The legality of a state taxing the goods another produces

[Caveman]

Per subject, think Amazon, etc. and personal income tax filing:

THIS IS NOT A QUESTION ABOUT WHETHER TAXES ARE GOOD, BAD, HIGH, LOW, ETC... THIS IS A LEGAL QUESTION REGARDING A CERTAIN TAX LAW AND IT'S IMPLICATION.

1) How can it be constitutional to tax on goods that another state produces?

i.e. Internet company Y sets up goods and services in a state that has good tax laws that influence businesses to operate there. Another state turns around and says hey, I want your tax revenue for the goods and services your state just renedered.

Does this mean if a person lives next to a state with no tax, it's illegal for them to drive to that no/low tax state for that good/service and then not report the purchase so the state they live in can collect the tax?

It makes sense for a consumer to have to pay sales tax to the state in which they purchase a good/service. What makes no sense is to pay your own state for goods/services not available in your own state.


2) If the law is really law, how do online companies like Amazon circumvent the law? Every other company must collect sales tax from it's consumers. When you go to the local hardware store to pick up a hammer, the hardware store is required to collect sales tax. Are online companies "magically different"? It seems "impossible" that the burden of proof for online purchases falls on the consumer and not the business. Do maybe 1% of the people answer accurately on thier taxes concerning online purchases, if for no other reason their poor recordkeeping skills?

 

[EagleKeeper]

It is up to the State to determine how it chooses to fund the government.

1) They are not taxing goods manufactured in another state. they are taxing goods being sold to a person in their state from out of state. or being sold within their state

2) There is a presence issue. If a company is not physically in the state; the state has no authority/leverage over the company.

Like you say, it is the responsibility of the consumer to obey the laws of their state; W/ respect to out of state purchases; many chose to ignore the law.

 

[sao123]

Per subject, think Amazon, etc. and personal income tax filing:

THIS IS NOT A QUESTION ABOUT WHETHER TAXES ARE GOOD, BAD, HIGH, LOW, ETC... THIS IS A LEGAL QUESTION REGARDING A CERTAIN TAX LAW AND IT'S IMPLICATION.

1) How can it be constitutional to tax on goods that another state produces?

i.e. Internet company Y sets up goods and services in a state that has good tax laws that influence businesses to operate there. Another state turns around and says hey, I want your tax revenue for the goods and services your state just renedered.

Does this mean if a person lives next to a state with no tax, it's illegal for them to drive to that no/low tax state for that good/service and then not report the purchase so the state they live in can collect the tax?

It makes sense for a consumer to have to pay sales tax to the state in which they purchase a good/service. What makes no sense is to pay your own state for goods/services not available in your own state.


2) If the law is really law, how do online companies like Amazon circumvent the law? Every other company must collect sales tax from it's consumers. When you go to the local hardware store to pick up a hammer, the hardware store is required to collect sales tax. Are online companies "magically different"? It seems "impossible" that the burden of proof for online purchases falls on the consumer and not the business. Do maybe 1% of the people answer accurately on thier taxes concerning online purchases, if for no other reason their poor recordkeeping skills?

consumption is taxed, not production.
if a person P resides in state X, which has taxes T% on purchases, Person P is required to report and pay the taxes on all purchases, regardless of what state or nationality that purchase was made in.

 

[lothar]

consumption is taxed, not production.
if a person P resides in state X, which has taxes T% on purchases, Person P is required to report and pay the taxes on all purchases, regardless of what state or nationality that purchase was made in.

What about those tax free shops at airports and on airlines? How are they able to circumvent the law and why do states allow them to do so? If I go to them and order something, I don't have to pay sales tax even though the airport is within my state.

Sent from my GT-I9100

 

[edro]

What about those tax free shops at airports and on airlines? How are they able to circumvent the law and why do states allow them to do so? If I go to them and order something, I don't have to pay sales tax even though the airport is within my state.

They are just Duty Free, not tax free.
No one knows what Duty is.

 

[actuarial]

consumption is taxed, not production.
if a person P resides in state X, which has taxes T% on purchases, Person P is required to report and pay the taxes on all purchases, regardless of what state or nationality that purchase was made in.

So if someone lives in state A, but are travelling in state B, state B should not collect any sales tax from them and then the person should report their purchases to state A?

Do you just show your driver's license to get no tax taken whenever you travel?

 

[cybrsage]

No, because the state in which you purchase said goods has a law saying you have to pay taxes on goods purchased in their state.

 

[EagleKeeper]

So if someone lives in state A, but are travelling in state B, state B should not collect any sales tax from them and then the person should report their purchases to state A?

Do you just show your driver's license to get no tax taken whenever you travel?

A business is supposed to collect tax on what they sell if they have a presence in the state (business license).

Therefore, the roadside shop has a business license in the state and is delivering the goods in state and therefore taxes those goods.

If the shop sells the goods to someone physically out of the state they do not charge the sales tax. It is up to the consumer to report the purchase and pay the tax according to their state guidelines.

If the shop has a storage shed in another state and ships a package to a person in that state, the tax is charged upfront because the shop has a business presence in the state.

 

[actuarial]

A business is supposed to collect tax on what they sell if they have a presence in the state (business license).

Therefore, the roadside shop has a business license in the state and is delivering the goods in state and therefore taxes those goods.

If the shop sells the goods to someone physically out of the state they do not charge the sales tax. It is up to the consumer to report the purchase and pay the tax according to their state guidelines.

If the shop has a storage shed in another state and ships a package to a person in that state, the tax is charged upfront because the shop has a business presence in the state.

Sorry I know how it works, I was more questioning the logic in the OP. Personally, I don't see a whole lot of difference between driving to a different state and purchasing, or ordering on line and having it delivered.

But if the rule is based on business presence, I don't see why Amazon shouldn't be taking tax up front and then remitting it, as opposed to having people report it on their tax return.

 

[EagleKeeper]

Sorry I know how it works, I was more questioning the logic in the OP. Personally, I don't see a whole lot of difference between driving to a different state and purchasing, or ordering on line and having it delivered.

But if the rule is based on business presence, I don't see why Amazon shouldn't be taking tax up front and then remitting it, as opposed to having people report it on their tax return.

Amazon does not want the headaches.
50 state sales taxes (yes some are zero) and at least 1000+ local sales taxes (county/city) that they have to worry about keeping updated and sending out.

 

[JockoJohnson]

They are just Duty Free, not tax free.
No one knows what Duty is.

Duty is what comes out of your butt, no?

 

[JockoJohnson]

Sorry I know how it works, I was more questioning the logic in the OP. Personally, I don't see a whole lot of difference between driving to a different state and purchasing, or ordering on line and having it delivered.

But if the rule is based on business presence, I don't see why Amazon shouldn't be taking tax up front and then remitting it, as opposed to having people report it on their tax return.

I agree with your point about driving to another state. If you live in PA and DE is an easy drive, why not shop there where it is tax free? Do I have to report what I purchased to PA?

Why is that any different if I have it delivered to me?

Also, it would be a nightmare for internet companies to have to keep records now for all 50 states and how each individual state tax code works. But why should that stop governments from trying since they have such a deep knowledge of how businesses are run?

Edit: Forgot about all of the local sales tax as well.....Philthadelphia has another 2% on top of the state.

 

[actuarial]

Amazon does not want the headaches.
50 state sales taxes (yes some are zero) and at least 1000+ local sales taxes (county/city) that they have to worry about keeping updated and sending out.

Well I guess that's just a cost of doing business, just like building a physical location in state is a cost of doing business for other companies.

It does become tough for smaller internet businesses though (ebay sellers, local shops with internet sales etc.) to keep up. But you could always throw on a minimum $$ of sales for the law to apply.

 

[lothar]

They are just Duty Free, not tax free.
No one knows what Duty is.

So how come they don't charge me sales tax like any regular business? They are located at the airport and the airport is located in my state.

They are exempt from both duty and local taxes(Both Sales and VAT taxes).
http://en.wikipedia.org/wiki/Duty-free_shop

Duty-free shops (or stores) are retail outlets that are exempt from the payment of certain local or national taxes and duties, on the requirement that the goods sold will be sold to travelers who will take them out of the country. Which products can be sold duty-free vary by jurisdiction, as well as how they can be sold, and the process of calculating the duty or refund the duty component.
However, some countries impose duty on goods brought into the country, though they had been bought duty-free in another country, or when the value or quantity of such goods exceed an allowed limit. Duty-free shops are often found in the international zone of international airports and sea ports, but goods can be also bought duty-free on board airplanes and passenger ships.

Loophole found. When traveling on an international flight, buy items at duty-free shop to save on paying sales tax. The only requirement is that you take it out of the country. It doesn't say for how long. You can bring it back on your return flight in a week and you will be completely exempt from paying sales tax.
So this is how the rich find loopholes in our tax system...

 

[bruceb]

The tax, is actually on the end buyer. If that person lives in a state with a sales tax, you are technically obligated to report and pay the tax when you file your income tax, IF No Sales Tax was collected at time of purchase. In reality, 99.9% of people, never admit to out of state purchases and it is near impossible for state tax authorities to find out about people who do not pay it. The only way a state should be taxing internet sales, is if the selling company has a physical presence in the state of the buyer. This can be as simple as a warehouse or shipping center.

 

[EagleKeeper]

I agree with your point about driving to another state. If you live in PA and DE is an easy drive, why not shop there where it is tax free? Do I have to report what I purchased to PA? If PA state tax forms have a line item for such, you are supposed to

Why is that any different if I have it delivered to me? No difference; you live in PA and bringing taxable items that you have not paid sales tax on into the state becomes a method of circumventing the tax regulations. Therefore if you do not pay the sales tax originally; you are expect to pay it when you file your yearly state income tax return.

Also, it would be a nightmare for internet companies to have to keep records now for all 50 states and how each individual state tax code works. But why should that stop governments from trying since they have such a deep knowledge of how businesses are run? The state government has jurisdiction over business that are issued a business license in their state, not in others.
Also, states would be taxing interstate commerce; that is a Federal level, not a state level.

Edit: Forgot about all of the local sales tax as well..... Philadelphia has another 2% on top of the state.

See bolded comments

 

[JockoJohnson]

See bolded comments

I'll be honest...I never paid attention to it. My accountant never asked and I never thought about mentioning it. I look to do my own taxes this year and will check it out...but I will still probably break the law and not claim anything. And why should I? What if I purchased something in NJ and did pay sales tax on it? Is another state also entitled to put a sales tax on top of that? If that's the law, they can go fuck themselves. Just like I occasionally do 60-65mph in a 55mph highway.

(And please don't anyone give me any high and mighty shit, we all do a little law breaking here and there in our everyday lives--over the speed limit, missing a tax, jaywalking, etc.)

Easier solution would be to just charge sales tax on all purchases based off of the state that the product comes FROM not SHIPS to. How is that not the same as me driving to another state and purchasing the product from a brick and mortar store? I have to pay sales tax based off of where I purchased it. If the product ships from NJ, CA or wherever, that is the sales tax that I should then pay.

 

[OutHouse]

They are just Duty Free, not tax free.
No one knows what Duty is.

a "duty" refers to a tax or fee placed on goods by government entities. Merchants who import goods and sell them to consumers who are leaving their country aren't charged a duty on these products

http://www.dutyfree.com/What-Is-Duty-Free/Default.aspx

 

[sactoking]

Sales tax and Use tax are two sides of the same coin. Use tax is a tax imposed by the state on its citizens for the consumption of goods. Citizens are required to pay and remit Use tax on all purchases. Recognizing that citizens often shop where they live the states implemented Sales tax whereby the seller collext the tax and remits it to the state and the consumer is alleviated of that burden.

In inter-state commerce the state (typically) has no jurisdiction over the seller but it does over the purchaser. In these instances the state mandates that the purchaser remit Use tax. Often the Use tax laws stipulate that if a citizen pays Sales tax to another state then Use tax is either offset to the extent of the Sales tax or offset completely; this prevents double-taxation.

So, if you drive from CA (which has high sales tax) to AZ (which has lower sales tax) to buy a TV you either owe CA reduced Use tax or no Use tax, depending on CA's laws. If you live in CA and order something from an AZ company you owe CA the full Use tax amount since you will pay AZ nothing.

Complicating matters is a Federal court ruling that allows states to impose Sales tax on out-of-state sellers if that seller has "nexus" in the state. Unfortunately, the court did not define what "nexus" is and that has led to a lot of confusion. There are three traditional "nexus" tests. The first basically states that nexus only occurs in the state the home office exists in. The second states that nexus occurs only in the state with a majority of the company's assets. The third states that nexus occurs in any state the company has a "physical presence" in.

Recently the third, physical presence, nexus test has been most frequently used. So, an internet company based in Maryland would have to collect and remit Sales tax from Texas residents if it had a warehouse in Texas. Companies like Amazon.com have tried to skirt the law in two different manners. First, Amazon uses a lot of wholly-owned subsidiaries. If Amazon.com owns Amazon, LLC and Amazon, LLC has a warehouse in Texas, Amazon.com is claiming that the warehouse does not belong to them and does not fulfill the nexus requirement. Second, Amazon also uses a lot of third-party vendors. Amazon claims that the product is being sold by Mom and Pop's Hand-Knit Cat Mittens and not Amazon so there is no Nexus.

The recent Amazon furor has been states redefining nexus to make Amazon liable to collect and remit Sales tax. The states have said that the use of wholly-owned subsidiaries is not a legitimate exemption since Amazon still has complete control over everything. This is what Texas did and why Texas sent Amazon a big Sales tax bill. The states have also said that since Mom and Pop's sells on Amazon's site and Amazon gets a cut of the money it is doing Amazon business. This is what California did, and it classified all CA vendors as creating nexus.

 

[Craig234]

I'll be honest...I never paid attention to it. My accountant never asked and I never thought about mentioning it. I look to do my own taxes this year and will check it out...but I will still probably break the law and not claim anything. And why should I?

I don't know what you're replying to since the person is on ignore but there is a 'use tax' you owe for internet purchases.

Why should you?


Because it's the law; because it's part of the debt you have to society; because it's part of the fair playing field for local retailers who help keep your local economy going; because if you are signing your name under penatly of perjury that your tax form is accurate, and lying if you lie.

Just like I occasionally do 60-65mph in a 55mph highway.

(And please don't anyone give me any high and mighty shit, we all do a little law breaking here and there in our everyday lives--over the speed limit, missing a tax, jaywalking, etc.)

The words spoken in a scumbag language, sadly. You should act better. I'm not saying not to ever jaywalk, but not to equate so much with jaywalking.

Do you shoplift small items from stores? Do you misrepresent when you sell used items to rip people off by hiding defects or other fraud? Do you hit on other mens' wives?

If not, why not? Don't get high and mighty, it's like jaywalking.

Now, the fact is, over 90% of people falsify their tax returns on this, making you feel like a sucker if you do the right thing. And that's wrong, and it's why I've contacted California's tax agency to tell them they need to fix it either by allowing the honest taxpayers to stop paying or to enforce the law on others - a tax on doing the right thing is bad policy. They're making that effort which is why Amazon has to start charging CA sales tax soon.

Easier solution would be to just charge sales tax on all purchases based off of the state that the product comes FROM not SHIPS to. How is that not the same as me driving to another state and purchasing the product from a brick and mortar store? I have to pay sales tax based off of where I purchased it. If the product ships from NJ, CA or wherever, that is the sales tax that I should then pay.

That's not easier. More likely, you owe the tax if you buy the product elsewhere and bring it back to your state to use, and just aren't paying what you owe.

It's not right, but next to impossible to enforce, and luckily a small percent of the sales tax is subject to those purchases.

They should just start requiring all internet sellers to collect and pay sales taxes. Even that's not easy to enforce - how does a state collect from some obscure who knows where if not oversease internet site, when it's a lot easier to collect when there's a physical store in the state that can be sanctioned - but they should do something.

 

[JockoJohnson]

I don't know what you're replying to since the person is on ignore but there is a 'use tax' you owe for internet purchases.

Why should you?


Because it's the law; because it's part of the debt you have to society; because it's part of the fair playing field for local retailers who help keep your local economy going; because if you are signing your name under penatly of perjury that your tax form is accurate, and lying if you lie.



The words spoken in a scumbag language, sadly. You should act better. I'm not saying not to ever jaywalk, but not to equate so much with jaywalking.

Do you shoplift small items from stores? Do you misrepresent when you sell used items to rip people off by hiding defects or other fraud? Do you hit on other mens' wives?

If not, why not? Don't get high and mighty, it's like jaywalking.

Now, the fact is, over 90% of people falsify their tax returns on this, making you feel like a sucker if you do the right thing. And that's wrong, and it's why I've contacted California's tax agency to tell them they need to fix it either by allowing the honest taxpayers to stop paying or to enforce the law on others - a tax on doing the right thing is bad policy. They're making that effort which is why Amazon has to start charging CA sales tax soon.



That's not easier. More likely, you owe the tax if you buy the product elsewhere and bring it back to your state to use, and just aren't paying what you owe.

It's not right, but next to impossible to enforce, and luckily a small percent of the sales tax is subject to those purchases.

They should just start requiring all internet sellers to collect and pay sales taxes. Even that's not easy to enforce - how does a state collect from some obscure who knows where if not oversease internet site, when it's a lot easier to collect when there's a physical store in the state that can be sanctioned - but they should do something.

If they can make internet sellers collect sales tax for all 50 states in an efficient way, I will be for it. This way, the competition becomes a bit more even for the brick and mortar stores. Until then, I will be one of the 99%ers.

Hopefully, there is a big enough fight to occur that it will push the gov't towards a flat tax. There are way too many loopholes, tax evaders, and other methods of avoiding taxes that the people who actually do pay seem like the morons for obeying the law.

 

[sactoking]

If they can make internet sellers collect sales tax for all 50 states in an efficient way, I will be for it. This way, the competition becomes a bit more even for the brick and mortar stores. Until then, I will be one of the 99%ers.

Hopefully, there is a big enough fight to occur that it will push the gov't towards a flat tax. There are way too many loopholes, tax evaders, and other methods of avoiding taxes that the people who actually do pay seem like the morons for obeying the law.

Under the Uniform Sales and Use Tax Compact internet retailers will be forced to collect sales tax based on the recipient's address and remit it to the federal government, which will then distribute the tax proceeds to the states. Many states have already signed the Compact including California, Texas, and New York. It is inevitable. Once the Compact has 30 (I believe) states Congress will ratify it and it will be binding on all states that sign. A state can choose to not sign but they will get no inter-state sales tax revenue.

The biggest hurdle is that the Compact requires a standard sales tax rate across all taxable goods and services, which not all states currently have.

 

[JockoJohnson]

Under the Uniform Sales and Use Tax Compact internet retailers will be forced to collect sales tax based on the recipient's address and remit it to the federal government, which will then distribute the tax proceeds to the states. Many states have already signed the Compact including California, Texas, and New York. It is inevitable. Once the Compact has 30 (I believe) states Congress will ratify it and it will be binding on all states that sign. A state can choose to not sign but they will get no inter-state sales tax revenue.

The biggest hurdle is that the Compact requires a standard sales tax rate across all taxable goods and services, which not all states currently have.

Ah, good point with the standard sales tax rate. That does seem like a good solution---something is better than nothing. What about local city/counties though? Will there be a tax that gets collected for them? Example being NYC or Philly where they tack on an additional percentage to the state sales tax.

 

[Ausm]

They are just Duty Free, not tax free.
No one knows what Duty is.

It's something I do every morning between 9:00 to 9:15.

 

[EagleKeeper]

Under the Uniform Sales and Use Tax Compact internet retailers will be forced to collect sales tax based on the recipient's address and remit it to the federal government, which will then distribute the tax proceeds to the states. Many states have already signed the Compact including California, Texas, and New York. It is inevitable. Once the Compact has 30 (I believe) states Congress will ratify it and it will be binding on all states that sign. A state can choose to not sign but they will get no inter-state sales tax revenue.

The biggest hurdle is that the Compact requires a standard sales tax rate across all taxable goods and services, which not all states currently have.

the standardized sales tax will be a problem.

Some states rely on sales tax much more than others; either to support their budget; distribute funding back to the locals and/or run without an income tax.

Example:
Tenn has no income tax which is why they have such a heavy sales tax (9%)
Then at the other end you have NH with 0 sales tax and 0 income tax.

So which state population is punished;

• Tenn has to institute an income tax to cover a loss of sales taxes
• NH being forced to implement a sales tax.