No sales tax on internet purchases -- ending?

This caught my attention as a Slashdot story. I post it with no political agenda, but rather to make people aware that this is alive in a real bill proposal...and many of us that do online shopping would be affected. I think it would extend into CPF retail/dealer sales. You can follow the link to the CNET.com story.

http://news.slashdot.org/article.pl?sid=09/04/16/1737247

Yeeeech. This will essentially kill internet commerce imho. :green:
I've moved back to Oregon, but leave it to the lobbyists to ruin that for me too.
I do wonder how "they" intend to make this work.

It wouldn't affect Oregon's shoppers. We don't have any sales tax to collect. I guess it would affect everyone's mail order and internet selling, if they leave it to the sellers to collect the taxes.

Can't work now for the same reasons it couldn't work 5 years ago or 10 years ago. A small seller, even a medium one, is incapable of dealing with the logistics of making tax payments to potentially 7000 localities. If they really want to collect tax on Internet purchases, then they should make those purchases subject to the sales tax of the seller's state only, regardless of where the buyer lives.

In the end the numbers being tossed around for allegedly "missed" sales tax only amount to a small percentage of these state's budgets. I don't see why they're so gung ho to do this when it really won't make a difference once you count the cost of enforcement. Plus it'll kill off a lot of online businesses instead, resulting in fewer income tax receipts.

PhantomPhoton said:

Yeeeech. This will essentially kill internet commerce imho. :green:
I've moved back to Oregon, but leave it to the lobbyists to ruin that for me too.
I do wonder how "they" intend to make this work.

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As if that ain't the least of your worries. Didn't I hear that Oregon is increasing their tax on beer by 1000%? What's a feller to do?

I don't really have a problem with paying sales tax on internet purchases, and I don't think it will kill off anyone. I mostly buy locallly when I can find what I want at a reasonable price, and buy on-line when I can't find it locally or the price is just way out of line.

As a practical matter, I would actually like to see sales tax as the primary method of tax collection by taxing all sales of everything, and just not taxing income.

From a seller perspective, it is a complete nightmare. In CA, I have to figure out how much sales tax is applied (and reported) for every single county in the state - as it varies by each locality. Quite a pain and really just non sense.

I was more seeing this as a problem for smaller businesses who won't have the capability to address and comply with the complex variations in sales tax laws, and the accurate record keeping as to timely paying collected taxes to every state. For example this excerpt from the linked article illustrates types of issues that would need to be resolved:

On the other side are the Direct Marketing Association, the Electronic Retailing Association, and companies including eBay, L.L. Bean, and Overstock.com. One of their biggest objections to the idea of collecting sales taxes on out-of-state shipments is the dizzying complexity of state laws.


Take candy, which would seem to be a straightforward item to tax. It isn't. During a 2003 discussion of tax policy, 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, are why the U.S. Supreme Court ruled that out-of-state retailers generally couldn't be obligated to collect sales taxes unless Congress changes the law. The justices noted in a 1992 case called Quill v. North Dakota: "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."

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Methinks that folks wouldn't mind being taxed so much if they saw their tax dollars used frugally and responsibly. That may seem a bit naive, but it's really at the heart of the matter.

Tax on internet sales has been the law of the land here in Kalifornia for years. I'm not sure how well the compliance is though. It like the recycled alluminum can tax. You have to declare income for returning the cans that you recycle. This State is horrible on taxes. You have to pay a recycling fee on cans then declare the money you get when recycling them as income.

In MN you are supposed to pay Use Tax on anything you bought that you didn't pay sales tax on.
Internet Sales

Buying on the web
If you buy taxable items over the Internet or through mail order for use in Minnesota, you must pay Minnesota sales and use tax. If the business from which you made the purchase does not charge you sales tax, you must pay
use tax directly to the state. The same rules apply when you go to another state and buy taxable items
for use in Minnesota.

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Most people aren't aware of it, most who are ignore it.
Regarding sales tax laws--Licorice and twix bars aren't taxable because they have flour in them, candy is, generally.

Yes, technically the state sales taxes (or "use tax" for out-of-state purchases) have always been owed. But states haven't had a means of enforcing it except for in-state shipments. They want the federal government to step in to force vendors to collect all sales taxes.

New York state has been collecting sales tax on internet purchases for years now as well. There is a line in the long form tax form for you to estimate how much tax you owe on the items for which no NYS tax was collected.

Then, this past year, a number of sites preemptively just collect NYS tax, including Amazon.

It was only a matter of time before the states started closing this loophole, one by one, or all at once. Too much money is involved now. It will almost certainly have unfotunate consequences, I would guess, but I don't think it will "kill" off internet commerce. Still . . .

This sounds like a disaster in the making. Yes, it will destroy internet commerce as companies will stop selling online to avoid the headaches that this bill will create. The big problem I see that will arise is who gets the money? Other than some state laws like in New York, I don't think there are any federal laws that say who gets the tax money: the state where the product was purchased from or the state the purchaser lives in. The simplest way seems the easiest. If the taxes go to the state the product was purchased from, the store owner doesn't have to figure out the tax rate for every order and the tax money from something bought in that state stays in that state as with any other purchase from that location. Often, this will lead to tax revenue more equally divided among the states instead of most of it in the highly populated states. However, largely populated states like New York and California are going to want their cut so they'll probably fight for the more complicated approach that gives them tax money from out of state purchases. This has the potential to limit smaller states' tax revenue. As I said, the simplest way is the best way. The tax money should stay in the state the product was purchased from. That way, you avoid headaches for the consumer, the business, and the government. The other way will more likely be more popular with the state governments with the most power. In the end, a legal battle may be unavoidable. They also need to get rid of laws like in California that require you to pay the difference between the tax rate you paid out of state and the higher California tax. Getting taxed twice for the same item is rediculous and will be more complicated if we have to pay a tax to California on an item purchased elsewhere online if the bill goes with the simplified approach. I think I'll stick with brick and mortar stores if this bill goes through. I don't want the states playing tug-a-war with my money while ruining small businesses.

I don't see this as "killing" internet sales, but the legal/accounting/administrative burden on the smaller shops needing to understand multiple, complex state and local tax laws (which the candy example illustrates), keep up with ongoing changes in sales tax codes, detect and match up customer locations, have a way to collect, hold in escrow, and then accurately forward sales taxes to appropriate state and city jurisdictions is not a trivial matter.

It will be a significant issue for smaller online operations, likely leading to significant restrictions of which state of a customer's residence they are willing to sell to.

Undoubtedly, any new federal legislation will include civil and criminal penalties for violations, in addition to a business being vulnerable to the recourse of local city and state government actions. The business who fails to adequately collect and pay these new taxes will be a more likely target for penalties & recovery of monies, than the ordinary citizen struggling to get by.

California payroll taxes are about the most complex in the nation.
In the early 80's I wrote a payroll program that did these calculations on a TRS-80 with tape for storage.
Calculating a sales tax on any state or any county in the state is trivial if you use a computer and transmitting those amounts no matter how small via a bank or other such agency is no more difficult than doing any other banking on-line.
It will no more shut down commerce than super markets shut down the corner grocery store (That was the big scare in the 50's)
It will consolidate some companies, Amazon will get stronger as they will be able to offer this to their clients at little cost and free shipping is noce.
PayPal or some other solution will handle the small vendor.

GLOCK18 said:

The issue I see is that you will have companies that follow the tax rules competing with those who don't follow the rules or take there business out side the USA.

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Bingo.

GLOCK18 said:

The issue I see is that you will have companies that follow the tax rules competing with those who don't follow the rules or take there business out side the USA.

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When you pay taxes on a business you report your purchases and sales. State and federal information is shared. A very small business could hide some of this in a variety of ways.
Larger businesses can't.
Moving off shore raises shipping costs at the very least. Most countries have income tax much as we do so the cost to operate might be higher. Then there are import and export charges.

GLOCK18 said:

The issue I see is that you will have companies that follow the tax rules competing with those who don't follow the rules or take there business out side the USA.

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Actually, we already have that problem. There are many vendors that attempt to skip past the import taxes and sales taxes using various means. Shipping something and calling it a "gift" is a common tactic.

I will certain agree with the complexity of dealing with the highly regionalized sales tax rates. OTOH, there are web ecommerce carts that deal with that automatically based on zip codes.

I'd personally like to see financial / stock trading transactions taxed using a sales tax method instead of income tax, but I don't suppose the stock traders would like it much.

Already have it in the uk, the most heavily taxed people on earth!!
tabetha