Tax-free Internet shopping days could be numbered
Americans gather at the base of the Capitol building in Washington, D.C., to protest the income tax and federal government overreaching. Rep. Ron Paul spoke at the rally earlier in the day.
(Credit: Declan McCullagh/News.com)If tax-hungry politicians get their way, the days of ordering items over the Internet and not paying sales tax may become just a fond memory.
Right now, if a California resident orders something from Seattle-based Amazon.com, for instance, he or she won't be charged sales tax at the time of purchase. That's because Amazon doesn't have offices in the state of California.
Pro-tax politicians want to change this by allowing California to force Amazon to collect and submit sales taxes--and they may have found an ally in a U.S. Congress that's controlled by Democrats. (Note: See our related story on new taxes on digital downloads.)
Two bills are pending in Congress that would allow tax collectors to target out-of-state Internet and mail-order retailers, and their supporters are optimistic about their political prospects.
"I certainly would love to see a floor vote," said Neal Osten, federal affairs counsel for the National Conference of State Legislatures (NCSL), a lobby group for state politicians. "We've heard encouraging words from the Democratic leadership in the House."
Meanwhile, pro-tax states are trying their own ways to circumvent a long-standing rule saying a retailer must have physical presence before it can be forced to collect taxes. One effort came from New York state, where legislators recently approved a measure requiring Amazon and other online retailers (that lack a physical presence in the state) to collect sales tax on New Yorkers' purchases.
That amounts to a declaration of war against Amazon, and a legal battle now seems all but inevitable.
This is not exactly a new debate. For years, politicians in state legislatures and the U.S. Congress have been arguing that the rise of e-commerce is causing them to miss out on potentially millions of taxpayer dollars. But now, with a Democratic Congress and a potentially Democratic administration next year, the arguments may gain more political traction.
Technically, of course, Americans in states with sales taxes are supposed to keep track of out-of-state purchases and cough up the necessary sales tax on April 15--the concept is known as a "use tax". But state tax collectors have long complained that in practice, that just doesn't happen, and that money has been unfairly left in taxpayers' pocketbooks.
Verenda Smith, government affairs associate for the Federation of Tax Administrators, framed the decision as a moral one of sorts: "Do you want to be a good American, or do you want to be an American who wants to cheat your government deliberately? It's a harsh way to look at it, but it's true."
Smith said she's also concerned that there's not a level playing field, which is potentially giving online retailers an advantage over their brick-and-mortar counterparts.
It's not exactly clear how much money states are losing to uncollected use taxes. Some politicians have thrown around claims in the past that state and local governments will have lost nearly half a trillion dollars in uncollected sales taxes by 2011.
More generally, total e-commerce sales were estimated at $136.4 billion in 2007, up about 19 percent from the year before, according to the latest U.S. Census statistics. That figure still accounted for only about 3.4 percent of total 2007 retail sales in the United States, however, as opposed to about 2.9 percent in 2006.
'Tyranny Response Team' clothing was popular among rally attendees. Speakers at the rally challenged the U.S. government to show them what section of federal law requires regular Americans to pay income taxes. Here's what the IRS has to say.
(Credit: Declan McCullagh/News.com)
The legal limits of sales-tax collection
States are currently limited in their sales tax collection authority because of a 1992 U.S. Supreme Court decision in the Quill v. North Dakota case. It says retailers aren't required to collect sales taxes from customers who live in states where they don't have a physical presence, or "nexus." The justices did, however, make it clear that Congress could step in and change the rules.
The ruling came out the way it did in part because tax codes tend to be quite complex and vary among states and localities, with bewilderingly different tax rates associated with the same kind of product. In response, some states have tried to smooth out their differences.
Over the past five years, 22 states have signed on, either wholly or partially, to a plan known as the Streamlined Sales Tax and Use Agreement, in which they agree to simplify their tax codes and make them uniform. About 20 more states are still considering whether to participate.
Steve Del Bianco, executive director of the NetChoice Coalition, whose members include eBay and Yahoo, said he doesn't think the plan has really simplified matters for retailers, nor has it produced the effects states were seeking.
"Fiscally strapped states thought that (the streamlined sales tax project) would bring a flood of new tax revenue, but they're seeing just a trickle, and that's coming from sellers who should have already been collecting under the old tax laws," he said.
That may be in part because adopting the streamlined sales tax system is voluntary to begin with. Participating states don't have the authority to require any retailers to collect those taxes from their residents, although if companies sign up to collect sales taxes under the regime, they must agree to do so in all participating states. (Some 1,000 companies have signed up so far, resulting in at least $150 million in newly collected taxes since the venture began, said NCSL's Osten.)
The push in Congress
Two bills introduced last spring in Congress, however, would change that. The Senate version is sponsored by Republican Michael Enzi of Wyoming and Democrat Daniel Inouye of Hawaii, and the House of Representatives version was introduced by Democrat Bill Delahunt of Massachusetts and is co-sponsored by Rep. John Conyers, chairman of the influential House Judiciary Committee.
In the past, similar proposals have stalled in part because of a disagreement over a section that attempts to exempt "small businesses" from the new tax-collection burden. Both pending bills stipulate that sellers who bring in less than $5 million in taxable sales per year don't have to collect taxes from their customers. eBay, for one, has argued that exemption is too high and could cause new administrative headaches for even small-time sellers.
The relevant congressional committees have already held hearings on the issue, with the latest one occurring last December in a House Judiciary subcommittee. The NCSL's Osten said he feels good about how that hearing went.
Elly Pickett, an Enzi spokeswoman, said the Wyoming Republican "continues work to secure additional co-sponsors and is hopeful it will be considered this year."
Aides to the committees controlling the bills' movement were less forthcoming about what happens next. An aide to Sen. Max Baucus, the Democratic chairman of the Senate Finance Committee, said the committee was aware of Enzi's bill but hasn't scheduled debate on it yet. House Judiciary Committee aides did not respond to requests for comment.
As for New York's recent move, it aims to circumvent the tax-collection restrictions that differ from the more common streamlined sales tax project. Instead, the state determined that any online retailer with "affiliates" located in its state would be required to collect sales taxes from purchases by New York-based customers.
Amazon, for example, has thousands of "affiliates" to whom it pays a commission for linking to products for sale on its Web site. Presumably some of them are located in New York, which would mean, under the state's interpretation, that it would have to collect sales tax from its residents. (Amazon.com did not respond to News.com's requests for comment on the New York law but has previously said it's still reviewing the language.)
Other states, including California, have considered such steps, but Osten said his group would actually discourage that method if they're really interested in increasing their tax revenues. "I think this option is one that is probably gong to be litigated and will therefore cause delay," he said.
News.com's Declan McCullagh contributed to this report.
Face it, the gov will get its money one way or another.
Shouldn't individual states regulate their own sales tax policies?
That old 'interstate commerce' clause.
The states are overstepping their bounds in this case, and I think that if the Democrats pass this law...... they aren't going to be in office anymore than the Republicans are, everyone will start voting Independent or Green Party.
Lotteries are most often run by governments or local states. The astronomically high odds against winning have also led to the epithets of a "tax on stupidity", "math tax" or the oxymoron "voluntary tax"
Here's where each dollar goes for the lottery:
50% off the top (most states claim "for education" but I doubt it)
federal income tax of 35% out of the 50% that remains
some states take state income tax out at approximately 5%
So, in reality, the lottery pays back approximately 30% of the money it collects as the ultimate prize. Seems like a no-brainer to gamble your money elsewhere, like blackjack which pays back almost 99% just using basic strategy.
And let's not even mention the misleading prize amount that includes interest over 20 years.
Suckers.
The government doesn't have anything, not a single thing, that it didn't take (steal) from somebody else by force, or by the threat of force.
If it is true that all of us are forced to turn our wages over to the government for 4 months out of the year until we start working for ourselves than for that 4 months we are slaves who work for free.
If it is spending, then they are all Anti-American, since I have seen both parties serving up more pork than a Texas BBQ in the last few years.
How is what they are proposing not violate this act which I believe did get renewed in 2007?
Will the insanity never stop?
I concur with another comment I saw. The economy is in the toilet. People are putting cash away to live on. Now politicians want to dip into it.
I'm getting incredibly tired of funding crap I never use (that includes welfare/food stamps for the lazy. sorry but that's how i feel.)
I'll be writing my states blood sucking leeches over this.
You want to stop paying for welfare/food stamps? Start pushing for free child care instead, in the long and short run, it would cost less than welfare.
What a laugh. I can just see the increase in over-the-border on-line shopping right now.
If they had any brains, they would come up with a federal on-line/mail-order tax that all the out-of-state companies would have to charge their customers. Then, at the end of the year (or month), these companies would remit these taxes to the federal government, which would in turn divvy it up amongst the states.
Simple for all the retailers because it would be just one tax, and one rule.
They could apply this same tax to international sales, to be collected by customs. This would prevent the Canadian connection from happening.
Currently, Canada has a national sales tax called the GST (goods and services tax) which is collected on anything brought into the country by our customs agents. So, the logistics are no problem.
I don't think so - or rather, are your politicians as stupid as ours huh?
Here are the e-commerce retail sales for the last 9 years:
2007 $136B
2006 $108B
2005 $86B
2004 $69B
2003 $57B
2002 $44
2001 $34
2000 $29
1999 $15
Source: http://www.census.gov/eos/www/archives.html
That's a total of $578 billion in revenue for 99-07.
Now, if we assume an average of 7% sales tax, and we assume that ALL items are taxable (which in most states they are not, like food and clothing), you would need $7.14 trillion in revenue to accumulate sales tax of $500 billion (which is the claimed lost tax by 2011).
That would mean that e-commerce would have to magically jump from $136B in revenue to an average of $1.6 trillion each year for 08-11. I mean, seriously, their figures are not even in the same ballpark as reality.
Personally, I feel that the Democrats are the VERY, INFINITELY lesser of two evils, who are only trying to fix societies ills.
Sure, they usually take the wrong tact by raising taxes on the middle class and poor.... but then again, so have the Repukians at some times in our history.
I am an Independant thinker, but by my count the democrats have protected, the last freedoms and rights we have left, far more than Repulicans.
Really, the Constitution should have stated that NO taxes were to be put into effect without a vote from the American people, once it was possible for all the American people to vote in a short amount of time.
What kind of crap is this?! We are the ones being cheated by the government in this situation.
This blows, I am moving to Canada!
This subject of internet taxes comes up regularly, and it regularly makes me furious. I never read a word about older people or the disabled who can use the internet for shopping they would not even be able to do otherwise. Maybe we should try to pass a permanent ban on internet taxes under the ADA!
If you make an internet purchase and the vendor tries to charge you tax when they have no physical presence in the state to which your purchase will be delivered, just tell them you will not be purchasing from them if they do this. I did this once when I was buying a winter coat, and boy did the vendor change course in a hurry! (Actually, I didn't find out about the tax till the coat was delivered and I examined the invoice. Had to call them and tell them it would be shipped back the very next day unless they took that off my bill.)
There's even an argument that they get their fair share of taxes w/o me paying a stupid sales tax - the deliveryman pays taxes on his salary, the delivery company pays state income taxes, gas taxes, etc., that would be less if I bought it locally.
We are apparently a nation of "bad" americans. Do you know anybody who keeps a record of their internet purchases and antes up at tax time?
I guess loopholes only apply to corporations and multi-millionaires.
I pay my share of taxes: state and federal income, local property taxes on house and cars, and plenty of sales tax. The gov't take a substantial chunk of the money I earn. Enough is enough.
I think our presidential candidates should proclaim their opinions on this lod and clear, before the election.
What about our government. Does it want to be a good government for the people, by the people as our founding fathers laid out in the constitution or do they want to be cheats and louses? Well I guess they chose to be cheats and louses. How about we pay our taxes on out of state purchases when the government does what we want, how we want, when we want, they stop shafting the little guy and the middle and low income people and they do what's best for America and the the majority of the people instead of their special interest pets. When that happens I would be more than happy to pay the taxes on something I bought for Amazon.com.
Robert
Plus increased real estate and other taxes went up as states and localities tried to maintain revenues. With the current economic woes, they'll have to go up again unless another revenue stream can be found. So this is timely.
Restoring the sales tax doesn't start the war, it ends the war that was previously launched against local retailers and state governments.
I don't want to pay taxes either. But this is overdue.
It's a shame it won't help the defunct small businesses that couldn't compete against both technology and this now-unnecessary subsidy.
- Sales Taxes are Stupid and Evil
- by chash360 April 16, 2008 10:40 AM PDT
- Scenerio:
- Reply to this comment
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Showing 1 of 3 pages (87 Comments)1. Consumers hurt by the economy, are spending less.
2. Sales tax revenue goes down.
3. Politicians increase sales taxes, making purchase costs go up.
4. Consumers spend even less, as costs go up.
5. Sales tax revenue goes down.
6. Politicians increase sales taxes, making purchase costs go up.
Need I repeat more?
When are you other states going to realize the stupidity of sales taxes!!!
They will destroy your state's economy, and eventually, you will become another state so poluted and expensive to live in, that you will want to move here, and ruin our environment as well.