 2 and 3, too.
4 is an interesting point. However, I don't see why the bank has to reap that profit, wouldn't it be better for the individual to hold that capital? I am somewhat opposed to the notion
a). that everyone must work their entire life.*
b). that the bank investor will be as good as the individual investor

*We have the means to provide for everyone, including the lazy fatasses that everyone can agree are moochers of society--like the lady who sued because the coffee was hot (even though she had a very valid case, I use her as a straw woman). The things that prevent us from doing this are
1. greed, gotta have more, shinier, nicer, faster, now
2. moral indignation among those that are working, that they're working, but the other person isn't, so the working person should do their fair share so that the worker doesn't have to provide for them (so that worker can have more for himself, e.g. greed). Solved by proper acknowledgement that the sun doesn't ask you to do your fair share of shining, it just does its job because it's good at it.

 

[Fern]

As many folks here know, at present, companies that do not have a "presence" in a particular state (the definition of which varies) do not have to collect state sales taxes. This is great for consumers and for online retailers; it's not so great for state governments nor for competitors that reside within the states in question.

Some states are now trying to "rectify" this with new legislation, and I think some have even tried to address it at the national level. The proposals are pretty simple: force companies to collect sales tax based on the state of residence of the purchaser rather than the company's "presence".

The main argument for this is that it levels the playing field between online and "offline" retailers. The argument against is that it raises costs for consumers and could harm the online sales industry.

Most consumers oppose the idea of this sort of change, largely out of self-interest. Can't really blame them -- who wants to pay more?

But from a more objective standpoint, I find it hard to argue with the reasoning. Why should I pay sales tax based on where the seller is located?

Furthermore, the industry has changed a lot. Fifteen years ago, part of the counter-argument was that online companies were new and young and making it harder for them to compete could kill Internet business before it takes off. Now we have arguably the opposite situation -- behemoths like Amazon are driving brick-and-mortar and local businesses to bankruptcy.

So, much as I wouldn't like it personally, I have to support an equalization of state sales tax policy.

The bolded sections above seem to be your arguments/counter arguments.

First of all, you aren't paying sales taxes based upon where the seller is located. The sales tax is based upon where YOU live. And no matter how/where the purchase is made, the (state) law says you owe sales tax to you state. (Check your state tax return, most have a section to self-report and pay sales tax on out-of-state purchases.)

While your arguments may seem 'good' for a non-tax professional/lay person, I think they are off-base.

What we have here is a problem of collection and enforcement. Long before the internet arrived, businesses, and to an extent individuals, have been purchasing from out-of-state and avoiding sales tax. We had things called 'catalogs' where people would look through and order products from. Yes, out-of-state sales/purchases are more common now but people have been doing it since forever.

As far collection/enforcement goes, businesses undergo sales tax audits. Those not self reporting get assessed and penalized. Clearly, this is not really possible for individuals. (Although US customs will nab products purchased by individuals at the border and hold until you pay. Customs duties are very similar to sales taxes.)

So, states have a problem with enforcement/collection. They're trying to get around that by pushing the job of collection/enforcement onto others: businesses from other states.

Have you ever done a sales tax return?

In NC, each sale must be categorized by each county in the state. We have 100 counties. The sales must be broken out by county because the state splits the revenue with the county so they must know where each sale is taxable.

Now, multiply all the counties by all the states. Massively complicated giant headache and administrative expenses? You think?

If I'm selling via internet only from my state why the heck do I have to bear the sale tax administrative responsibility for all those other states? And what gives those other states jurisdiction over me? That's Bullshiz.

This is just another flavor of the problem with collection/enforcement where people drive across the state border to avoid there own state's sales tax.

I recognize the scope of the problem has increased, but shifting the states' burden to innocent and unrelated third parties is no solution. Nor is confusing jurisdictional principles.

No, the states need to find another solution to their problem and not be allowed to push it off on others.

Fern