When the levies break
I recall when I first started buying tennis racquets mail order from Holabird, paying for shipping, but avoiding local taxes. I didn't think it would be long before states found a way to collect taxes, but that never seemed to happen. Until now.
I buy all sorts of things online and pay no sales taxes, but state governments are desperate for cash, and realize that collecting sales taxes is far less unpopular than raising income taxes. Affiliate marketers are up in arms because large online retailers like Amazon find it easier to drop them, as they recently did in New York, rather than comply with complicated provisions.
Amazon Threatens Cuts Over State Taxes
"Cash-strapped states trying to force retailers to collect taxes on online sales are spurring efforts by Internet retailer Amazon.com Inc. to avoid being swept under the proposed laws."
"North Carolina is close to passing a law that would force online retailers to collect the state's 4.5% sales tax from marketing affiliates, people who get a sales commission from online customer referrals. Amazon, of Seattle, Wash., told its North Carolina marketing affiliates on Wednesday that it would stop doing business with them by July 1 if the law takes effect."
Affiliate marketers also claim the taxes are now unfair and will never be collected anyway.
A Stake in the Heart of 25,000 Small California Businesses
"An out of State merchant creates a banner ad with a tracking code. Internet publishers (like NewsBlaze or savings.com, ebates.com) place the ad with its tracking code on their website. A website visitor clicks on the ad and is sent to the merchant's website. Once there, they may or may not buy something. If they do, the merchant knows which site sent the visitor and compensates them at a pre-defined rate. The publisher doesn't know who the visitor was or even if a sale was made by the merchant, until much later, when they check stats at the merchant tracking site. The publisher has no part in the sale."
"The legislation says this loose relationship constitutes the presence of the merchant in California, the state of the publisher, which it obviously is not. If it became law, the merchant would have to collect California sales tax on the sale. The merchant has options. They can modify their system software, manage the myriad of California sales tax rates and pay California; or they can easily terminate their relationship with this now irritating California publisher. If they terminate the relationship, the publisher makes no income and the state collects no tax."
Opinion: Tax law change threatens small online businesses
"The reality is that small businesses like mine, which are paying income tax, will probably be put out of business."
Survivalist merchant Matt Savinar sees a darker agenda:
"Without getting too conspiratorial, I can't help but think putting independent sites out of business is the true intent of this law. Raising revenue is the rationale put forth to the public but putting independent websites out of business is the only thing it will actually accomplish. This is, "just coincidentally", coming at the same time that the MSM has declared a "war on the internet" and as the federal government has announced it will begin heavily monitoring and regulating blogs starting later this summer."
Hmmm
Interesting.
My state tried to tax "services" for a while. It was a spectacular flop. For a while I had to put the reseller license number of my clients on my invoices, or I would have had to collect "sales tax" for my services. I am not a merchant, it was beyond ludicrous. We all found a way out.
A loophole will be found. Tax codes are so farked up, there always is a loophole.
Play these assholes against their ownselves. I'm ready to rumble.
June 23, 2009 11:16 PM | Reply | Permalink
"Opinion: Tax law change threatens small online businesses"
Counter opinion: Tax cheats threaten State governments and the good services they provide. Niche businesses which rely on breaking the law don't rate sympathy here.
California's sales tax includes "use tax". Every person who buys tangible personal property from out of state for non-resale use and doesn't file a tax return to pay the use tax is a common thief. We all do it, just like most folks routinely break the speed limit now and then if not almost every time out in a car.
I buy components from mail-order places, usually for resale. Out of state vendors have started requiring me to have a resale certificate on file for such purchases, or to remit CA sales tax up front.
As for personal purchases -- as much as I'd like to save 5-10% on a purchase from out of state vs. in-state, I also recognize that mail-order purchases not being subject to use tax is a fundamental flaw. Either get rid of sales taxes or collect them "at the border", aka at the shipper. What you end up with is a system where CA businesses ship to NV and vice versa to compete with in-state mail-order and the dwindling supply of retail stores. Rent-seeking is a bad thing in most cases.
June 23, 2009 11:46 PM | Reply | Permalink
California only recently got tough on the whole use tax thing. They used to be real lax. I happen to know that it used to be that tax attorneys there advised not paying it as the state was so used to no one paying it that filing and paying was such an oddity that it might cause them to get flagged and audited.
June 24, 2009 2:26 AM | Reply | Permalink
Also heard tell that they have recently gotten pretty tough on certain things one can do if one incorporates in Nevada.
I guess one thing that strikes me about all of this type of thing: how much does it cost in labor to collect taxes in this way? In a way, it is like the current health insurance system is it not? See my comment below. Not that current or past I.R.S. Code is a wonder of brevity and efficiency....Though I know only little bits and pieces here and there about it, I wonder what the E.U. has to teach us about this, about what works and what doesn't, I know they have struggled with it.
June 24, 2009 3:17 AM | Reply | Permalink
Collecting sales tax is pretty efficient. I'm a very small tax payer but once I've done my own accounting (maybe an hour for sales tax) I can fill out the form in about 15 min once a year. This year will be longer because I will have to learn the online system (they won't take paper returns now).
June 24, 2009 4:09 PM | Reply | Permalink
Though I don't go as far as Matt Savinar, this issue has interested me in an ideological way since the early ebay days when it first raised its head (and even earlier, as in the art/antiques market it was once a notorious tradition to evade sales taxes through shipping out of state.)
I just think it is a "when the rubber hits the road" issue ideologically. I wish Congress would take it as seriously that way.
On whether we are going to talk about the internet enabling true globalized commerce to allow not just small business but micro-business or not. Also, for those of opposite view, about whether we still think "states rights" and local government is real important, or just a joke to pay lip service to. If it's real important, then you would want to tamp down all this internet biz where it doesn't make any difference where people live, wouldn't you?
The idea of subjecting commerce in this day and age to a gazillion taxing jurisdictions is wack. The irony is that the Wal-Marts and Amazons of the world will be able to handle it, but the little guys won't. I've heard it argued that internet sales hurt little local "main street" business. I think that's B.S., it helps as many specialized ones as it hurts the general store ones.
I have heard people who defend making everyone collect the taxes for everywhere say that it will be easy to make the software to enable anyone to pay all those different taxes. Right, well there goes the principle of encouraging a little micro-business on the side on the internet for the poor of lower education levels. Make it hard, they won't even dream of doing it. Or they'll just go black market to evade, i.e., Craigs List, and never grow it into a bigger business.
The sales tax in NYC alone is such a bookkeeping burden for small brick-and-mortar stores that it is not uncommon to find stores where they do not charge it to customers, but just figure it into the prices and just pay it in a lump sum.
It is a "rubber hits the road" issue on whether we are a federation of tiny local tribes with their own governments or a nation that it is possible to govern more federally. If it's the latter, and there's going to be sales tax, it should be national, hey? Like a grown up country that admits this is an electronic age where it doesn't take days to go from Washington D.C. to Michigan? And while we are at it, how about all the gazillion other taxes everyone pays so it looks like they are not really taxes? And the ahell game of where they lower the Federal taxes and then your state and local has to raise their taxes because they are getting less from the Feds? And the shell game of social engineering by tax, sin taxes, gas taxes, car taxes etc., where you eventually change behavior by taxing and then you have to get the income from somewhere else?
Here's another related question, when you telecommute from one state to another for work, who should get the state income taxes? Meat world commuters use some of the services of the place they go to work, but telecommmuters don't.
One thing I know is that it can get real Talmudic if we insist on ignoring the reality of the internet and keep pretending that we still live in the 19th century. Always more work for the accounting business, that's one thing for sure.
June 24, 2009 3:06 AM | Reply | Permalink
"The sales tax in NYC alone is such a bookkeeping burden for small brick-and-mortar stores"
Really? Brick and mortar only has one tax rate to deal with. Mail-order in-state businesses have to deal with County and Local variations. In California it's a real mess with dozens of slightly different rates depending on where you ship stuff, if the two parties want to haggle over the small differences. My solution was to simply charge my local rate no matter where I shipped in CA for taxable sales, and let the buyer deal with any fine points (I mostly sold to resellers who had to deal with the BOE anyway).
Keeping track of sales taxes on a national basis would be a backbreaker except for cheap software and databases -- just plug in the zip code and out pops the tax rate. Just as many online sellers have instant UPS shipping calculators based on zip code, sales/use tax is just another minor tweak. I don't see it as a big added burden in terms of bookkeeping, but I do see that having to file 50 State returns could be a problem. So there would need to be a uniform central clearing house so that a mail-order seller could file one return easily abstracted from the main accounting database and automatically route payments to the correct States from one check or electronic debit.
June 24, 2009 4:27 PM | Reply | Permalink
That is one reason I find the current internet so wonderful Donal. I mean it is all free--except the monthly hook up.
I know this cannot last...
This sales tax issue is just one step in changing what we have right now.
June 24, 2009 10:25 AM | Reply | Permalink