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

[Fern]

Once again, SCOTUS made no claim that Amazon should be competitively advantaged. If you believe this to be the case I encourage you to provide a quote from their opinion that says so. They spoke to tax law, not economics.

OK, perhaps I'm better understanding you now. When you originally said just "rationale", I didn't assume you meant an economic one.

And yes, SCOTUS' rationale was based on the Constitution.

As to any economic rationale, I tend you to agree with that there is none. But I'll state those in a separate post.

If you actually believe there are no legislative remedies to this you can't possibly be following this issue as closely as you claim. It appears that you believe I was advocating for state level remedies to this and structured a long argument against it for no reason. Perhaps you did not mean to create a straw man and simply misunderstood the argument.
I in no way ever argued any of the things you claimed.

I never said I followed it "closely". In fact I said "very casually". I have only a very few this issue applies to. To few to worry much about it until something happens.

As far as legislative fixes, I do not believe there are any easy ones out there. This sales tax issue has been in our literature for some years now. The decline in states' revenue since 2008 has only made it more prominent. It seems to me that coalition of maybe 30 states has been working with the federal govt for a solution to this for a number of years with no apparent success.

What is interesting is that the conservative economic position is for Amazon to pay sales taxes. Exempting them creates market distortions. This is in fact why there is no rational reason for their competitors to pay sales taxes and for them to not. ( and no, the fact that they are only a passthrough is totally irrelevant and you know it.)

Well, as a tax professional such details seem very relevant to me.

Fern

 

[Fern]

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

As to the broader question of the 'economics' of a change to force out-of-state retailers to withhold and remit to the various/numerous states of the purchasers, I think the first question should be 'would there really be a substantial economic impact'?. I'm not convinced there would be.

But assuming there is I don't see any real problem. If the attraction of avoiding local taxes is so strong that eliminating it will drive consumers to their local big box stores, so what? In the macro sense we'll have sales shift from one retailer to another. Unless one wants to argue it won't be a net zero effect I see no problem, no net effect on GDP.

Now, individually some will be negatively affected. I can't imagine such a change helping the stock price of pure online retailers like Amazon or shipping companies like FedEx. (Again, assuming a change in sales tax collection will substantially affect consumer buying habits.

I think the worst thing that can be said from the economic standpoint is that more regulatory costs have been introduced into the equation. OTOH, states' financial positions will improve somewhat and, if so, that's a counter-balancing benefit to some extent.

--------------------------

I'm not convinced consumer behavior will change substantially. I don't think anybody really knows, and it will be interesting to see if that change is actually employed.

Seems to me the strongest reasons to shop online are (in no particular):

1. Better pricing. A online pure retailer is not much more than a warehouse/shipping operation. The advantages of reduced cost from not having multiple attractive (meaning expensive) retail locations, far fewer employees, less r/e and liability insurance, far less in utilities, r/e taxes, no need to tastefully display products, no janitor/maintenance costs for retail location, no paving/cleaning of parking lots. The list of saving is quite long.

So, it seems to me that online retailers will maintain a huge cost advantage even if required to collect sales taxes.

2. Product choices. Online retailers offer so much more in terms of product choices. Their available inventory is so much larger than big box I've been to. Even the largest Best Buy I've been in can't match the inventory selection they offer at their online site.

Collecting sales tax won't change this.

3. Convenience and availability. I think many find find it far more convenient to shop online than drive from one store to another, searching for parking places, slogging through the aisles searching out products etc. A hand full of clicks and a little data input and I can quickly and easily pull up competing products at competing stores right on my computer screen. Man, is that so much simpler and faster (and less expensive given current gas prices).

Then there are those who live in more rural areas. They may have no choice but to shop online to get a specific product, none are available locally.

Sales tax won't change this.

So, I'm not completely persuaded charging sales tax is significant enough to overcome the benefits of shopping online. I suppose Amazon's sales will suffer to some extent, but I'm not convinced it will be material if all online retailers must collect sales tax. (Am changing my mind on this. Online retail sales may not be materially affected. Amazon's could - depending on your definition of "materially". Seems to me some online retailers, those not purely online like Best Buy, already collect sale tax in most states.)

Edit: Just wanted to add I see no reason that online retailers should be granted any special favors over physical retailers. (If that wasn't already clear.)

Fern

 

[Lithium381]

So what is the main attempt at "fairness" here? Are the states concerned that they're not getting their cut because something is purchased online? Are businesses complaining because it gives online retailer an advantage?

Could we come to a solution whereby there is either a flat online tax of say 7%, half of which goes to the sellers state, half to the buyers state? That would solve the above issues, no? Granted neither state is getting their FULL sales tax rate, but 3.5% of a lot is better than 0% of a lot. It would also serve to level the playing field between online/B&M stores.

Another possibility would be to just have a 5% tax on anything online that's between two states and call it interstate commerce and give it to the feds and not allow either state to collect it directly.

I personally buy online when i can because I typically get free shipping and i'm stuck in california paying just under 10% sales tax when someone in another state pays far less! how is that fair? I wouldn't mind paying an online tax of some sort. provided it's lowish

 

[Craig234]

...i'm stuck in california...

I'm sorry to hear you are stranded! Call 911 and we'll try to rescue you, so you can return to a red state filled with dirt and low taxes.

Clearly, your option to leave the state has been taken from you, since you're "stuck" here, it can't be that you like living in the best state in the country, which has a price.

 

[Lithium381]

I'm sorry to hear you are stranded! Call 911 and we'll try to rescue you, so you can return to a red state filled with dirt and low taxes.

Clearly, your option to leave the state has been taken from you, since you're "stuck" here, it can't be that you like living in the best state in the country, which has a price.

I actually just sold my condo here in San Jose and purchased a home in Texas. Thanks for asking!

Of all the things in my post you chose to comment on, you chose that even though I was saying I was willing to pay more for an online sales tax....

 

[Craig234]

I actually just sold my condo here in San Jose and purchased a home in Texas. Thanks for asking!

Of all the things in my post you chose to comment on, you chose that even though I was saying I was willing to pay more for an online sales tax....

Just giving you a teasing hard time, my friend. Congrats on the move to Texas, as perverse as that sounds to me, I hope you do great!

 

[fskimospy]

So what is the main attempt at "fairness" here? Are the states concerned that they're not getting their cut because something is purchased online? Are businesses complaining because it gives online retailer an advantage?

Could we come to a solution whereby there is either a flat online tax of say 7%, half of which goes to the sellers state, half to the buyers state? That would solve the above issues, no? Granted neither state is getting their FULL sales tax rate, but 3.5% of a lot is better than 0% of a lot. It would also serve to level the playing field between online/B&M stores.

Another possibility would be to just have a 5% tax on anything online that's between two states and call it interstate commerce and give it to the feds and not allow either state to collect it directly.

I personally buy online when i can because I typically get free shipping and i'm stuck in california paying just under 10% sales tax when someone in another state pays far less! how is that fair? I wouldn't mind paying an online tax of some sort. provided it's lowish

Basically yes, businesses are complaining that online retailers are getting an advantage. If people like what Amazon has to offer better because they are able to have lower prices, bigger selection, etc, etc, that's fantastic. If local stores can't compete on a level playing field they deserve to have Amazon eat their lunch.

What shouldn't be happening is that tax law gives Amazon an average sales price advantage of somewhere around 5-7% in most states (guesstimate). They exist for the same reason local retailers do: to provide goods to their customers. Let the best company win, not the company that basically gets to act like everything's on sale without having to pay for it.

 

[werepossum]

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.

Income represents perceived economic value to society, albeit arbitrarily established. You prefer that those whom society economically values less be taxed at a lower rate in the interest of fairness - by your definition of fairness. Others define fairness as everyone being taxed at the same rate. In reality the family earning $100,000 will typically have higher annual expenses because the point of earning more is to enhance one's lifestyle and the lifestyles of one's progeny, NOT to enhance government revenue.

I prefer sales tax as a means of funding government for two reasons. First, it establishes that what I earn belongs first to me; government does not get to take its share off the top as though I am its property. Second, the rate cannot be hidden. Everyone knows the rate of taxation; everyone pays the same rate. It is much more difficult for government to game sales tax, to promise one group largess taken from another group.

Given these things I obviously think it's fair that online retailers be required to collect state sales tax in the buyer's state, preferably with a lower limit to protect start-up businesses.

 

[Lithium381]

Basically yes, businesses are complaining that online retailers are getting an advantage. If people like what Amazon has to offer better because they are able to have lower prices, bigger selection, etc, etc, that's fantastic. If local stores can't compete on a level playing field they deserve to have Amazon eat their lunch.

What shouldn't be happening is that tax law gives Amazon an average sales price advantage of somewhere around 5-7% in most states (guesstimate). They exist for the same reason local retailers do: to provide goods to their customers. Let the best company win, not the company that basically gets to act like everything's on sale without having to pay for it.

Well like i said, either have a static online tax split by the states or go to the fed of 7% (which seems like it'd be average rate)... some states it would give local businesses a slight 1-2% advantage, while in others such as CA, buying online would still net a smaller 1-2% benefit....

states get their money(or the fed) and there is some level of "fairness" bestowed on the market..part of the problem is the nightmare of keeping track of all the rates and laws in every city/county, etc for online retailers . . .just make it simple and static. it wouldn't be hard to implement and we'd have more revenue for our congressmen to blow on their pet projects and puppetmasters.

 

[Don Vito Corleone]

I'm very ambivalent about this. I am an unapologetic Amazon Prime whore, and there's no question that has superseded most of my local purchasing, to the detriment of both local merchants and the state's tax coffers. Frankly it does seem to me that this provides something of an unfair advantage to online vendors. While I don't relish paying taxes I imagine some form of sales tax or more aggressive use tax is probably inevitable and arguably necessary.

 

[Craig234]

I'm very ambivalent about this. I am an unapologetic Amazon Prime whore, and there's no question that has superseded most of my local purchasing, to the detriment of both local merchants and the state's tax coffers. Frankly it does seem to me that this provides something of an unfair advantage to online vendors. While I don't relish paying taxes I imagine some form of sales tax or more aggressive use tax is probably inevitable and arguably necessary.

Thing is, you really should 'relish paying more taxes', when you think about it and appreciate the benefits and need for them and that they come from you.

That's part of the battle of creating good citizens, getting people to view paying taxes - when they are appropriate - as a badge of honor, duty, rather than pretending they're 'theft' and railing against all of them irrationally. It takes a little doing, but it's kind of needed - if the nation is filled with 'children' who don't want to pay any, then given our democracy, they can have what they want - which starts out with big deficts, not that that will every happen here - and eventually collapses.

It's not hard to find founding fathers preaching doom about democracy.

 

[Soundmanred]

I buy tons of stuff every year online (~33k for 2012), and declare it on my taxes so it's irrelevant to me.
I actually do what people were supposed to have been doing all along.

 

[Craig234]

I buy tons of stuff every year online (~33k for 2012), and declare it on my taxes so it's irrelevant to me.
I actually do what people were supposed to have been doing all along.

Good for you. Unfortunately few of us did, so this is a big improvement.