States yearn to collect online sales taxes

The arrival of April 15 doesn't mean your tax worries are over. You may owe more than you think.

Online purchases from sites like Amazon.com and eBay may seem to arrive tax-free. Strictly speaking, however, purchasers are required to pay their own state's sales tax rate--the concept is called a "use tax"--and then voluntarily report the amount owed at tax time.

Few do.

That situation worries state tax agencies, which have long complained about individuals not volunteering how much use tax they owe from mail-order sales. The ballooning popularity of online purchases is making a bad situation worse, state officials believe. (All states with sales taxes have use taxes.)

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California residents, for instance, enjoy a 7.25 percent sales and use tax. State law is strict: If Californians travel to a state with a 5 percent tax and shop there, the law requires them to cough up the 2.25 percent difference when they return. Online purchases are taxed as well.

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--$208 million of that due to online purchases.

"We are looking at ways to help solve the tax gap in California," Anita Gore, a Board of Equalization spokeswoman, said Thursday. "We're doing the background and research necessary to bring in more of this money."

Last year, California took a step in that direction by adding a line on its income tax form that requires residents to estimate how much use tax they owe. This year, the state tried a use-tax amnesty that brought in about $2.3 million.

"Yes, it will be very unpopular...I hate the idea too, but I also understand that we must pay taxes in order to have our roads paved, bridges built, schools maintained, etc. It will happen sooner or later. The more people use the web, the sooner it will happen."
--Russ Kehoe

That leaves the estimated $1.34 billion left to collect. "We're always following leads that are given to us, whether it's another government agency or an individual, to look into the possibility that somebody might owe us use tax," Gore said.

Other states report similar frustrations. Michigan estimates it will lose $345 million in 2005. That's up from a loss of $210 million in 2001, and the state says the Internet is to blame.

South Carolina took the unusual step of sending out a press release just before tax day five years ago. "With the boom in catalog and Internet sales, many electronic shoppers are unaware they may have a tax obligation when they make purchases over the Internet if the tax is not collected by the retailer at the time of the sale," the release said.

South Carolina estimates it loses $40 million a year from unreported use taxes. Like California, it has added a use tax line on state tax returns.

From the perspective of state tax collectors, the simplest solution would be to require out-of-state shippers to collect taxes. But shippers generally can't be compelled to do that, thanks to a Supreme Court decision that said only businesses with offices or other tangible connections in the destination state can be required to collect sales taxes.

State officials are lobbying Congress to change these rules. They're proposing a so-called "streamlined sales tax." The idea is to create a uniform set of rules effectively permitting tax agencies to require out-of-state sellers to collect use taxes.

"The states have gained momentum in the last six months," says Steve DelBianco, director of the NetChoice coalition, which represents eBay, eRealty.com, Oracle, Time Warner and VeriSign.

DelBianco, a critic of the proposed changes, believes that state claims about use-tax avoidance are overstated. "I can't believe there are a significant amount of Internet-based purchases that are done to save sales taxes," he said.

One exception to the general rule about out-of-state tax collection is tobacco. A federal law called the Jenkins Act states that out-of-state sellers can be required to report cigarette shipments to the destination state's tax collectors. Some states have sent bills to residents.

[TheMidnightCoder]

We need a tax system for the internet soon...

Yes, it will be very unpopular. But the state governments will get their money one way or another. They will probably raise our property tax, or maybe even payroll taxes. I hate the idea too, but I also understand that we must pay taxes in order to have our roads paved, bridges built, schools maintained, etc. It will happen sooner or later. The more people use the web, the sooner it will happen.

[m.meister]

We're just revenue to the states now

Apparently -- we are just considered a source of revenue for the
states. And it appears they are becoming more and more
arrogant.

Federal Income Tax - 15-20% - very conservative number here
Social Security Tax - 15% (half paid by your boss)
State Income Tax - most states have an income tax of 6-7%
State Sales Tax - 7-8% (very few are under 7% today)
Gas Tax - (which is 25% or more depending on the price of gas)
Property Tax - 1-3% just for owning something big

And I can't even get into all the fees that are added for any use
of government facilities that your taxes should have paid for.

The result is than somewhere between 50-60% of your income is
going to some government agency. Agencies that have a hard
time even tracking where all the spending is going (billions are
unaccounted every year).

And despite that, our government spends more than it takes in,
leaving us with an even bigger bill in the future. As it is
discretionary spending is a tiny part of today's government.

But we are nothing more than lemmings to them. Willing to give
more and more of every dollar.

And use-tax: what a bunch of bull that is!!

Nevermind that many companies are still making money off of
internet sales because companies pay income tax on money
collected. It may not be the same states compared with sales
tax/use tax, but money is still flowing into them.

Then end result doesn't seem far away. You cannot collect more
than 100% of someone's money -- although I don't think it will
last until then. Each level of our government has become less
responsible for how they spend money with the more money
they get.

[Angie_is_dying]

You know what's ridiculous?

I live in a state with a 5% sales tax. If a California resident visits my state and makes a purchase, the state of California feels obliged to request the addition 2.5% they would have paid had they made the purchase in California.

On the other hand, if I was to visit California make a purchase they do not feel obliged to reimburse me the 2.5% additional tax I paid them.

Will they pay us?

The article mentions that if CA residents purchase in a state where tax is 5%, we're suppose to cough the remaining 2.25%. Will the state reimburse us if we purchase in a state where tax is higher? I may be naive, but somehow I don't think that would happen.

[vanox]

Will online sales survive?

If they start to tax online sales, it will slow or stop these sales?

Right now, I'm willing to purchase online if the item cost plus shipping don't exceed the item cost plus sales tax at a local store. Most of the time, I don't mind waiting a few days to get my item.

The goal is probably to force people to purchase from local stores so they get the sales tax.

I did have a hypothetical question. Does the Federal Government pay a USE TAX to the state governments on goods purchased?

Just a thought.

Shipping or Sales Tax

I shop via the web for convenience on hard to get items that most local retailers do not carry. I do not shop necessarily to save money or avoid sales tax. But, the cost of the item with shipping is the same as the cost with sales tax. Add sales tax to the Internet purchase along with shipping, and it may dampen online sales. It may drive business back to the local retailers, or, it may mean less purchases overall.

Interstate tariffs are ILLEGAL

How in the world they get away with taxing purchases made in other states when the constitution specifically forbids interstate tariffs is a mystery to me.

[swwg69]

Money Making Idea

I will set up an internet kiosk at the
front of a drop ship location.
My corporate headquarters will be in Jamaica.
Customers enter the products they wish in the
kiosk. Swipe the credit card.
The order is placed with my company in Jamaica,
with Jamaica's sales taxes. A reciept for
the drop shipment is printed out and the
customer can pick up the shipment at the
will-call desk in the back.
Heck, you could rig up the scanners at the
super market to an off shore web host.
Then all your transactions occur outside the US.
Its the "internet" so no taxes on "cyberspace".
You just don't understand the "new economy".

[PhilZ4]

It's almost comical...

Obviously we are the greatest and most powerful nation in the world. To stay that way, apparently we have to beat the **** out of anyone who opposes us (Iraq etc.) {more tax}. I'm well aware of the costs of modern day infrastructure and basic technologies we take for granted (more tax). However, there comes a point where you have to scratch your head.

Try to follow a dollar of your hourly earnings before taxes. You'll be amazed at how much the government and municipalities are REALLY taking.

Remember our debt (and subsequent tax liability) when the next election comes around and at least factor it into your vote. If you didn't vote in the last election, PLEASE don't even bother typing a response to this tax issue...you haven't earned the right.

[daisie26]

Sales tax and Shipping costs

It is a bit ridiculous because NJ doesn't tax everything & many others don't either. NJ doesn't tax shipping. If you don't pay tax on the same item in the store; why do they want to collect it online? The way they talk, they want to tax everything online. They would need to do an equal tax across the board for every state. In NJ there are different sales taxes in different cities. Some are 3% and some 6%.
I think these states are being a bit too much.

[pjonesCET]

about Sales Taxes

I think the the best thing to do is to require everyone that sales software in the USA. To collect sales tax. Major players do. such as Apple.

But it should be taxed at the rate of the State the person Buying is from. Not the state the vendor is from.

If I had my rathers, I would rather it be made a federal offense to collect any tax from anyone on line. I think all use taxes should be null and void.

Sales taxes are to be collected from vendors within each state, from Businesses within that state period.

Buts since that will never happen I say have every business that does online business collect the tax and send in to the state the person is from.

Having worked for a state government agency...

I worked for an appraisal district (values property for ad valorem taxes) for a few years, and even though it was well run for a government entity (good customer service, lean budgeting), there were practices there and a mindset that would never fly in business. There is waste, stupidity of the highest kind, and people who stayed there and was allowed to continue in their jobs because they'd been there for years. It was a depressing place to work!

Why should I feel obligated to support that type of performance and attitude? Let the government offices be held to a higher standard (though they could never reach the standards of most businesses), then we could feel like supporting them better. Ever notice how when tax revenues are short, the critical services are threatened, but the excess in government offices are untouched? In my own former agency, the CEO figure had two (and possibly 3) assistants---it helped him have someone to dump work off on that he didn't want to do.

People felt entitled and even the higher ups in the entities the district served expressed their feelings of taxpayers, and it wasn't flattering.

the Spanish government is discussing the same idea...

In some ways, I think the governments of the world are simply being their usual greedy selves, wanting a slice of everything that everyone produces, from the cradle to the grave, under the pretext of spreading the proceeds around for the common good.

I also think they may be becoming anxious at the way we are all communicating freely on any topic we want to and making friends across our borders. taxing us would be another way of exerting control over our use of the Internet. Why would they want to?

Well, how can you get people to go to war against one another, for example, once everyone knows that we are all more alike than different when it comes to the bottom line?

The tragedy is that, if they push through their taxation plans, it isn't the huge corporations or the reasonably well-off that will be forced off the Internet.

It is more likely to be the physically disabled, living on tiny state benefits and the vast mass of disadvantaged people who, in spite of being unable to get well-paid and satisfying work have, at least, found a way to be in contact with others of all walks of life on an equal basis, to feel part of a community that accepts them and recognises the value of their contribution to discussions on all kinds of topic.

The public should lobby the governments of the world forcefully to leave the Internet alone - offer to vote for whichever party promises not to tax it.

Governments already get their share of the profits from most things that people buy online as those who sell them have to declare their income in the same way as anyone else and risk getting into just as much trouble if they try to cheat the system. That should be enough.

We should colaborate to display our disapproval of the idea of taxing the Internet quickly before it is too late. We have to stop thinking there is nothing we can do and speak out in the right places to be heard by the right ears.

There's a piece of graffiti in Spanish on the wall right outside this public Internet facility that I can just about afford to use (so long as there isn't a price-hike to cover a new tax).

It says: "Anarchy is not an impossibility, it is a necessity!"

How's about some old-thinking solutions?

All over the U.S. states have been in a race to the bottom in giving tax incentives to businesses trying to lure them in. Rather than 50 governors meeting and deciding "we ain't gonna play that way" they continue to race to cut taxes for businesses. The way they recoup this is by taxing the fools, er, constiuents they already have.

Rather than continuing this trend by letting states impose sales taxes why don't they stop exempting and excusing businesses from their fair share of taxes?

It's been my experience with one municipality that they gave tax incentives to a company to move into a building then the company operated for a few years in that building and moved out before they would be eligble to be taxed on that property. In other words, they got a free ride on the backs of the citizens of that municipality. They got all the services the city offered during that time without paying into the pot. When it was nearly time to start paying they just found another sucker city to move to and skipped out without ever paying taxes to the city.

The services provided were then paid for by the people who got screwed twice by this little trick.

Let's STOP giving buisness a free ride. If, as some argue businesses have a right to free speech as if they were citizens then how come they get out of paying taxes by playing off states and municipalities against one another?

[aabcdefghij987654321]

The whole tax system is wrong

There's an old adage about not burning a candle at both ends. With both an income tax and a sales tax the government has already lit both ends of the candle. With property taxes, use taxes, tolls, fees and the like they've also lit several places in the middle of the candle as well. And finally with the inheritance taxes they take the remains of the candle too.

The whole tax system is upside down, the largest consumer of the tax revenue you pay should be the local goverment with the percentage of taxes decreasing for each taxation level beyond the local and the federal government should consume the least part of the revenues. But we've allowed the federal goverment to consume the largest part and then dole it back out to the local goverments (as long as they do what the feds want).

The local polititions are the most accessible and accountable to their constituency while the federal polititions are the least accessible and accountable (look how hard it is to get rid of a member of Congress). The locals though are much less effective since they have the least to work with, not good at all.

[taphilo]

Sales Taxes and Company Taxes

What every state fails to mention, and what every reporter never asks, is that when the state that "does not collect sales tax" the OTHER state where the company did buisess DOES collect tax - income tax from the people working there, business tax, property tax.

Now when people mail order from California businesses, which the article mentioned is worried about 200 million is lost sales tax, the state THERE now gets income taxes from the people working there, business tax, property tax, environemental tax, gas taxes, vehicle taxes and a whole slew of OTHER tax income from those businesses when people NOT in California buy from companies. Does California rebate the taxes in porportion of the sales that went outside that the company paid to the company in poportion to the products that went outside to the businesses?

No.

Sales tax is an inherit non-accountable tax - since no one individual can complain about it, no accountabliity of what the money is being used for - which is why states LOVE IT - no and auto inflation indexed - plus our whole economy is CONSUMPTION BASED which means the state will ALWAYS get "free money" forever and the percentage paid out in consumption always is higher than any other expense other than house. Which means a state effectively taxes 25% to 75% of your income AGAIN after state income tax.

Next, will these states demand we collect VAT from Canada, England, the European Union? Get the WTO to enforce these collection of taxes also (since we are part of that, we are BOUND to their rules, if they want a rule like this, they CAN enforce it.)

No, the states already EARN money from all the taxes on the companies, telling people to pay sales taxes to out of state or instate is just an excuse for badly run governments who spend beyond their means who fail to deal with reality by having too many "feel good" programs running that people do not want or use who are FORCED to pay for them.

Tom Philo
http://www.taphilo.com

[taphilo]

Sales Taxes and Company Taxes

What every state fails to mention, and what every reporter never asks, is that when the state that "does not collect sales tax" the OTHER state where the company has their business DOES pay tax - income tax from the people working there, business tax, property tax, and a slew of others.

Now when people mail order from California businesses, which the article mentioned is worried about $200 million is lost sales tax, the state THERE now gets income taxes from the people working there, business tax, property tax, environemental tax, gas taxes, vehicle taxes and a whole enclypoedia of OTHER taxes from those businesses when people NOT in California buy from companies. Does California rebate those taxes in porportion of the sales that went outside the state back to the company?

No.

Sales tax is an inherit non-accountable tax - since no one individual can complain about it, no accountabliity of what the money is being used for - which is why states LOVE IT - plus auto inflation indexed - add in that our whole economy is CONSUMPTION BASED which means the state will ALWAYS get "free money" forever and the percentage paid out for consumption goods and services always is higher than any other expense other than a house payment. Which means a state effectively taxes 25% to 75% of your income AGAIN after state income tax.

Next, will these states collect VAT from Canada, England, the European Union? If they demand taxes from out of state why not have other nations demand their VAT taxes from US states for goods shipped from / to their nations? If they got the WTO to enforce these collection of taxes also (since we are part of that, we are BOUND to their rules, if they want a rule like this, they CAN enforce it.) People in California paying Canada tax for items purchased from Canadian pharmacies would balance Canadas budget alone.

No, the states already EARN money from all the taxes on the companies, telling people to pay sales taxes to out of state or in-state is just an excuse for badly run governments who spend beyond their means who fail to deal with reality by having too many "feel good" programs running that people do not want or use who are FORCED to pay for them.

Tom Philo
http://www.taphilo.com