Online commerce is a big, big business, accounting for nearly one-tenth of retail sales in the United States. It is a lively and growing sector, a bright spot in our troubled economy — thus the gloomy shadow of the taxman inevitably falls upon it, in the form of a bill proposed by Republican senators Mike Enzi of Wyoming and Lamar Alexander of Tennessee. A similar bill was proposed by Democratic senator Dick Durbin of Illinois earlier in the year, and a separate effort is afoot to have the so-called supercommittee institute new Internet-tax measures as part of its deficit-reduction plan.
But it’s not all about big business: The Enzi-Alexander bill would affect entrepreneurs with as little as $500,000 a year in sales.
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Contrary to most accounts, there is no sales-tax loophole for online retailers. Customers who buy goods online are in most cases required to pay a “use tax” equivalent to the sales tax they would have paid in a conventional transaction. The problem, from the tax-consumers’ point of view, is that most taxpayers do not comply with the law. The state and local governments that depend upon sales-tax revenue protest that they are strapped for cash. That isn’t entirely true, either: Those jurisdictions are spending more money than ever, most of it on salaries and benefits for the legion of bureaucrats and commissars they maintain.
But in spite of their swollen payrolls and work forces, state and local governments apparently cannot be bothered to hire tax agents in sufficient numbers, thus the now universal practice of their requiring businesses to do their sales-tax collecting for them. The Internet-tax measures under consideration would not expand governments’ power to tax, but its power to conscript businesses into acting as tax collectors.
At the moment, their ability to do so is limited by longstanding interstate-commerce jurisprudence: The Supreme Court ruled in the 1967 Bellas Hess v. Illinois decision that states could require businesses to collect sales taxes in only those jurisdictions in which the businesses maintain an actual physical presence. That decision was confirmed in the 1992 Quill v. North Dakota decision. As a consequence of these cases, and of tax exemptions created in the early days of online retailing to foster nascent e-commerce enterprises, retail behemoths such as Amazon and Overstock collect taxes in only a handful of jurisdictions. This has of course led to complaints from such brick-and-mortar stalwarts as Walmart and Home Depot, which present themselves as the widows and orphans of this brave new world of free enterprise and eagerly back the Enzi-Alexander bill.
There are no good resolutions to this situation on the table. Some want to make all online retailers comply with tax-withholding rules in every U.S. sales-tax jurisdiction — and there are at least 8,000 of them — while the class-warfare party predictably wants to create a two-tier tax-collection system, targeting large firms but exempting smaller ones, in effect making companies such as Amazon and eBay second-class corporate citizens. Others desire to permanently enshrine all tax exemptions for online transactions into the law, leaving conventional retailers at a disadvantage in many situations.
Amazon, for its part, is not necessarily opposed to collecting taxes — indeed, it already has discovered a way to make money by collecting sales taxes on transactions involving third-party retailers that use its platform — but it does not wish to incur the administrative costs of cataloguing several thousand sets of complex sales-tax rules or keeping up with amendments to them. It therefore seeks a predictable third way that just so happens to be advantageous to its business interests: Establishing an interstate tax cartel to “harmonize” rates and procedures across the various U.S. taxing jurisdictions. (Any guess in which direction those many rates will be harmonized?)
An article signed not only by an editor by by "The Editors" in aggregate includes, in its first paragraph, the words "Republicans senators?" Has the whole world gone crazy?
"Those jurisdictions are spending more money than ever, most of it on salaries and benefits for the legion of bureaucrats and commissars they maintain."
Do you just make up facts? In New York State salaries and benefits make up 1/5 the total budget, hardly anyone's definition of 'most'.
I thought NRO was anti-class warfare and yet it consistently uses loaded terms to describle groups it does not like. Is commissar really necessary? I understand your belief that there are too many government workers but is the name calling really useful? Or do you actually think that most government workers are on the equivalent of the Communist Party thought police?
Consider the adage/saying "Those who ignore history are condemned to repeat it." Before federal or state legislators involve private businesses in the collection of taxes, they should take a look at the history of "tax farmers" and other private tax collectors for some cautionary lessons.
I don't have to ask if you own or work in a business that sells stuff. If you did, you would know that it (Using businesses to withhold, collect and pay over taxes to the government) happens EVERY MINUTE OF THE DAY. What do you think "sales tax" is, and what do you think happens to it? When you buy something at the store for $100 and pay $8 in "sales tax", what do you think happens to that $8? It's collected by the business, and once a month the business has to pay those collected sales taxes to the state, AND submit: 1) meticulous records of its sales, and 2) which of those sales were exempt from the sales tax (for resale, sold to a govt or church, etc). In many cases, the businesses are paying the state for sales taxes that the business has not actually collected the money for (if the business is an "invoice model, not a cash model, as most B2B businesses are). "The business is legally conscripted by the govt to collect and turn over the sales tax."
What is bizarre is that there is someone out there that DOESN'T know that.
Come on, L K S. Read a little more critically. One of the things I go after Hanson for is that he's the epitome of clenched teeth journalism, and he sends out dog-whistle signals that only resonate with those whose mindset is clouded by resentment.
This is a very short sighted editorial. First, sales taxes are the least economically harmful form of tax. That is, compared to every other form of tax, sales taxes are the least bad. Second, saying that the original sin is requiring businesses to collect taxes is not rational. First, under present law, it is not economically feasible to audit most individuals for the use tax. If you were going to make individuals liable for the sales and use tax and expect that to generate revenue you would have to either impose huge record keeping requirements on individuals to keep track of every nickle they spend or impose some electronic data collection system that would apply to all purchases in the economy. In other words, all individuals would have an i.d. card and every time they bought something the government would be told so the proper tax could be computed. Does anyone really want that? Does National Review? At least in the old days of the federal income tax before withholding and information reporting, individuals would be expected to have records of their income for the year (salary, interest, dividends). Those records were already being generated by employers and financial institutions and farmers kept their own records. There is a serious issue about how to tax internet sales that is not too burdonsome to businesses, but if NR wants to opine on that, it needs to find someone who has thought the issues through more than this editorial reveals.
I agree with John Banner. National Review, you have disappointed me with the muddled thinking in this piece.
Yes, there are thousands of sales-and-use tax jurisdictions in the USA. Yes, it would be impossible for local and state governments to collect these taxes on their own from individuals. No, it is not an onerous burden on retailers (brick-and-mortar or Internet-based) to collect and remit sales tax on purchases, nor would it be to collect and remit out-of-state sales tax. Any talk of "harmonization" of rates is a blatant "red herring" you should know better than to use!
Have you conveniently forgotten spreadsheets, databases and the Internet? Are you unaware that even small online retail businesses and their local banks are already using computers with those apps and connections? Just require all sales tax jurisdictions to post and update their current rates and payment addresses online at Internet locations that any app could find and read. Problem solved.
If I'm mistaken, tell me why. This article does not prove me mistaken.
Applying taxes on internet purchases should not be a complex requirements for on-line businesses. I can see a central organization (privately owned) that maintains a list of product types codes and address/zip codes that can compute the appropriate tax for every combination of product and shipping destination. This information can be returned to the web page instantly at check out time. On-line businesses would need to subscribe to this service.
Still, that doesn't mean that taxing internet transactions is a good idea. I've always hated sales taxes as they are so regressive and the higher they go, the more the economy is driven underground. Even when dealing with a brick-and-mortar store I've paid cash more times than I can remember. I avoid the sales tax and the owner avoid the income tax on the profit from the sale.
How much is that (privately owned) service going to cost? Anything more than zero is a burden on my business.
Any amount of time I have to spend learning to implement that software or service is time that I as a business owner am not spending on productive income earning activities. If I have to pay someone to do this for me, then that is another burden on my business.
I am a mom and pop retailer on a real main street in a small (and rural) town. I am not being disadvantaged by Amazon or eBay or Overstock because I can sell on the internet, on those sites no less as well on my own website. It's a choice any size retailer can make. Retailers who have no internet presence and then whine about losing sales to it deserve no sympathy.
The playing field is level right now under current USSC construction of physical nexus. Your sale tax responsibilities and legal liabilities as a business are based on physical presence which is something that is always under the business owner's control.
This is about the big box stores fighting it out with big e-tailers and pretending it's all about the "little" people.
The tax consumers (state and local governments) want this because enforcing use taxes on their own citizens would negatively effect their re-election prospects. Far better to shove the responsibility and blame off onto businesses located in OTHER states.
NRO is completely right that a harmonized system would reduce tax competitiveness, which exactly what the legislators want. Taxing and spending while holding the responsibility out at arms length so the voters can't directly connect them to it.
More importantly, all these proposals make me civilly (and possibly criminally) liable for compliance in over 8000 taxing districts where I have no voting representation.
Of course I couldn't estimate cost. I'm merely arguing that its is technically possible by maintaining a central database with the tax rules built into it. You're already incurring costs by having to file federal and state taxes. This service likely would not be very expensive given competition and the number of customers who would need it.
However, I can appreciate that Barnes & Noble would not be happy about having to charge sales tax on their on-line sales whereas Amazon mostly does not. This is the sole reason I have never purchased from B&N on-line.
The costs for filing federal and state taxes are a legitimate burden because theoretically I am receiving the benefits of citizenship and residency in those jurisdictions (which is based on nexus).
The cost for complying with the sales tax laws of other jurisdictions is an undue burden regardless of how minimal the cost because I receive no benefits and have no representation yet incur both financial and legal liabilities.
Technical feasibility is not a reason to turn the internet into a cash cow for irresponsible state legislatures.
Barnes and Noble is not being harmed by Amazon. They disadvantaged themselves by not jumping on the internet soon enough and allowed an entrepreneurial upstart to eat their lunch. Now they want to use tax law to try and claw back that lost market share.
You aren't being taxed, you are being asked to collect a tax. Just like you are asked to collect and remit the income tax and payroll tax for your employees.
The bill should allow companies to collect a fee for the service, a portion of the sale tax, maybe 1/2 of 1 percent, to cover the cost of collecting and remitting the tax. The states would still come out way ahead
Ok; let me see if I've got this right. You're implying that both you and the vendor you're purchasing goods or services from are conducting cash transactions without reporting them to the appropriate tax authorities. The last time I looked, that was defined as crime. Still, does it happen all the time? Of course it does. I worked in specialty retail for 16 years and a week didn't pass when multiple customers would try to talk us into finding ways to avoid collecting "gross receipts tax" on their purchases. When they found we couldn't/wouldn't do it, they began buying first from 1-800 retailers, then from online sellers as e-commerce matured. They weren't required to pay tax on these transactions and, as far as I know, few if any volunteered to do so. The eventual result was the decline of small to medium sized full service local retailers; the lion's share of business began to go to so-called "big box" stores, many of which derived a substantial percentage of their revenue from online transactions. I think the answer to this question is simple: collect and forward to state tax authorities a transaction tax at the retailer's local or state rate. There's not really much difference between this business model and brick and mortar; mostly, it's simply the physical separation between the seller and buyer. Businesses would report and pay taxes collected from sales regardless of if the customer bought in the store, placed an order over the phone, or on the business's website. No difference. That puts everybody on a level playing field as far as being able to compete for customers' business. As always, the cream will rise to the top; good internet businesses will adapt and continue to profit; the bottom feeders will decline. Good local businesses will get a little breathing room, but they will still need to do the things necessary to position themselves competitively against the big guys. Is this kind of plan guaranteed to work? No; because you're dealing with people, and people can always find ways to gum up the best plans. But it's relatively simple, and simple is almost always better.
Ok; let me see if I've got this right. You're implying that both you and the vendor you're purchasing goods or services from are conducting cash transactions without reporting them to the appropriate tax authorities. The last time I looked, that was defined as crime. Still, does it happen all the time? Of course it does. I worked in specialty retail for 16 years and a week didn't pass when multiple customers would try to talk us into finding ways to avoid collecting "gross receipts tax" on their purchases. When they found we couldn't/wouldn't do it, they began buying first from 1-800 retailers, then from online sellers as e-commerce matured. They weren't required to pay tax on these transactions and, as far as I know, few if any volunteered to do so. The eventual result was the decline of small to medium sized full service local retailers; the lion's share of business began to go to so-called "big box" stores, many of which derived a substantial percentage of their revenue from online transactions. I think the answer to this question is simple: collect and forward to state tax authorities a transaction tax at the retailer's local or state rate. There's not really much difference between this business model and brick and mortar; mostly, it's simply the physical separation between the seller and buyer. Businesses would report and pay taxes collected from sales regardless of if the customer bought in the store, placed an order over the phone, or on the business's website. No difference. That puts everybody on a level playing field as far as being able to compete for customers' business. As always, the cream will rise to the top; good internet businesses will adapt and continue to profit; the bottom feeders will decline. Good local businesses will get a little breathing room, but they will still need to do the things necessary to position themselves competitively against the big guys. Is this kind of plan guaranteed to work? No; because you're dealing with people, and people can always find ways to gum up the best plans. But it's relatively simple, and simple is almost always better.
s_blackwelder@yahoo.com, you are mistaken. I work for a Fortune 100 company that has recently implemented an upgrade to its procurement system to determine taxability in the various jurisdictions in which we operate. It's a complete, total, unadulturated, friggin' nightmare. And we have about 800 locations we're computing for, not the 8000 that exist in our country.
Bottom line, it's not feasible for an entity to assess correct taxes for every single jurisdiction in the US. If you're insisting on taxing e-commerce, origin-based sales tax is the only rational way to go here, but the states will never agree.
If the corner drugstore can collect and remit taxes, why can't Amazon? Internet sellers maintain an unfair advantage over bricks and mortar retailers under our current tax system. Let them compete on a level playing field in true capitalist fashion.
If the corner drugstore can collect and remit taxes, why can't Amazon? Internet sellers maintain an unfair advantage over bricks and mortar retailers under our current tax system. Let them compete on a level playing field in true capitalist fashion.
because the corner drug store only has to worry about its jurisdiction (e.g. 1 out of the 8000+ we have in the US). Amazon would have to worry about THEM ALL.
THey have a computer, so it's easy. They already have software that is watching for where you live, and taxing you if you live in the wrong places.
And Walmart, Barnes and Noble, and Target all seem to do just fine collecting online sales taxes for all those jurisdictions.
Maybe the law should require states to set up an accessable database where the online retailer would input the address of delivery, and it would return the tax rate.
