12 replies to this topic

[motorcity]

If a little-known but influential alliance of state politicians, large retailers, and tax collectors have their way, the days of tax-free Internet shopping may be nearly over.

A bill expected to be introduced in the U.S. Congress as early as Monday would rewrite the ground rules for mail order and Internet sales by eliminating what its supporters view as a "loophole" that, in many cases, allows Americans to shop over the Internet without paying sales taxes.

Currently, Americans who shop over the Internet from out-of-state vendors aren't always required to pay sales taxes at the time of purchase. Californians buying books from Amazon.com or cameras from Manhattan's B&H Photo, for example, won't pay sales taxes at checkout time that they would if shopping at a local mall.

"We will have the bill ready for introduction by next Monday," said Neal Osten of the National Conference of State Legislatures. "We finalized the language and now we're working out the remaining issues and adding some new provisions at the request of various stakeholders."
Link to cnet article

It seems like there's a constitutional problem with this; (Article I. Section 9. Clause 5. "No Tax or Duty shall be laid on Articles exported from any State") but I'm no lawyer, and the US Constitution doesn't seem to matter as much these days.

I suspect many of us e-commerce /brick & mortar merchants could care less about collecting additional tax for the jurisdiction we already pay every month. But what would this do to internet sales? Will customers still buy or just forget about it?

Maybe oscommerce can handle a few dozen or so different tax rates among 50 states, but how would you keep up with the changing laws, various payment deadlines, and specific rules?
State sales tax rates

Is this the end of e-commerce? The internet, Google, and this forum?

[HallMarc]

Whether a store owner charges tax or not, they still have to pay taxes on all income. I doubt this has slipped past anyone. I believe what Congress is looking at is a uniform internet sales tax that can be applied.

Here is where the problem lies. Store owners can't charge a sales tax on shoppers outside of their zone (state and/or local) yet they still have to pay taxes on the sale. ATM they can't work it into the product price without effectively double taxing the local shoppers.

Edited by HallMarc, 21 April 2009, 15:45.

[MrPhil]

Both of you are wrong on this.

The basic problem is that if I buy out of state, the seller isn't required to collect and remit my state's sales tax to my state. Sales tax collections decline, so states have to jack up their rates or raise income taxes or do something to pay for the services we demand.

What's going to happen is that the exemption on collecting out-of-state sales tax is going to be repealed. Internet sales will have to play by the same rules as everyone else. The playing field is being leveled. Internet sales were exempted for a while to give them a chance to achieve critical mass, but now they are so big that they threaten the existence of brick and mortar stores (the ones in your town, that employ local people and have to collect sales taxes).

Is this going to be painless for e-commerce? Of course not. We will have to figure out a way to determine the correct sales tax for all purchasers, no matter where they are. States need to do their part by simplifying tax collection. For example, New York collects sales tax based on the purchaser's address, not the seller's. The state will need to go to ZIP code-based tax rates, or in some other way make it feasible to determine what the correct rate is (rather than trying to figure out the exact street address, which city, and which county). Let's not even talk about the multiple tax rates for different things in any one jurisdiction.

Hysteria and misinformation aren't going to make the problem go away. What we need to do is to get our states to implement rational sales tax systems that stand a chance of getting the right rate (if there are multiple rates within a state). I'm sure giants like Amazon want that just as much as little guys like us.

[WoodsWalker]

Canada is busy doing much the same thing (for bricks-and-mortar and internet retailers alike) by combining federal tax and provincial tax into one big tax, called a "harmonized sales tax". As in US states, up until recently Canadian provinces each had their own retail sales tax, which varied from province to province.

Getting the job accomplished will take some doing, and people will be frustrated with the changes - but they certainly won't stop buying things! Nothing to fuss about, IMHO.

~Wendy

[motorcity]

The problem I have with this is the lack of smarts by typical government thugs throwing their weight around, all those dollar signs in their eyes blind them from the totally obvious. Especially when they can neatly group you into a category they have no need to understand; small biz retail = easy mark.

As a brick & mortar/e-commerce retailer we collect our State’s sales tax for free, and pay that government for it every month. With special emphasis on every penny, and our fanny documented & covered for anyone exempted from the tax.
What number of customers are visiting my store from other states is not my concern, but that doesn’t mean I’m not aware of it. Are they using or consuming what they bought while visiting my State or are they taking it home across the border? It seems like a safe assumption that this is a two way street and even the big bad state government knows worrying about those mis-paid pennies is not worth the effort.

So to get behind the brilliant idea of the uniform internet sales tax you have to believe that somehow your State is losing taxable sales dollars the state should be able to collect. And you have to believe all those e-commerce operations in your own state somehow manage to avoid spending any of it in your state. There is no limit on how many times a single dollar gets taxed. Getting it over the border = State sales tax income no matter what.

It's a bad idea on principle because States are supposed to be competing with each other for your dollars, not colluding with other States to confiscate it.

It's also a bad idea IMO because big retailers are big business. They have the time, money and resources to arrange special deals and exemptions for themselves whether that involves a profitable activity, or anything else.
IE. In Michigan by law we have to put price stickers on every product we sell, that is a cost of sale 'Big Box' stores like Walmart don't have because they lobbied the State government for an exception.

Truly small businesses, like probably every single osCommerce user waste enough of their time complying with government demands already.

[Coopco]

Isn't there supposed to be free trade between states?

[MrPhil]

motorcity, on Apr 27 2009, 07:19 AM, said:

The problem I have with this is the lack of smarts by typical government thugs throwing their weight around

OK, it's easy to see that you're a Rush ditto-head. Hey, I don't like paying taxes (or collecting them) any more than the next guy, and feel that too much of it is wasted and spent inefficiently or even corruptly, but taxes are the price we pay for services like fire, police, roads, schools, etc. Without government services, society would crumble into complete anarchy (worse than it is now).

Now, my understanding of the proposed changes is that buyers would have to pay the proper sales tax for their locality and it would have to be remitted to their state. So if I buy from you, I pay my applicable sales tax to my state, not yours. Is your understanding different?

Quote

What number of customers are visiting my store from other states is not my concern, but that doesn’t mean I’m not aware of it. Are they using or consuming what they bought while visiting my State or are they taking it home across the border? It seems like a safe assumption that this is a two way street and even the big bad state government knows worrying about those mis-paid pennies is not worth the effort.

So what's your point? Some product is sold in your state, sales tax is collected, government is funded. Who cares if it is consumed in-state or across the border? If you cross into another state and buy something there (paying sales tax), and bring it back to Michigan, has some state lost? Both states have collected revenue to fund operations, rather than nothing.

Quote

So to get behind the brilliant idea of the uniform internet sales tax you have to believe that somehow your State is losing taxable sales dollars the state should be able to collect.

If I go to the local Barnes & Noble and buy $100 worth of books, my state and county share in $8 of taxes. Sure, I'd like to avoid paying that. So I order from Amazon.com in some other state (let's say, California) and don't pay sales tax to any state. Now my state has to provide services to me, with nothing to pay for it. California doesn't collect anything either. I'm supposed to report the purchases on my income tax form, and pay the missed sales tax, but I doubt many people actually do that.

Whether a uniform, federally administered sales tax (for not just Internet sales, but also mail and phone order out of state) is the right answer, I don't know. Certainly, states could make it a lot easier to determine what's taxable and what the rates are. Even within a state, what's taxable (and the rate applied) can vary from county to county and city to city. Sure, it would be a nightmare to figure taxes on out-of-state buyers if nothing is done to harmonize tax laws before requiring their collection.

Quote

And you have to believe all those e-commerce operations in your own state somehow manage to avoid spending any of it in your state. There is no limit on how many times a single dollar gets taxed. Getting it over the border = State sales tax income no matter what.

What does that have to do with the price of tea in China? Of course, an e-store in my state will have to pay income taxes on sales and sales tax on retail purchases. Just as if it were a bricks and mortar operation. The point is that my state is missing out on sales taxes for items purchased out-of-state by its residents. Is it fair to society to have to pay sales tax if I walk into a local store, but I can buy tax free across state lines? I'm still demanding government services here, but not helping to pay for them.

Quote

It's a bad idea on principle because States are supposed to be competing with each other for your dollars, not colluding with other States to confiscate it.

Be careful about engaging in a "race to the bottom". If you demand services from your state and local governments, they will need to make up the revenue shortfall somewhere, and that means a higher sales tax rate (driving even more sales out of state) and/or higher income tax rates. People without computers and credit cards will be hurt the worst by higher sales tax rates, and we all suffer from higher income tax rates.

Quote

It's also a bad idea IMO because big retailers are big business. They have the time, money and resources to arrange special deals and exemptions for themselves whether that involves a profitable activity, or anything else.
IE. In Michigan by law we have to put price stickers on every product we sell, that is a cost of sale 'Big Box' stores like Walmart don't have because they lobbied the State government for an exception.

If your state government is corrupt enough that lobbyists can buy such exemptions from the legislature, then you do have a problem.

Coopco, on Apr 27 2009, 07:43 AM, said:

Isn't there supposed to be free trade between states?

The Constitution forbids states from imposing their own duties and fees on imports from other states. That would not appear to cover sales tax on items purchased out of state, taxes that would be imposed on purchasers in-state. If Nebraska wants to put a special sales tax on lobsters, rather than special duties and taxes on products shipped from, say, Maine, they can do that. There's no domestic lobster fishery to protect in Nebraska, so the end result is similar. If Nebraska were to tax corn (maize) imports from other states (presumably to protect its own corn farmers), but not levy the same tax on in-state corn, that would clearly violate the interstate commerce provisions of the Constitution.

[RhinoFish]

I know tons about the ins and outs of this proposed legislation, in fact, it's one prime reason why I'm here in this forum (but I'll leave that alone for now). For you constitutionalists, I lean with you, but you're missing what's happening here. All of the states feel they are missing tax revenue (and they are, more below), so they are joining the coalition writing the propsed legislation. States that join do give in to a steamlined system (so we merchants don't have to deal with the complexities of taxing every state and country and district)... but remember, the states are giving up the complexity so they can share a piece of the online pie. States are willingly joining this legislative movement... the constitution forbids one state from imposing taxes on another (under certain conditions), but this isn't imposing anything, the states in the coalition are there by choice.

Old days: local stores were everywhere, there was very little B2C cross state border commerce - most everything bought and sold generated state tax revenues for that state.
Today: cross state border shipping is very common, a lot of interstate commerce isn't being taxed.

So the states are banding together and simplifying their sales taxation in a coalition, to attract other states to do the same. Merchants like us will remit a streamlined tax to an authority the legislation creates, and there will be existing agreements within the state's coalition as to how those funds are shared, distributed and paid. They are dealing with complexities like a person from oregon who is on vacation in california goes online, buys some flowers from a flower broker company in illinois, who has a delivery guy in fliroda where the customer's mom is located and they get delivered to her office which is in a reduced tax development zone downtown... the merchant won't habe to worry about much at all, the coalition will figure it out. States get revenue, merchants are relieved of the complexities, but consumer's pay more tax. Brick and mortar stores are happy, they are put on equal footing with online competitiors. Hybrid stores that are online and brick and mortar, many who are unfairly penalized in two ways (taxed and complicated schema) are also relieved.

Good news for us online types... other than sales tax, there are tons of other reasons for folks to shop online (convenience, travel, gas prices, larger selection, etc) and we stores can still maintain a much lower overhead and inventory and costs than brick and mortar types anyhow.

So not much will radically change, but the state coffers will fill.

[KenCutway]

MrPhil, on Apr 22 2009, 10:57 PM, said:

Both of you are wrong on this.

The basic problem is that if I buy out of state, the seller isn't required to collect and remit my state's sales tax to my state. Sales tax collections decline, so states have to jack up their rates or raise income taxes or do something to pay for the services we demand.

What's going to happen is that the exemption on collecting out-of-state sales tax is going to be repealed. Internet sales will have to play by the same rules as everyone else. The playing field is being leveled. Internet sales were exempted for a while to give them a chance to achieve critical mass, but now they are so big that they threaten the existence of brick and mortar stores (the ones in your town, that employ local people and have to collect sales taxes).

Is this going to be painless for e-commerce? Of course not. We will have to figure out a way to determine the correct sales tax for all purchasers, no matter where they are. States need to do their part by simplifying tax collection. For example, New York collects sales tax based on the purchaser's address, not the seller's. The state will need to go to ZIP code-based tax rates, or in some other way make it feasible to determine what the correct rate is (rather than trying to figure out the exact street address, which city, and which county). Let's not even talk about the multiple tax rates for different things in any one jurisdiction.

Hysteria and misinformation aren't going to make the problem go away. What we need to do is to get our states to implement rational sales tax systems that stand a chance of getting the right rate (if there are multiple rates within a state). I'm sure giants like Amazon want that just as much as little guys like us.

[KenCutway]

Sales Tax may vary from State to State and typical with a brick and mortar company. But still all the same sales tax is charged to the end user. business to business, to a contractor. a wholesaler still could get around haveing to charge sales tax?

[jhande]

Ok, I admit that I haven't been following the new tax issue.

But I would like to add a little tid bit of info to this scenario.

Here in New Hampshire there is no sales tax. I don't charge any from either my brick-n-mortar store or e-commerce site.
I do not have to claim any money to either State or Federal governments until I make $50,000 profit or more a year.

Vermont (State right next to me) charges sales tax. I walk into a store, purchase a candy bar and get charged sales tax. But I can go to some car dealers located near the border, purchase either a used or new car and pay no sales tax because I live in NH and that's where the car will be registered. If I buy something from an e-commerce site based in VT, I pay no sales tax because the product is being shipped to NH.

Years ago when I was still living in Connecticut we had State sales tax. Sales tax was charged in brick-n-motar shops but not e-commerce sites. Then rumor had it that a new bill was going to be passed to collect online sales tax which also included certain other "reciprocating" States. I talked with my accountant and lawyer to find out exactly what and how I was supposed to do to implement the new taxing. I was told not to panic as all sales were taxed based on CT's tax rate. So the easiest (I wasn't using a very good e-commerce cart) way was to either raise my online prices by CT's tax rate (I believe it was still 7.5% back then) or eat the difference. I left CT in 2000 and never had any issues with the so called online taxes. All the money from sales had to be filed for taxes (not just profit). Thus sales tax was paid to just CT.

Now we all know our government officials don't always see the big picture and work out the bugs before implementing laws and regulations. Humm, maybe they went to school with Bill Gates? But I think someone sitting in a cozy chair getting over paid will see a problem that needs to be resolved. I hope! There's no way every e-commerce site can charge for every possible combination of State and/or County tax rates, look at New York for an example. There would have to be either a standardized online tax rate or just simply charge your State sales tax.

I mean come on now, think about...
I sell a product to someone in New York and one to someone in Florida. Let's say I do have to claim the sales tax. I file my tax returns to my State and/or Federal. Now who exactly is going to take the time and effort to seperate the tax money and send it to New York and Florida? Does that mean I the store owner will have to file tax returns to each State/County that I have sold and shipped items to? Won't happen, my paper shredder is ready!

The politicians have been trying for years to collect revenue from online sales. Until they can propose a simple and doable plan to collect the taxes, I just don't see it happening.

[RhinoFish]

"Until they can propose a simple and doable plan to collect the taxes, I just don't see it happening."

Which is exactly what this legislation aims to do.

[rampurhaat]

jhande, on May 19 2009, 05:11 PM, said:

I mean come on now, think about...
I sell a product to someone in New York and one to someone in Florida. Let's say I do have to claim the sales tax. I file my tax returns to my State and/or Federal. Now who exactly is going to take the time and effort to seperate the tax money and send it to New York and Florida? Does that mean I the store owner will have to file tax returns to each State/County that I have sold and shipped items to? Won't happen, my paper shredder is ready!

Good question. Newbie here and not sure that I understand this entire thing, but the questions here sound quite legitimate and of concern.

What happens to the states that have no sales tax? Does it actually mean that many businesses located in such states start gaining an added advantage since now the online customers will start prefering these ones?

Also, as a customer, do you end up paying double-tax by any chance? Once to the state that you are buying from, and once to your own state?

Edited by rampurhaat, 20 June 2009, 02:43.