The most important is equal protection of the law. Target.com (as well as a lot of single store operations) have to pay sales tax on sales to Idaho residents because they have brick-and-mortar stores here. Why should Amazon be exempt from charging sales tax that most of their competitors have to charge? If sales tax seems pretty minor -- our sales tax in Idaho is 6%. For many businesses, that is more than their profit margin on sales. That's a huge advantage, and not a fair one. (Of course, you as a customer are supposed to pay that sales tax for out of state purchases already; in practice, most states will only catch you on this if you buy a car out of state and then register it.)
Another criticism of the proposed law is that a lot of small online retailers are going to have to keep track of sales taxes for all 50 states (and in some cases, for individual counties and cities). Yes, that's going to be something of an issue. But the law exempts small sellers:
(c) Small Seller Exception- A State is authorized to require a remote seller to collect sales and use taxes under this Act only if the remote seller has gross annual receipts in total remote sales in the United States in the preceding calendar year exceeding $1,000,000.If you are making a million a year in sales, you can afford whatever software revisions are required to your invoicing software to calculate sales tax based on zipcode. That's a one time investment.
UPDATE: My, what a lot of comments, and many of them quite thoughtful. (I mean, none of them start out, "Clayton, you ignorant fool.")
There are some good points, especially about the complexity of sales tax forms from state to state. I should point out that unless you are making pretty big sales, there is a good chance that nearly all your sales tax returns are going to be from about five to ten states. The bulk of ScopeRoller's sales in almost any year are California, Texas, Florida, Ohio. I know that I have never made a sale in Alaska, Hawaii, Wyoming, Vermont, and at least a dozen other states.
I agree that there is an apparent problem of taxation without representation -- an interesting problem.
One commenter suggested that a million dollars in sales might be $25,000 a year in profit, and complying with the requirements for software updates and filing of returns might well wipe out that profit. I suspect that any online business that is making that little profit is pretty unusual. I would wonder why someone is working that hard for that little profit.
Another commenter suggested that brick-and-mortar stores should pay sales taxes because they are relying on local governmental services, while Amazon relies on USPS and UPS. But the trucks from both are definitely not hovercraft; they use local roads, and if there are thefts or robberies of merchandise from UPS or other private delivery firms in the delivery state, that becomes a matter for local police. There might be a case for a for more service approach to governmental services, but within the current model, it is not clear that Amazon is completely unreliant on distant state governmental services.
The suggestion of taxing goods at point of sales is interesting, and would certainly be simpler. I rather like the idea.
I suspect that many medium sized businesses already use payment processing capabilities (like PayPal) that will handle this quite automatically.
This is simply taxation without representation. I'm disappointed that you don't care about that.
ReplyDeleteThat's a one time investment.
ReplyDeleteNot counting the continuous changes to tax policies around the country...
I believe the objection to the increased paperwork requirements lies not in the calculation, but the remittance of the taxes. Every taxing authority has their own forms and schedules for submission. Some of them are as frequent as monthly. It sounds to me like this will be a huge burden on any company that hits whatever the threshold is.
ReplyDeleteI'm living in Texas, but my son is going to school in Ohio. He had to fill out _four_ tax returns this year - federal, state, and two city returns. I can't imagine multiplying this by, not just fifty states, but by _every_ taxing authority in every state, and doing it monthly. Nightmare!
It doesn't follow that if you're making a million in sales you can afford whatever software it is. What's your profit margin on that million, and how much is the software? That million in sales may mean you have half a million to spend -- or it may mean that your spouse is supporting you for a year while you try to build / resurrect the business.
ReplyDeleteWhat are the time-costs to use the software? Keep in mind that taxed differently, so everything has to be appropriately classified. If you're an ebay reseller of whatever you can buy locally cheaply, or someone with a machine shop and/or 3D printer taking custom orders online, classifying everything may not be possible.
The reason that Target (e.g.) should collect sales taxes is because their brick and mortar stores rely on local services. Amazon relies on USPS and UPS.
ReplyDeleteThe problem isn't the software revisions, it's the audits from the thousands of entities that collect sales tax where you sell.
ReplyDeleteA much more sane system would be to tax the products at the point of sale, rather than delivery.
That would be much simpler, but also it would set off a probably healthy competition between states on sales taxes, as internet distributors move their warehouses to low/zero sales tax states.
The problem isn't the software revisions, it's the audits from the thousands of entities that collect sales tax where you sell.
ReplyDeleteA much more sane system would be to tax the products at the point of sale, rather than delivery.
That would be much simpler, but also it would set off a probably healthy competition between states on sales taxes, as internet distributors move their warehouses to low/zero sales tax states.
The complication isn't collecting the money in the first place -- a zipcode-based lookup table is trivial, and indeed already integrated with most payment providers. But as a small business operator, you don't merely have to collect the money and put it in a pile; you also have to fill out a form more complicated than the average income tax form, listing the sales for that jurisdiction and only that jurisdiction. That's significantly more complicated, and worse, something that can't be fixed solely by software but instead is defined by the state and federal government. You also have to figure out how regularly it must be done, since many states want sales taxes turn in quarterly or even monthly. Oh, and don't forget to stay up-to-date : the rules change on a regular basis. There are also one-time costs, as you discover that the folk in California absolutely require a distinction between two different service categories which have different rates and only an expert can tell apart.
ReplyDeleteAs it is, the first jurisdiction can take a few human-workdays. Fifty jurisdictions gets close to an entire part-time specialist, just handling that paperwork. And 6% of 1,000,000 in gross receipts is only 60,000 USD, which will hire a tax expert part-time... but probably not leave enough to feed the family afterwards.
((It /does/ cap at fifty jurisdictions, though, as the state is supposed to put together audits that handle the local taxes. Which makes the tax returns much more complicated and time-consuming, but limited in count.))
((Smaller businesses would also have to be able to demonstrate that they had less than that threshold of gross receipts, as well, which still adds to their regulatory burden to fully comply with the law. Most won't, but that's not a virtue to their acts or the law.))
Clayton, you are misinformed. There are likely many small companies who have in excess of $1 million in sales but that has no bearing whatsoever on their profitability or their ability to conform to this new law. They may sell $1 million in widgets and gross $25k on those sales. Keeping pace with 50+ tax jurisdictions is very expensive.
ReplyDeleteThis will kill even moderately-sized mom&pop firms.
This isn't about fairness for the brick-and-mortar stores, it's about Amazon and a few other large internet retailers trying to retain the competitive advantage that it's going to lose, soon, when the courts finally rule that having a distribution center in a state constitutes a tax nexus:
ReplyDeletehttp://market-ticker.org/akcs-www?post=220491
If this actually passes, the proof of the pudding will be the total number of online businesses before and after the tax goes into effect.
ReplyDeleteI'm thinking a lot of medium sized businesses ($1-25M) will simply cease operations.
"That's a one time investment."
ReplyDeleteNot really. I don't know how often sales taxes actually change, but state, county, and other local income taxes change on a regular basis. That means an ongoing maintenance cost. It may not be a lot, but it's definitely not a one-time thing.
So, does this mean that sales from paper catalogs that normally don't include sales tax will have to pay Sales Tax too? What's the real difference between a Sears Catalog and Sears.com? (Okay, bad example, because they have locations everywhere, but you get the point.)
ReplyDeleteThe metropolitan area I live in encompasses two states, five counties, a several dozen municipalities, as well as several enterprise zones each of which have their own sales tax rates.
ReplyDeleteIn order to have a completely neutral tax policy these rules should be imposed on bricks and mortar sellers as well as the online sellers. I'm sure that more than a few online sellers are small bricks and mortar sellers using Amazon, eBay, or some other online store-front service to reach out-of-state buyers.
I have a solution: The states in question should remove their sales taxes.
ReplyDeleteReplace them with income taxes, which is what (per Rothbard) a sales tax analyses down to anyway.
The only "problem" there is that now nobody can ignore the State's cut as easily ... which I don't see as a problem.
North - no, it's tax collection without representation. The buyer pays the tax, and if he doesn't like it, he can vote the bums out (and in many states, vote directly on the tax). We've long since given up any principled objection to the idea of having corporations be tax collectors.
ReplyDeleteJdege - Not quite. Amazon has decided to compete with bigger retailers by making their shipping even faster, which requires physical presence in more places. That means they've switched sides - they're in the same situation as WalMart and Best Buy out of competitive pressures. Companies who sell through Amazon.com are generally larger than those who sell through eBay, and Amazon may provide tax-filing support for the smaller ones.
Josh brings up something that has been discussed before - it's one thing to collect and pay the taxes, it's another to comply with the paperwork. There ought to be some sort of threshold below which you don't have to file more than annually, despite the state's requirements, and a requirement that there be a single form for out-of state sellers to just list total sales, total taxes, and send a check. (If I were writing the law, I'd include something exempting out-of-state sellers from collecting local supplements, except when it reached a particular threshold. California has *hundreds* of separate taxing jurisdictions, and zip codes don't always keep up with city limits.)
Sigivald - that may be fine in theory, but not so much in practice. Income taxes are much more volatile revenue streams, though raising the base rates doesn't make that as bad as "taxing the rich" does.