Democrats Push for Internet Sales Taxes

http://news.cnet.com/8301-13578_3-20009603-38.html

by ojbyrne • 16 years ago

29 56 16 years ago

news.cnet.com

kungfooey• 16 years ago

The title is somewhat misleading. It's not really a new tax, just a different interpretation/application of an existing tax. I do love how these bills always come under such monikers as the "Main Street Fairness Act."

Lack of regulation is one part of what makes internet-based commerce so great. I wonder if services (ie: Basecamp, git, etc) would fall under the sales tax, further complicating the legal landscape of 'net based tools.

In the state of Tennessee, software development services that I render to local companies is already taxable under a 10% "use" tax (the state has no income tax, and developing software is considered creating something of 'use,' therefore, taxable).

mudil4• 16 years ago

Ronald Reagan liked to describe the sequence of actions that government typically takes toward private business:

"If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it."

http://online.wsj.com/article/SB1000142405274870457530457529...

_delirium6• 16 years ago

Does this comment add anything to the topic under discussion, or is it just a general "I hate taxes and love Ronald Reagan" political jab? Do we really want DailyKos-quality political discussion here?

mudil4• 16 years ago

The comment is what exactly happens when gov't sticks its nose into private enterprise. It is true regardless who says it.

_delirium6• 16 years ago

It does make some sense to me to rationalize it somehow, though not necessarily in this direction. It seems somewhat strange that if I sell stuff to people near me, sales tax is collected, but if I sell stuff to people far from me, sales tax isn't collected--- leads to perverse incentives against buying things that are already near you, and instead encouraging you to buy exactly the same thing from somewhere else where it has to be shipped to you.

itistoday3• 16 years ago

Yes, but how does this apply to intangible goods and services? I hope they're not planning on taxing that.

It also seems like something that would be very difficult to implement and enforce, you know, considering the whole no-boundaries thing.

mudil4• 16 years ago

You hope? You really hope for gov't to restraint itself? Good luck with that!

_delirium6• 16 years ago

It's mostly the physical goods that seems the most wasteful to me, so I'd be happy to limit it to that. The way we currently have it set up, stuff gets cross-shipped: there are stockpiles of widgets in both A and B, but due to the sales tax weirdness, the person in A orders theirs from B, and the person in B orders theirs from A, resulting in things being flown back and forth across the country for no real reason. It also ends up being somewhat regressive, because well-off people buying expensive things are much more likely to order them off the internet than poor people buying cheaper things are--- so poor people pay their local sales tax, and well-off people avoid it.

It's also logistically a bit easier to do it with physical goods, because you're necessarily shipping to an actual address.

Aaronontheweb• 16 years ago

Generally speaking, it's just best to keep government out of the economy where you can - if you give them an inch when it comes to taxation, they're going to take a mile. The state and federal government(s) of the United States do not have an income problem - they have a spending problem. New taxes aren't the answer.

codingthewheel• 16 years ago

As a freelance developer who sells software and services on the side, I can say this would hurt. Badly.

First, the clerical and administrative requirements. It's tough enough to set up e-commerce as it is without also having to track purchases by whatever state's perverse and Byzantine tax infrastructure. My God. But let's assume the payment gateways handled this at their end. Fine.

Next: the $$$. I don't know about you, but I'm not a good enough marketer (or developer) to overcome yet another 10% vig on my productivity. I already get to keep less than 50% of what I earn. If margins are razor thin at the equilibrium price point without taxes, then the addition of taxes simply causes business to fail. Not everybody's margins are this thin, but small businesses often are. And that's who this bill would ultimately hurt.

Not to mention geolocation issues. We already can't say with any certainty where a particular IP address hails from. Oh we can get it 80% of the time. But proxies, dynamic IPs, mobile connections, cloud the issue. What happens if you're actually in California, but your cellphone is talking to a relay in Nevada, and you live in Texas, but you're buying a product from a company based in Florida, but of course the actual product's not in Florida, it's at the warehouse in Missouri. The last person in the world I trust to make sense out of this is a politician, or a politician's trained IT monkey.

Ranting aside though, I don't see any way to change this. The government will have its due, and there's a notion of "implicit collusion" among corporations: which is that incrementally and over time, competition can be squashed by raising the barriers to entry through taxation and regulation.

The Internet threw a screwdriver into the gearworks, but rest assured, they'll get you my pretty. And your little dog, too.

avalara• 16 years ago

Pointing out Avalara's avatax. Solutions to this problem are not quite as expensive as you point out.

http://www.avalara.com/Sales-Tax-Web-Services

But still a cost, and taxation is still a vile form of theft.

MichaelSalib11• 16 years ago

taxation is still a vile form of theft.

Indeed, and that's why I long for the business paradise of Somalia, where no one ever has to pay any taxes.

rbranson• 16 years ago

"by avalara 3 minutes ago"

Nice job with the advertising.

MichaelSalib11• 16 years ago

Next: the $$$. I don't know about you, but I'm not a good enough marketer (or developer) to overcome yet another 10% vig on my productivity.

Is this a general principle that you're willing to defend? I mean, there are many marginal businesses that are not viable right now but that could be viable if they didn't have to pay taxes. Do you believe that all of these businesses should be forgiven from having to pay taxes?

Not to mention geolocation issues.

The article seemed to speak entirely about physical goods. And when you're talking about physical goods, it seems that geolocation issues aren't really a big deal: just tax based on the delivery state.

competition can be squashed by raising the barriers to entry through taxation and regulation.

That's one way to look at it. Alternatively, one might simply say that freeloading is bad and that internet retail allows some people to unfairly reduce their tax rates without a corresponding reduction in their use of state services. So, if young upper middle class folks buy lots of stuff on the internet and save $500 of sales tax every year, then the fact that they've come up with a clever way to screw over their fellow (older, not-so-upper-middle-class citizens) isn't really a sufficient justification for the state to preserve their little racket.

yummyfajitas4• 16 years ago

Is this a general principle that you're willing to defend?

I imagine (not being the original poster) that the general principle is that the benefits of increased government revenue should be weighed against the cost (to businesses and consumers) of increased taxation.

So yes, if the current level of taxation is preventing the creation of many new businesses, we probably should reduce taxes.

By the way, purchasing an item from another state uses very little in the way of state services, far less than purchasing from local retailers.

tzs• 16 years ago

"And when you're talking about physical goods, it seems that geolocation issues aren't really a big deal: just tax based on the delivery state."

Would it just be the state tax rate you have to worry about, or would it also include local taxes?

I'm in the state of Washington, and we have to collect sales tax on sales to Washington customers. The tax has to include local taxes. We've got a table from the state giving the rates for each location in the state.

There are 1.6 million rows in the table. The key is a thing called the "location", which is a state-assigned number. Fortunately, it turns out no zip+4 spans a location boundary, so we can use zip+4 to determine the rate. If the state's locations ever end up not being a superset of zip+4 places, then we'd have to go by the full address.

There is another huge table available from the state that lists every single address in the state and gives what location it is in. Of course, people don't always give their addresses in the canonical form that state uses. E.g., someone on "Martin Luther King Blvd" might enter "MLK Blvd", "ML King Blvd", and so on. Or they might say "st" instead of "blvd".

I'm sure a sufficiently clever and determined programmer could come up with heuristics to deal with that. E.g., if the state doesn't have an MLK street but does have MLK blvd, then it could guess that's what the user meant. If there are both, it might tell by street numbers if the ranges don't overlap, and of course there's a good chance those two roads would not be in the same zip code. So it is probably a tractable problem, but a pain in the ass that I sure don't want to deal with.

Now imagine having to do all this for all 50 states. Ugh.

r0s2• 16 years ago

"online retailers should be forced to collect the same taxes that brick-and-mortar retailers do."

Pretty sure all retailers are exempt from tax on out-of-state sales. But don't let that stop the money grab.

I'm personally more concerned with closing tax loopholes for the largest businesses and allocating funds from wasteful programs (DHS).

MichaelSalib11• 16 years ago

Pretty sure all retailers are exempt from tax on out-of-state sales.

I don't think this is true in most states. If I as a resident of MA buy something from a company in CA, the company doesn't have to collect the tax and pay it to MA, but I am still responsible for doing that.

steadicat• 16 years ago

You are responsible for doing that for Internet purchases as well. See orev's comment above:

Everyone is required to pay sales tax for purchases made over the Internet, there's just no way for the states to enforce it. That's why most state tax forms now ask you what purchases you've made online so they can add that into the tax. If you don't answer this question truthfully, then your liable for tax evasion.

orev• 16 years ago

The article (or at least the headline) frames this politically and that makes the author (or editor) a bad journalist. Everyone is required to pay sales tax for purchases made over the Internet, there's just no way for the states to enforce it. That's why most state tax forms now ask you what purchases you've made online so they can add that into the tax. If you don't answer this question truthfully, then your liable for tax evasion.

DanielBMarkham• 16 years ago

The saddest part about this story is going to be the people who will rationalize it, even though if it were 4 years ago and the opposite party, they would be raising hell.

kqr2• 16 years ago

Some states, such as California, already have a use tax. Although they cannot directly tax out of state businesses, they can push that burden onto its residents.

You are supposed to track all out of state purchases and pay the tax when you file your normal income tax.

In fact, software such as Turbo Tax, will automatically prompt you for it.

http://www.boe.ca.gov/sutax/faqusetax.htm

SkyMarshal• 16 years ago

What's ridiculous is that the financial industry just extorted a trillion dollars out of the US Government, and now instead of increasing taxes on the industry that makes money by moving money around, the government is looking to squeeze productive enterprises to make up some of the shortfall.

There's absolutely no justification for even having this discussion in Congress. Can we please have our Ghandi-esque civil disobedience revolt now?

dublinclontarf• 16 years ago

Would this not simply mean that even more business would move outside the US? OK for physical good's that won't happen but SaaS, why not relocate to ... Ireland or even better, Iceland (I know for a fact tax in Ireland is much lower, not sure about Iceland, that's an assumption based on something I vaguely remember reading).

TerminalDummy• 16 years ago

Why does my own party make me hate them more, and more, and more ?

sabat• 16 years ago

My thoughts exactly.

petercooper• 16 years ago

Scrap sales taxes and replace them with a single, national synchronized VAT. Say 10%. Sure, sure, it'll never happen because hundreds of thousands of people make their living out of taxes being complicated and screwing every one of you over, but hey, I'm a utopian.

jboydyhacker• 16 years ago

Why do you believe a VAT is less complicated than a sales tax. If the issue is conformity across jurisdictions, a 10% VAT made uniform us just as easy to do as making all sales tax 10%. And a Vat is far more complicated to collect since it has to be assessed at every stage of production.

In addition, a VAT discourages domestic production since it is not assessed on foreign production, only U.S. production and "value added" is taxed which is horrible if you want to promote U.S. manufacturing.

A sales tax is far better than a VAT. We don't need to copy Europe in every single way do we?

CRASCH• 16 years ago

I hope if they must implement this that they turn it on its head.

The sale would take place in the state that the seller is located in, not the buyer. At the very least it would be less work. One state tax code to deal with instead of 50. The bonus is that most online retailers already have to collect tax for in state purchases.

abalashov• 16 years ago

What state is the "seller" located in, in the case of an online store? :-)

Is "location" defined by the jurisdiction where an incorporated entity of some description is registered? Or where the business owner maintains residence? What if there are multiple owners; then, which one? Is it about where the servers are hosted?

All these attributes can be moved around; I live in Georgia but can register my corporation in Delaware. I can host my servers in Norway. And so on...

Democrats Push for Internet Sales Taxes

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