State Coalition Approves Internet Sales Tax Plan

November 12, 2002 4:46 PM

State Coalition Approves Internet Sales Tax PlanIgnoring, it seems, both Bush and Clinton, the states, greedy for money in these tight times, have a source of revenue from Net sales. And this will help retail stores on pricing (they must pay taxes), but how will it impact on the Net--or will Net sales manage to skirt a tax somehow? Are you for or against taxing net sales?
posted by Postroad (36 comments total)

The only reason the Internet is where it is today is due to the largely hands-off way it has been dealt with up until a couple years back.

I don't personally think sales tax will ever actually get implemented online, but if it does, I could see everyone online (from Amazon to Joe Schmoe's E-commerce Shop) losing some money to reduced sales.
posted by mathowie at 4:50 PM on November 12, 2002

The voluntary program would take effect when at least 10 states representing 20 percent of the U.S. population have amended their laws to implement the program.

Wait that would make it federal. But your state taxes are not. What if you don't conform volunteer for this, will some federal funding be withheld from the state? Sounds like the IRS is digging into our pockets through our states, hmm!???!

I do know some companies volunteered (as I see it now) several years back with taxing out of state customers by their state's sales tax. But I thought it was done as a way to protect the company making the sale. As a customer can easily get around paying state's sales tax by sending it to a friend out of state then your buddy re-routes it back to you. Yes, it's some work but anything to save a buck, especially high dollar items will save you in the end. Or is this what they have suspected and are trying to curb?
posted by thomcatspike at 5:18 PM on November 12, 2002

.. states lose nearly $13 billion each year on untaxed Internet transactions.

Correction. Consumers gain $13 billion which translates into an economic stimulus nationwide. Hopefully the Republicans will do what they were elected to do and stop this.
posted by stbalbach at 5:49 PM on November 12, 2002

It's always been obvious to me that whatever I save in taxes online is more than made up for in shipping costs. I know *I* don't save anything by buying online.

However, I'll continue to do a lot of my shopping online -- with or without a stupid sales tax -- because it's easier to find what I want and avoid irritating sales clerks and lines.
posted by katieinshoes at 7:02 PM on November 12, 2002

Why should online US purchases be exempt from sales tax? For that matter, why should mail order purchases? The historical reason is mostly a matter of jurisdiction. That's a problem the states are highly incented to resolve.
posted by Nelson at 7:09 PM on November 12, 2002

You not only have to figure out what the tax is for the 1,000's of different tax jurisdications, you have to hire staff to file a tax report to those jurisdictions.

A net sales tax is truly is a strangling tactic.
posted by mbannonb at 7:11 PM on November 12, 2002

Internet sales will end up being subject to tax. It isn't a question of if but of when. The complication in resolving the issue will be jurisdictional issue.
posted by rudyfink at 7:24 PM on November 12, 2002

Except that it's not.

People have -- at least here in Florida, and it's my understanding that this is fairly common across the US -- simply been shirking the tax they're supposed to pay.

In Florida, residents buying products from out of state who do not pay sales tax to the seller because they're outside of Florida have, for at least the 20 years I've lived here, been required to file a "Use Tax Return" with the state for the value of such good, and pay tax at the state sales tax rate -- 6% -- once a year.

No one *does* this, of course, but I can't see any way that these new laws could be any different than the ones we've already got -- that we ignore.

This situation is nothing new, of course (cf: Libertarianism and its opinion about over-legislation). And in the final analysis, all it will do (other than piss people off) is create a new industry for clearing the collected money.

"We think that once these states have simplified their systems it will be appropriate for the federal government to reward that effort," said R. Bruce Johnson, commissioner of the Utah state tax commission and co-chair of the implementing states group. "We're doing everything we can to make it clear that the states can work together."

I was going to say that I thought this was Yet Another Example of raging statism, until I read that graf. Now I just think that these commissioners are bereft of a clue, and no one taught them what the Federal government is for in civics class.
posted by baylink at 7:25 PM on November 12, 2002

Why should online US purchases be exempt from sales tax?

Why should online retailers need to charge them? A state sales tax benefits the state. It does force Joe's corner thrift shop to become a collecting, reporting, and paying arm of the state's tax collection system - but Joe's corner thrift shop also gets the state services that the taxes pay for. And if Joe doesn't like it, he can vote (for either politicians or initiatives), and try to get the tax thrown out.

An out of state company, however, that a resident purchases from online, is being asked to pay the cost of collecting, reporting on, and paying the tax revenues to the resident's state government, but receives absolutely ZERO of the benefits that come to state residents, and has no chance to VOTE to get rid of the tax if they don't like it.

It isn't a question of why companies shoulds be exempt - rather, it takes an enormous amount of balls for state governments to think they have the right to impose administrative duties on out-of-state companies in the first place. The problem is that it is simply easier for a state to go after a big eTailer, than it is to go after it's own residents who don't report purchases from the eTailer. But that doesn't by any means make it right. Or even legal.

More than that - for goodness sake, this issue is what the freakin' Boston Tea Party was about. No taxation without representation.
posted by MidasMulligan at 7:42 PM on November 12, 2002

The voluntary program would take effect when at least 10 states representing 20 percent of the U.S. population have amended their laws to implement the program.

In many states, amending the tax code means sending it to a voter referendum. Voters aren't going to support a law in which they tax themselves. Legislatures where tax mandates can be set at the Capitol building will find themselves under huge pressure to not pass the law, which will be viewed as a "new" tax.

The economy is sucking wind, the Administration is talking about more tax cuts for the wealthy, I doubt seriously that the poor and middle class of this country are going to feel as though *they* should pay more taxes. And as stbalbach mentioned, a bad economy is hardly the time to apply the breaks to consumer spending.
posted by dejah420 at 7:43 PM on November 12, 2002

Isn't it odd that nobody mentions how regressive sales taxes are? They never promulgate at the federal level for that reason--so the same ends are achieved with stealth taxes like VATs--invisibly sticking it to the poor.

My other point is that the inability of states to make repulsive and arrogant taxes is based on tax avoidance relying on interstate commerce. (Think "New York cigarette taxes.") If the states have free reign, I can imagine a state run cigarette dispensing monopoly, like the ever popular Alcohol monopolies in the South. How wise and fair are *your* state legislators?
posted by kablam at 7:43 PM on November 12, 2002

eeer, brakes.
posted by dejah420 at 7:44 PM on November 12, 2002

Why should online US purchases be exempt from sales tax?

Because they're almost all across state lines and the states have no freakin' business whatsoever taxing interstate commerce. That belongs purely and totally to the feds.

States are sort-of specifically forbidden from taxing interstate commerece. Article 1 sec 10 says that:
(1) No state can have an import tax (which is what this is*) without Congress's consent or to directly enforce inspection laws
(2) Any money raised by a state tax on imports, net of costs, goes to the federal treasury, not to the states.

All this stuff is there to prevent states from getting into protectionism wars with each other, which would be not-unlikely.

*I'd not be surprised to find that use-taxes don't stand up to constitutional scrutiny, but IANAL.
posted by ROU_Xenophobe at 8:02 PM on November 12, 2002

The Commerce Clause empowers Congress to regulate commerce between the various states. On the flip-side, the CC has also been determined to prohibit states from interfering with interstate commerce (aka the dormant commerce clause).

Imposing a sales tax collection obligation on a remote seller (an internet or mail order retailer for example) was determined -- in the Quill case most recently -- to be an interference with interstate commerce. For more on what constitute intereference with interstate commerce see Complete Auto Body.

In Quill, the SCt basically said it would not have decided the case that way had it not been for stare decisis and the fact that a whole industry (the mail order industry) had developed around this brightline test. They also said it was up to congress to act. Congress could act to empower the states to impose such a sales tax collection obligation.

The Tax Fairness to Mainstreet Business Act (or something like that) was introduced around '94 in response but never passed.

By simplifying the sales tax regimes, which are very complicated in almost every state (for example large marshmellows are taxable but small are not in NY) the states hope to get Congress to pass a law empowering them to collect taxes from remote sellers under these simplified sales tax regimes. Without such a federal law, sales tax collection obligations on remote internet or mailorder retailers are likely to be found unconsitutional.

The states, however, also think that under a simplified system they might be able to take another shot at Quill because the system would then be less burdensome on interstate commerce.
posted by probablysteve at 8:22 PM on November 12, 2002

Libertarian Economic Manifesto For Beginners

1. Demand that the tax code is replaced with a sales tax.
2. Complain that interstate sales taxes are evil.

which, if put into practice, leads to:

3. Decide to show off your freedom by making your purchases online.
4. Complain that the local shops are closing their doors.

and finally:

5. Complain that the postman can't deliver your groceries from out of state, because the road isn't being maintained.
posted by riviera at 9:17 PM on November 12, 2002

Liberal Economic Manifesto - For the Same Beginners

1. Demand tax revenues from anyone you can possibly think of.
2. Vigorously assert not only that you have no burden to meet, but that anyone that argues against a new tax needs to come up with compelling reasons why they shouldn't have to pay (after all, people don't own their own income - you own it - you only allow people to keep some percentage of it).

which, if put in practice, leads to

1. People are simply selfish if they don't want to give you more money for your noble missions. Call them selfish, loudly and publicly.

2. Make certain to use the word "freedom" only with a cleverly ironic tone (it is vitally important that anyone using the word seriously be labeled a libertarian kook).

and finally:

Complain that more and more jobs are leaving your state, not because companies don't want to pay the additional taxes you've decided to levy, but because they are cruel and selfish entities that are unwilling to pay "their fair share".
posted by MidasMulligan at 10:34 PM on November 12, 2002

The Quill opinion mentioned by probablysteve, if anyone is interested. It's a pretty decent summary of the current law.

As far as the "its not fair to e-tailers" argument, I'd buy it if there were 50 different states trying to impose 50 different requirements on these business. But this is a national unified system for collecting the tax and distributing it back to the various states. As pointed out above, it's not creating a new tax so much as enabling the collection of taxes that are already on the books.

It would be nice if all states just imposed an income tax and did away with the regressive sales tax. However, in many states that's just not politically feasible. Many of these same states also have balanced budget amendments in their constitutions. If these states are going to keep the lights on, they are going to need to find ways to increase their revenue. Given the unfairness of the current situation to brick and mortar retailers, this proposal seems like a perfectly reasonable solution.

Finally, Art I Sec 10 is totally irrelevant. "Imports" in the constitutional sense are things shipped from foreign countries, not other states.
posted by boltman at 10:42 PM on November 12, 2002

Thanks for the link Postroad. As the owner of a small "e-business" I was quite alarmed to hear about this. Right now only about 2% of my sales (those to my home state) are taxable. I spend about an hour each month compiling the data, filling out the form, writing the check, etc. Last month I got to keep a whopping 7 cents of what I collected in sales tax as a "collection allowance"--my fee for being an agent for the state. (Next month our state sales tax increases by 1% and our collection allowance is being cut by 17%). So if this goes through, I'll need to spend more than a week each month doing the paperwork so that I can get $3 in collection fees. Amazon can survive this; small guys like me cannot. This would put me out of business completely.
posted by AstroGuy at 10:57 PM on November 12, 2002

Midas you're so out of touch with reality.

Complain that more and more jobs are leaving your state, not because companies don't want to pay the additional taxes you've decided to levy, but because they are cruel and selfish entities that are unwilling to pay "their fair share".

Yep. And people like you who make excuses for them. Unless you are one of them of course. In which case that raises a conflict of interest insofar as you knowing anything about penning the "Liberal Economic Manifesto for Beginners".

Thing is we already have a bunch of suits running the "People's Party". And their suits certainly aren't meant to impress us. Tis not I who joins fabulously appointed brunches, luncheons. I might have worked them a time or two before (in prior jobs). But that's it. You're on the bottom, you do what your told, you pay when your told to pay and when it comes to the most financially elite corporations not paying a red dime, we're not told about it in any concerted media effort. Instead we're distracted by the obvious laziness of welfare recipients, the leech-like teachers and workers unions, the fat that falls off the tongues of conservative economic entertainment pundits. Sorry midas, tell your capitalist lackey in Washington that you want the corporation you work for to pay its fair share and then, you'll maybe have an honest point.
posted by crasspastor at 11:52 PM on November 12, 2002

People are simply selfish if they don't want to give you more money for your noble missions

Exactly, local communities of like-minded people should get together and build things like hospitals, schools and roads (if they all feel it's in their immediate short term interest), and we could do away with taxation for good and stop putting up with Big Government running our lives for us.

Complain that more and more jobs are leaving your state, not because companies don't want to pay the additional taxes you've decided to levy, but because they are cruel and selfish entities that are unwilling to pay "their fair share".

On the other hand Midas, companies could just start holding states to ransom by threatening to leave for another state with lower taxes, kicking of a nation-wide taxation limbo-dance (how low can you go!), until we're back in the kind of 'might makes right' feudal state that most of us were happy to see relegated to the 1400's
posted by backOfYourMind at 5:54 AM on November 13, 2002

Yeah, yeah, Midas. I know. It's not 'tax evasion', it's 'tax avoidance'.

(Which is why your response was neither accurate nor amusing -- strange, that -- since what's being discussed isn't a 'new tax' at all. Now, if there were to be a tax levied on every time one blusters of how one's personal business skills has fed the starving and, yea! parted the waves, I should understand your concern.)
posted by riviera at 6:09 AM on November 13, 2002

since what's being discussed isn't a 'new tax' at all

true, it's a tax we all should have been paying.

so have you all filed your use tax returns for all of your mail order and internet purchases? if not, guess what ... you're tax evaders too.

but don't fret, if you didn't file a return the statue of limitations hasn't started running on any years yet, so you're still liable for the use tax on any purchase you've ever made from an internet e-tailer or mail order retailer. just call up your state department of revenue and they'll be glad to assist you in making amends, plus interest and penalty (probably a failure to file and a failure to pay penalty) of course.

backOfYourMind: we're past the how low can you go dance, we're into the what can we do for you other than not make you pay taxes for a few years dance. it's called incentives.
posted by probablysteve at 6:31 AM on November 13, 2002

Which is why your response was neither accurate nor amusing -- strange, that -- since what's being discussed isn't a 'new tax' at all.

Is was as accurate and amusing as your snarky post. But you do, quite clearly, illustrate the point. It isn't a "new tax" being talked about. What "right" does anyone have to complain? I hope you read AstroGuy's post carefully, however. That is going to be the most common effect. Not additional revenues from the few huge corporations that you apparently think simply owe any damn thing you choose to charge them, but thousands of small businesses that will will face a significant new administrative burden - many of whom operate on such small margins that they will just go out of business.

Tell you what - I'll agree to a tax on businesspeople that talk about how they create jobs, if you agree to one on social crusaders that "bluster" about how evil and selfish businessmen are (we'll raise so much from that one that we won't need to tax the intertnet).
posted by MidasMulligan at 6:57 AM on November 13, 2002

Just read the Michigan Department of Treasury Use Tax FAQ. This is quite possibly the dummest thing I've ever heard of. Paradigm shift indeed.
posted by PinkStainlessTail at 7:05 AM on November 13, 2002

didn't nancy reagan have ANY impact on you guys?

Just. Say. No.

(smartass grin)
posted by tgrundke at 7:09 AM on November 13, 2002

On the other hand Midas, companies could just start holding states to ransom by threatening to leave for another state with lower taxes, kicking of a nation-wide taxation limbo-dance (how low can you go!), until we're back in the kind of 'might makes right' feudal state that most of us were happy to see relegated to the 1400's

If this would actually work, every company would be located in Delaware right now.
posted by drezdn at 7:34 AM on November 13, 2002

Is was as accurate and amusing as your snarky post.

Is it was it was? Ooh, stick you.

Tell you what - I'll agree to a tax on businesspeople that talk about how they create jobs, if you agree to one on social crusaders that "bluster" about how evil and selfish businessmen are (we'll raise so much from that one that we won't need to tax the intertnet).

Sure, as long as you don't write off your Bluster Tax as a necessary business expense, filtered through a set of offshore Caribbean shell companies. And since when have I spoken of 'evil and selfish' businessmen? As much as I think you're a puffed-up ass, you're no Saddam Hussein. I'm happy to stick with ascribing to those of your ilk the more accurate epithets of 'blinkered, pompous, self-aggrandizing and addicted to the deeply disingenuous'.

As for AstroGuy's plight, that could be pragmatically remedied by an exemption based on turnover, recognising that administrative costs make enforcement self-deating: I'm sure it costs the state more to process those forms and small-value cheques than they raise. Or, more optimally, by a move away from regressive sales taxes on a state level. (Shock! Horror! Leftie in favour of tax reform!) Right now, though, he's benefitting from a loophole that bricks-and-mortar retailers have to deal with, and the glacial pace of the tax system. And if you're only profitable because of the vagueries of the tax system... well, it works for Richard Branson, I suppose.
posted by riviera at 7:57 AM on November 13, 2002

he's benefitting from a loophole

only if you consider the Commerce Clause of the US Constitution to be a loophole.

if you're only profitable because of the vagueries of the tax system

profit in this case has nothing to do with the tax because it's not the e-tailer paying the tax, it's the e-tailer collecting the tax from the remote purchaser and remitting that back to the states. it's the administrative costs of complying with 1000's of different taxing regimes.

why thousands? each state subjects different things to the sales tax. aside from the 40-something states with sales taxes, you have to deal with differing rates in the various counties because of county add-ons to the state rate. add to that the many exemptions to the sales tax that are available, farmers exemptions, manufacturing exemptions, charitable exemptions, etc.

it can be a real burden without sophisticated tax software to match up zip codes to the various jursidictions to determine rates and a team of lawyers/accountants to determine if your products are subject to sales taxes in these various locations.

every company would be located in Delaware right now

Delaware is mainly popular for incorporation because of favorable corporate laws as opposed to it's state tax laws. However, don't think that every large corporation isn't using Delaware holding companies -- or some derivative thereof -- as part of a state tax minimization plan.
posted by probablysteve at 10:29 AM on November 13, 2002

Sure, as long as you don't write off your Bluster Tax as a necessary business expense, filtered through a set of offshore Caribbean shell companies.

Of course I will. Guess what - if a state taxes me to death, I'll move to another state. If you want to then try to impose it federally, I'll move operations to another country. Maybe someday those of your ilk will realize people like me have to create value before people like you can tax it.

And since when have I spoken of 'evil and selfish' businessmen?

Last time I can think of was in the previous sentence:
" ... as long as you don't write off your Bluster Tax as a necessary business expense, filtered through a set of offshore Caribbean shell companies ..."
This is your view of businessmen, is it?

As much as I think you're a puffed-up ass, you're no Saddam Hussein. I'm happy to stick with ascribing to those of your ilk the more accurate epithets of 'blinkered, pompous, self-aggrandizing and addicted to the deeply disingenuous'.

Cool - let's trade personal insults. You are so much fun. While you do appear to be a slightly unusual version of an ordinary, run-of-the-mill liberal guilt-tripping asswipe (who always want to benefit and embrace all of humanity, except for anyone that disagrees with them - they, obviously, deserve nothing but viciousness). Your opinion means very little to me or my buddies because we're rich, and our friends now own the White House and both Houses of Congress. Curse away all you want with your petty nastiness bucko ... if it makes your poor little bruised ego feel any better.

There's a world full of countries that do think American businessmen add value, and welcome them (and the jobs they create) eagerly instead of cursing them with cheap shots.
posted by MidasMulligan at 2:18 PM on November 13, 2002

probably steve: according to the article,
Under the Streamlined Sales Tax Project proposal, states would be required to establish uniform definitions for taxable goods and services, and maintain a single statewide tax rate for each type of product. The project also seeks to simplify tax reporting requirements for online sellers. Currently, there are more than 7,000 different state and local tax jurisdictions nationwide.

AND

Under the states' plan, online sellers would be required to purchase approved software to compute the appropriate state and local taxes or to certify with the state any in-house calculation systems already in place. E-tailers could choose to outsource tax collection to a certified third-party under the states' plan.

Seems as though they've thought this administrative thing through fairly well.

Also, if Congress passes the law described in the article there will be no danger of retailers moving from state to state to avoid taxes since states will be able to force them to collect sales taxes regardless of where the online merchant is physically located or incorporated.
posted by boltman at 2:35 PM on November 13, 2002

Seems as though they've thought this administrative thing through fairly well.

What they haven't thought through, however, is the politics of doing this. Any state that currently charges less sales tax than the figure they settle on is going to have pissed off residents. Every state currently charging more is going to be told to reduce its current income stream. A few states may agree on this - but when you start talking about all 50, the chances of getting agreement will be damn near impossible.
posted by MidasMulligan at 2:50 PM on November 13, 2002

Your opinion means very little to me or my buddies because we're rich, and our friends now own the White House and both Houses of Congress.

You (more or less) had me until you got to that point. Why'd you do it Midas? A government described like that is no more attractive to me than one run by your ideological opposites. Seriously, "were rich", "our friends own"? It is ugly, and if people believe that is really the way it is, it will not stay that way.
posted by thirteen at 3:20 PM on November 13, 2002

Midas: each state and even local governments can continue to impose whatever tax rate they want (thus the need for the software mentioned in the article). States merely have to agree on definitions for products. i.e. if they have a "snack tax" that's different from the normal food tax (as some do), all the states have to agree on the same definition of "snack."
posted by boltman at 10:57 PM on November 13, 2002

boltman: but, if they pass the federal law when only 20 states have the simplified system in place, that leaves a couple dozen other states out there with the old laws and the old compliance problems.

and the software can cost tens of thousands of dollars annually.
posted by probablysteve at 5:30 AM on November 14, 2002

the software can cost tens of thousands of dollars annually.

When every company in American needs it, that'll reduce the price dramatically. If I made such software, I'd offer to give it away and collect a "tax" of my own on all orders run through it over the next, say, decade.
posted by kindall at 9:53 AM on November 14, 2002

probablysteve: as I understand it, a state would have to simplify its tax code before it could take advantage of the federal law, even after it passes. If that's not the case, then it should be. I have absolutely no doubt that the remaining states would make the required changes to its tax code in order to collect from the out-of-state retailers.
posted by boltman at 10:06 AM on November 14, 2002