Days numbered for tax-free Net sales

The halcyon days of tax-free Internet shopping may be about to end.

A powerful alliance of politicians, including key U.S. senators and the National Governors Association, is arguing that out-of-state retailers must be required to charge sales taxes on purchases. At the moment, for instance, companies like Seattle-based Amazon.com are not required to collect sales taxes on shipments to millions of its customers in California.

This is hardly a new debate: officials from the governors' association have been pressing Congress to enact such a law for at least six years. They invoke arguments, which have been unsuccessful so far, like saying that reduced sales tax revenue threatens budgets for schools and police.

What has changed, however, is the political dynamic. While its precise contours are difficult to map, a Democrat-controlled Congress is seen as more likely to agree to the idea than one controlled by Republicans.

"When you have a Democratic majority in Congress, that Congress will be more friendly to imposing new burdens on business if it means additional tax collection," said Steve DelBianco, executive director of the NetChoice coalition, which counts as members eBay, Yahoo and the Electronic Retailing Association and opposes the sales tax plan.

Another factor that could tip the scales in Washington in favor of the pro-sales tax forces is a concept called the Streamlined Sales Tax Agreement, invented in 2002 by state tax officials hoping to straighten out some of the notorious convolutions of state tax laws. If that happens, they believe, it will be easier to convince Congress to make sales collection mandatory for out-of-state retailers.

"Without any doubt, Congress will eventually approve legislation to give states that comply with the (agreement) mandatory collection authority for out-of-state transactions," said Neal Osten, federal affairs counsel for the National Conference of State Legislatures. "We expect that the legislation will be introduced shortly in this Congress."

So far, 22 states have signed onto the project by enacting legislation to simplify their tax codes, Osten said. "We believe that with the system operational, with software and online collection available, sellers volunteering and revenues being collected, Congress will consider the legislation and indeed approve it," he added in an e-mail message.

Sticky debate over "candy" definition
A simplification effort is key because of the dizzying complexity of state tax laws. One example is the Streamlined Sales Tax Project's "Proposed Amendment to Definition of 'Candy'"--which is marked "not for publication" and tries to draw the line between when candy is food (and therefore exempt from tax) and when candy is not (and therefore can be taxed).

Flour as an ingredient became a sticky point. In 2003, a representative of Indiana, James Turner, noted that a proposed definition of candy would have taxed the Milky Way Midnight candy bar but not the original Milky Way bar. But further investigation showed that Turner's counter-proposal would have treated "certain flavors of Pop Tarts" and Cookies and Twix Crunchy Cookie Bars as candy--but not Cookies and Snickers Crunchy Cookie Bars. Peanut butter Girl Scout cookies would be candy, but Thin Mints or Caramel deLites would be classified as food.

Bizarre distinctions like this, coupled with the existence of more than 7,000 different tax agencies, explain why the U.S. Supreme Court ruled, in a 1992 case called Quill v. North Dakota, that out-of-state retailers generally couldn't be obligated to collect sales taxes unless Congress changes the law. The justices noted: "Congress is now free to decide whether, when, and to what extent the States may burden interstate mail order concerns with a duty to collect use taxes."

One exception to that is a legal concept called "nexus," which means a company can be forced to collect sales taxes if it has a sufficient business presence. A second exception is cigarette sales, which are covered by the Jenkins Act.

[menty666]

Use Tax?

Ok, let's assume for a moment that the use tax does what it's supposed to, theoretically it pays for the upkeep of the infrastructure used to bring the goods to their final home. So I order a printer from an out of state merchant. The merchant then contracts with UPS to bring the item to me. UPS pays taxes to the town/state/mob and brings me my printer. At what point did *I* use the roadway to retrieve the printer? How is it that the state feels entitled to a tax here? Ugh, drives me batty.

[markdoiron]

Your Use Tax Assumption is Wrong

It's not about infrastructure; it's about where (which state) the product is finally put to use.

--mark d.

[dvthex]

Yes, Use Tax

You use it; they tax it.

You aren't being taxed for using the roadway; you are being taxed for using the printer after you receive it. However, to answer your question, you used the roadway when you hired UPS to act as your agent in transporting it.

While the Use Tax theoretically pays for the upkeep of the infrastructure, that is only because your representatives who enacted the tax decided to spend it that way - they could just as easily decide to spend it on a condo for their mistresses.

[Commander_Spock]

Why....

... would you want to use a "printer" in this "paperless" age!

[ewelch]

You're overthinking it

USE tax is simply saying that you are getting around paying tax
in your home state for a product that you bought out of state.
Thus denying the state revenue it should have to pay for roads
that everyone else paid for by buying their printers in-state.

The word USE is pretty much not the point. The point is that you
are not paying your fair share of the State's infrastructure and
governing burden.

Call it a FRED tax if you wish. The point is, you are avoiding
paying taxes and some other state is benefiting from that
choice.

As far as I can tell, no matter what they do this is going to end
up a mess and the consumer is the one that's going to be hurt.
And state revenue will not fully benefit. I can call my parents in
Oregon and ask them to buy me a camera and send it to me as a
gift. And I'll send them some other gift later. Oregon has no
sales tax. I just got around the tax thing, an there's no way to
enforce that in an economically feasible way.

The ONLY way to have a fair taxation system is a flat tax on
income. Say half of what we pay now. If everyone paid (with the
exception of those in poverty) a flat tax of 15 percent, the
government would be flush with funds, the IRS would become a
simple organization that takes payroll taxes and hands monies
over the the government to be distributed. Hundreds of billions
would be saved, and our government would be fully funded, and
we would end up with more money in our pockets in the end.

The US government's position is to impose a flat tax on the Iraqi
people. If they think that's the democratic way to tax a people,
then why the heck are we not so fortunate to have such a tax
system choice here?

Oh yeah, I forgot. The Plutocrats don't like paying taxes. Well,
some day the middle class is going to wake up to the fact we are
being robbed by robber barons once again and then we'll have a
revolution. I only hope it's a peaceful one waged in voting
booths.

[Dragon Forge]

A C C O U N T A B I L I T Y

Why is it the government is always seeking accountability from every one/thing else and relentlessly seeking that which they dictate is theirs? Only 50% of revenues collected is spent responsibly. We need a government that is restrained. One that has to examine their funds frugally.

One would assume that as the world's most powerful nation we need governmnt to keep our standard of living so high, at least subconsciously we do.

Accountability is always being fostered on any revenue generating entity, be it person or business.

There are too, too many business that whine and complain and lobby that they are so hard done by and in conjunction with the governments themselves who do the same and get downright mean and nasty, partly enforced by the no-mind public adminstration that has been instituted, that is just greedy, grabby glutonous, godless goofing on the over burden half of the population that can not really afford it.

The time is neigh to start making use of your citizenships and vote no for anyone in favor of further taxation.

Without a public scrutiny in place, without the government acting accountably, without the public e-mailing, phoning, writing your representative, it will just be another nail in the coffin of a free and just society, one that has real representation.

[thedreaming]

Already here

Taxing goods sold online is already here, most large online retailers already charge a sales tax, regardless of where you place your order. If everyone had to pay for such taxes it means more money for the states, since it's a state sales take and not a national one.

In the end, it's all about the money. The Government, wether local or national, sees a way to make alot of money with very little effort, just tax everything.

[twotall610]

Yes

It is called Shipping and handling.

[PzkwVIb]

Unless my State

starts to pay me to be a tax collector, I will not go to all of the trouble of keeping reciepts and toting up how much use tax I own. The State government works for us, we don't work for them.

I have no objection to the streamlined sales tax initiative,per se, but anymsolution that presumes to take my time and effort to give the State its "due" is one I don't care to support.

[Dr_Zinj]

Get rid of all sales taxes

Sales taxes are inheritantly unfair. With so many different laws in existance, world-wide, there's no fair way to implement it over the internet, short of implementing an internet use tax and then trying to redistribute the earnings to everyone who claims that they have a tax on sales.

If I open a company that selles exclusively on the internet, it's not practical for me to be expected to know and apply sales tax regulations for all 413+ sovereign countries of the world, every one of the thousands of states, territories, counties parrishes, cities, townships, etc.

Adding a qualifier of "significant presence" automatically means an unfair, subjective, discriminatory burden has placed on a business.

Taxes, no matter who levies them, should always be equitably and fairly applied, and should always be earmarked for a specific purpose. Otherwise, they are a tool of greedy politicians to steal other people's hard-earned money for their own selfish, pork-barrelled interests that ultimately benefit them and their small circles of cronies.

[ajbright]

Huh?

Alaska doesn't have any taxes so I don't pay if I order for myself, but I've always paid sales tax on any item from any online store when my orders are delivered to states that have sales tax.

You're telling me they are doing this out of the goodness of their hearts? I don't think so. The reason why this law is irrelevant is that individual states already have their own online sales tax laws in place. And if the online business operates outside of the US the law is unenforceable anyway.

[balonga]

no taxes on internet are justified

taxes on sales should only be justified for shops where the city infrastructure is part of the business and might have to be supported (doubts). That is not the case for Internet or ¿should we pay taxes to the WWWConsortium or the IPs?

[gbob1960]

Cut spending

Is there no end to more and more taxes?

Here's a new idea. How about cut spending?

[emagdnim015]

Yeah Right

I wish, but it's never gonna happen. To cut spending the politicians would have to cut funding from programs. This would upset voters and cause them to not get reelected. It's never gonna happen. Government is the least possible way to get anything done becuase there's no incentive to cut costs when you're spending someone elses money.

[fred dunn]

Then days numbered for Internet Commerce

Since by the time you figure in the shipping it probably won't be worth the wait. not to mention the cost of having to ship something back if the order is not right, etc.
Sell your Google stock if this happens because most of their advertisers are ecommerce and will be less likely to advertise to an audience that is no longer their base.

[billmosby]

Some tax already

ITunes is charging sales tax now, I think- some sort of tax, anyway.
Are other sites doing it? I don't want to sign up for just any amount
of new taxation, but I don't think the usual percentage would deter
me from internet purchases all that much.

[billmosby]

Also the Apple on line store

I forgot, anything I order from Apple on line gets taxed, I believe.

[Heebee Jeebies]

Have no problem with this...

I have no problem with out of state retailers collecting taxes. However, this is not something the consumer should have to do. The sellers should be made to do this. They are the ones that want to operate a business and accept sales from out of state.

As for this killing the sellings of things on the net, please people get a brain. When you end up spending $200 more for something by buying it locally plus tax verses buying it online for $200 less plus tax and shipping you are still going to go with the online purchase. Unless of course your a moron.

I just went through this. I bought a Sony camcorder. To buy it locally it would have been over $700. I got it only for less than $500. Even if the place where I bought it collected tax and even with shipping costs I would have saved a great deal of money.

Most local stores charge suggested retail. Frankly they are the ones I can figure out how they stay in business.

Either way the sellers should have to deal with the tax, they are the ones selling and in business no the consumers.

Maybe the states should consider collecting only half the tax amount for online sales.

Robert

[duggerdm]

Mixing problems.

The first step in understanding and solving a problem is always isolating the various components of the problem. The reason you have no problem with IN sales tax is because you aern't isolating the large number of problems involved. The first problem that should pop out to you is that we have a corrupt and incompetent government by anyones standard. Now you want to provide even more funds to them? It would seem even half bright to straighten out the political mess our so called two party system has become, long before we think about providing more funds for their corruption and incompetence to grow on. By the way - collecting taxes - no matter who does it also has an added cost to business - besides the tax. The more confusing the tax laws the more costly they are for both the gov and its forced tax collectors - the business person. Don't be so naive - "no problem with it." That lame attitude is what got us here.

[spice3d]

It won't happen in CA

I've been saying this for years. The thing you need to keep in mind is that those Amazon shipments coming into CA are TAXABLE in CA under the use tax laws and they have an army of auditors that enforce it. CA doesn't give a sh*t what the other states want and won't give up that revenue. NY won't do it either.

[declan00]

Actually it *has* happened in California

You say that California has an "army of auditors" that enforce the use tax.

Not quite. It's true they're very effective at collecting use taxes from companies, but individual taxpayers are a different story.

If you reread the story, you'll see we said:
"But compliance is spotty at best. California's Board of Equalization estimates the state lost $1.34 billion in 2003 because residents aren't paying use taxes."

[Dragon Forge]

Operating under illusions and misinformation

Oh boohoo the govt doesn have enough money to operate - yeah RIGHT!!!! ROFL

It is too bad all of you swallow and none of you knows how to keep track of all the things the various levels of government are spending tax dollars on. None of you really has a clue even when brought to the brink for a drink.

Do you for half a second imagine the government is losing out? NO!!! They see an opportunity to exploit the dimbulbs and are making a play for it. If you guys let them, then that just continues to be your hard luck.

Maybe you should kneel while you are swallowing all that malarky they are feeding you.

I guess if it feels good then why bother asking to even see the books or get an explanation - hahahah the ol' u.s. of a. comes out of the closet.

[fafafooey]

DemocRats: We can spend your money better than you

Democrats think you are better off giving them your money to spend - since you will just spend it on dumb stuff.

[mr3vil]

Pot, meet kettle

You say this while we're under a REPUBLICAN administration that continually refuses to operate within its means.

Not saying the Democrats are innocent of your claims, but c'mon let's be fair here.

[twotall610]

Republicans

Just look at the record federal deficit now. This was done the
republican majority congress with a republican president. To me it
is when the republicans get in it is spend,spend,spend.

[Christopher Hall]

That doesn't really matter

It doesn't matter WHO is in power. They're all going to screw you any way they can.

[Leria]

That's the one thing I hate about Democrats

That's the one thing that I hate about Democrats: they are ALWAYS wanting to put more taxes on the American people because they think we are 'wasting' money.

Frankly, we really need to go to no income tax and no sales tax.

As people have been pointing out, up until 1917 our federal government survived WITHOUT those two things. Why couldn't they do it now?

The reason: Because they keep on spending more and more money on our military, which is NOT necessary if the United States would butt out of disputes in countries that have nothing to do with us.

Sure, have a SMALL military to send to help stop things like the Genocide in Darfur, but other than that...... our nukes and police agencies protect us better than our military ever did and ever will.

[awgreer]

Internet taxs

With all the different state tax rates it will be a nightmare for the small seller to keep up. If they must tax internet sales, Congress should set a fixed rate the same for all, maybe in the range of 3-5%, and get on with it. The thousands of different sales tax rate in some states go by the city and or county! The fixed rate makes more sense to me.
A

[M C]

WA has bewen taxing this from day one, so what's new?

Washington has always had a "use tax" law (held over from mail-order catalog days) that states one must pay tax on all merchandise received from out-of-state. In addition, all internet and mail-order companies with a physical location in WA must pay (and thus charge) sales tax for WA residents.

SO unless this gets repealed, I say to the rest of the country, welcome to our world.

[mr3vil]

most states have it

I know Texas does, but the problem is it's unenforcable considering the state expects you to tally up all your out of state purchases and submit a sales tax return.

[Jane in KC]

I Know Dems Like Taxes, But ...

If they are stupid enough to push through legislation taxing internet sales of items delivered to addresses in states where the seller has no physical presence, they don't deserve to be in Congress. Democrats would enjoy much greater popularity if they would adopt some goals that help people instead of making life harder for them.

[LuvThatCO2]

What did you expect to happen when you put Democrats in power?

They'll talk the good talk during the campaign about being 'moderate' or even 'conservative', but the second they get into power all they see is dollar signs. They'll do anything they can to get their grubby hands on your precious, precious tax money, so they can dole it out to their special interest groups.

And I dont want to hear any complaining - this is the 'change' everyone appearently wanted. I hope you enjoy.

[Zupek]

Something to actually get done in this country instead of helping the rich

Not that hard to figure out, republicans care about themselves and only themselves. They also believe whatever their supreme overlord(GW) tells them. Democrats fight for what they believe which is exactly what we are better then you:) WE dont just fall over and accept it as fate.

[TennMom1]

I know what I expected

I voted for Democrats for two reasons: I want an end to the occupation of Iraq, and I want to retain what few constitutional rights Bush and the Republicans have not already taken. Thus far, the democratic majority has been an abject failure in my eyes. However, a lecture about Dems and money "grubbing" falls on deaf ears. The previous 6 years under Republican control were the most fiscally irresponsible in our nation's history. Republicans are just as money grubbing. The only difference is they want to either keep our money for themselves or give it to the already wealthy. The Dems want to give it to people who aren't willing to work for a living. Both parties are guilty of taking our money and squandering it. There's nothing to enjoy about either party, however, when choosing between two less than desirable options, I'll continue to choose the least harmful everytime, and I won't waste a minute of my time with regrets.

[dvwilbur]

International enforcement?

So, the US federal government is going to enforce the collection of state sales taxes on items purchased in Canada? Mexico? Interstate and international commerce are not under the control of the states and trying to keep companies informed of the insane and inane sales tax structures for 50 different states is quite ridiculous.

[marccooper]

It Beats Being Drafted

I dont like this tax either, but if we keep electing republicans there will be a draft and they will keep borrowing to pay for the war. Borrowing money and taxing are the same thing. If you believe the republicans have not raised taxes you are crazy. Spending is the real tax. If the government borrows money on the citizens behalfs to blow on a war, the citizens pay for it in the end with higher taxes, worse services, a weaker dollar, higher interest rates, etc. If the government doesnt raise spending but just raises taxes and pays down debt, the opposite effects tend to return the excess tax collected in the end. Taxes are a formality. Try to think in term of spending, what share of taxes you must pay, what services you get in return, and whether the government might eventually get you killed.

[ngreazel]

Like they ever give it back

"return the excess tax collected in the end"

That has to be one of the stupidest things I have read. The Federal Government will just keep spending every penny they get and Lord knows that you never get out what you put in with them.

The tax rates is too high all around, people expect the government to do for them what they should be doing for others and it will only be a matter of time before we are all working for bloated pig (I mean the government).

[Zupek]

Its called Politics

You wont find any politician actually looking our for the true good of the people(MAYBE russ feingold). There has never been a democracy that has looked out for its people, just the illusion that it is....do some research you'll find out how "great" this country ISNT

[Commander_Spock]

"You wont find any politician....

... actually looking our for the true good of the people(MAYBE russ feingold). There has never been a democracy that has looked out for its people, just the illusion that it is..."; Yet we have the Representatives of the Armed Services putting their lives on the lines for politicians and others to do what ever they are doing (inadequate equipment...). What happens to a country without an army to adequately defend it?

[JadedGamer]

Costs greater than income

Funny observation: In many ways, sales tax is akin to the casino's "rake" at a Poker table... :)

That said, the biggest flaw in the whole idea is the idea that the sum total will be positive. Having X thousand online retailers implement Y hundred thousand tax rules in their systems and transfer Z thousand transactions to Z thousand tax authorities around the world... the costs are staggering, and in the end that cost will be added to the retail price, leading to the customers not only paying the tax, but paying extra for the tax collection. How can the politicans think that (guesstimates) a $3 cost to collect a $1 tax is not wasting money?

As another poster wrote: If this goes through, American online retailing is dead.

At least your government isn't as evil (yet) as the Chinese ultra-state-capitalists who bill the criminal's family for the bullet used to execute him.

[trustedtoolkit]

Good! The Government Needs More

I am so happy to hear that the government wants to dig deeper and take more. We do not pay anywhere near enough in taxes already. This will give us an opportunity to pay higher prices to offset more money going to a government that is completely out of touch with Americans. This is a huge benefit to consumers and the average American.


Obviously, I am being fecicous. I am yet tourqued again by the shear greediness.

[cubicleslave1]

it's just pure greed

Why are they coming up with this new form of taxation? This is a paradigm shift. Before the internet came along, mail order sales were taxed a different way: if the customer lived in the same state where the business was located, and that state had a sales tax, then the customer would have to pay the sales tax. This is a practical way of doing things, and should be extended to internet sales if they really insist on a tax. It shouldn't matter whether you ordered by mail, phone, or internet to determine whether you pay a sales tax, because the internet is just a means by which the customer is able to interact with the seller. For example, in real life, you don't pay a sales tax in a retail store depending on whether you drove to the store or rode your bicycle. Another reason to avoid this new sales tax based on the customer's location: it opens a really nasty can of worms. If the customer's physical location can be used to determine tax owed, then what about customers from other countries? If you are an internet based mom-and-pop business, do you need to brush up on the sales tax policies of the UK, Sri Lanka, or whatever obscure countries your customer might place an order from. In short, any internet based sales tax should be based on the location of the business, and whether the customer lives in the same state as the business, just the way mail order has been handled for decades.

[Pokerfish]

It's not such a shift

Finish your thought: "Before the internet came along, mail order sales were taxed a different way: if the customer lived in the same state where the business was located, and that state had a sales tax, then the customer would have to pay the sales tax." ... But if the customer did not live in the same state as the business, he was STILL supposed to pay a "use tax" for the out of state purchase at tax time. The use tax exists to this day and is the basis for taxing online purchases. You're right that it shouldn't matter how the purchase is made. That's why the government has a good case that the use tax, which was originally created for mail-order purchases, applies just as well to online purchases. Indeed there are many practical problems with enforcement of the use tax, which is why few people are even aware of it, but the pending legislation will attempt some workable scheme. Afterall, there is only one thing the government goes out of its way to do--make it easy to collect your money.

"For example, in real life, you don't pay a sales tax in a retail store depending on whether you drove to the store or rode your bicycle." --> Where's this?

[Not-a-Blogger]

Since there will be more money whe will get a Tax Cut somewhere else right?

I have no problem with paying interstate sales tax as long as I get a tax break some where else. I mean after all the .gov has a balanced budget right?

[harmonii75]

Old dog, older tricks

Good grief! I hope this will be a wake-up call for liberals. FYI, Democrats troll the "working class" (aka poor people) for votes. One way they do this is by taxing businesses under the guise that it will prevent increases in or lower taxes for individuals. Unfortunately, these businesses in turn pass along the tax increases to the consumer. Anytime something increases a businesses operating costs, rest assured that you, the individual, will be paying the price. However, it's even worse than an increase in personal taxes because a sales tax isn't based on a person's income. Rich and poor alike will pay the same amount. While it won't be that big of a issue for the wealthier, it can be a huge deal for those who are not. And Dem's want to do this on a regular basis. Think about it next time you cast your vote.