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New Federal Government Stance on Internet Taxes
Aatif writes, "
According to this story on the Washington Post, President Clinton is softening his stance against Internet taxation. Mr. Clinton said the federal government would not interfere with individual states collecting sales taxes on goods sold over the Internet even though Congress is still under a tax moratorium." From what I've heard, my state (Maryland) and all the others are thinking up ways to tax Internet sales. It's only a matter of time before they figure out how, like it or not.
OK folks, Maybe my threshold is set too high here or maybe I have been too busy to pay attention, but did Congress and 3/4 of the states of the union ratify a constitutional amendment which obviates Article 1, Section 9?
That article clearly states that, and I quote verbatim: No Tax or duty shall be laid on Articles exported from any State.
What part of this is ambiguous, and what part does not apply in this situation?
Not only that, but just below, in article 1 section 10 (Powers prohibited of States) it clearly states that No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports..
BTW, A1S9 is subtitled 'Limits on Congress', which means that Congress may NOT deviate from this legally unless the constitution itself is amended!!!! Therefore Congress can't grant those rights (A1S10) because they are not authorized to (A1S9), again, without an amendment to the Constitution itself.
What is so hard to understand here? And why get worked up about it?? This pops up occasionally, and it really shouldn't as it's much ado about nothing until the amendment is proposed....
Your Working Boy,
Not taxing internet businesses is effectively a subsidy. It can breed a less than efficient market place. For example, let us suppose that dot-com, company A, in PA has no sales tax to contend with. While brick-and-mortor, company B, has a 5% sales tax. This means that company A can sell for, say, 3% less even though they're enjoying 2% more profits (and perhaps 1% less efficient).
The fact of the matter is that sales taxes comprise approximately one third of state sales revenues. When, and if, internet sales replace brick-and-mortar sales, this is going to be a major issue. The state governments are either going to need to reduce services (and/or improve efficiency) by 30%, or increase other forms of tax revenues. They might decide to tax brick-and-mortars more to make up for the lost revenue. Meanwhile, the government is effectively GIVING that Dot-Com a little less than 5% on each sale it makes.
Put simply, not taxing the internet is asking for inefficiency. While you may be correct, that Dot-Coms have to contend with shipping costs on high-dollar/low bulk items, this is rather nominal. Furthermore, Brick-and-mortars have increased overhead (e.g., retail presence, real estate, liability, etc)...all which ARE higher than shipping costs on most items sold over the internet.
If Dot-Coms are offering a better service (e.g., lower prices as a result of lower overhead, better customer service, better inventory, etc) to customers under the same tax footing, I have no problem with dot-coms gaining market share (frankly, I think most are offering inferior service for the time being). But if you, the dot-com, have shipping lag-time, increased costs, and many other problems, you are offering your customers a worse service than those brick and mortars. If your only area of differentiation is price savings for the consumer, and this is strictly (or even mostly) the result of tax exempt status (read: subsidy), then YOU don't deserve to be in business (This has little to do with "fair", it has to do the aggregate economic effects).
Taxation funds the activities of government. In my country (Ireland) the main areas are Education, Health and Social Welfare. These alloacations are decided by the representatives of the people in the annual budget. Within certain bounds, the necessary tax rates are decided based on the amount of money which the legislature want to spend. I believe that the tax take should be fairly spread amongst those who are able to pay - this is easier to see when talking about income tax, but also applies to sales taxes and the like. In certain situations it may be decided to give an exemption to a certain class of business or area of society. This is usually for one of a small class of reasons: - The cost of regulation and collection would outweigh the money received (or make the collection too inefficient to be worthwhile) - A tax break acts as a form of subsidy for a socially worthwhile activity. For example, the income of artists is tax-free in Ireland, since art/culture is seen as something that society should support. - A tax break is necessary to encourage economic development, increasing employment or supporting a sluggish industry or economy. In this case, the 'trickle-down effect' ensures that society gains more than it loses in fore-gone revenue. I am unconvinced that any of these situations applies to the (now booming) on-line economy. Even if tax breaks are allowed to encourage the development of on-line commerce, these should be fazed out over a period of time. The point has already been made that on-line sales mean lower sales off-line. If the same tax-take is collected from off-line retailers (with no input by on-line sales) the percentage tax on off-line sales increases, making them even less attractive to customers. This would seem to be an unfair distoortion of the market. Incidently, if on-line sales are allowed to be tax free, I can see a situation where retailers will install terminals in their brick-and-mortar shops to make _all_ sales technically be 'on-line'.
I'd rather go down in familiar flames than be lost in that endless blue.
If the states were really concerned with leveling the playing field for their retailers, they'd cut their own sales taxes.
State treasuries are awash in money, to the extent that even politicians are embarrassed to ask for more. The "fairness" issue is simply an excuse to raise more money, while pretending to help the retailers. Phooey.
...at least, if the state that you live in taxes the type of purchase that you made (typically goods as opposed to services). All states that have sales taxes in the US also have usage tax. The rules regarding usage tax may vary a little from state to state, but the general rule is that if you purchase goods and have not paid the amount of sales tax that your state would charge you at, you owe the state the difference, typically paid on your next income tax form. The usage tax exists to protect local businesses from the difference between tax rates in different states, so I see no need for the feds to interfere on this one as long as the states are good about collecting. Of course, this is a very difficult thing to do unless they happen to catch you in a random audit, but the penalty tends to be pretty hefty (in CT, it's a fine up to $1000 and/or year in prison plus the tax that you owe).
See http://www.salestaxinstitute.com/Sales%20Tax%20Rat es.htm for more info about which states tax what.
-Jennifer
I am starting an Internet business, and I would like to know what services states I don't live in are going to offer me in return forcing me to be a tax collector for them? Nothing. How much do they plan on reimbursing me for the costs of collecting the taxes? Nothing.
I keep hearing about the so called advantage no taxes gives me, but what about the advantages a local merchant has over me? His customers can leave the store with the product today. Mine have to wait at least a day for shipping, longer if they don't want to spring for overnight air. His customers don't have to pay for shipping, mine do.
Then there's the biggest advantage of all. SERVICE. There is no way in hell I can offer the kind of service a knowledgeable salesperson, that is speaking directally to a customer, can offer. His customers can get an answer in seconds. Mine have to e-mail me and wait for a reply.
Businesses with good customer service have nothing to fear from the internet. Businesses that hire high-school dropouts that can barely run a cash register are the ones in danger. Any local merchant who can't compete with the advantages he allready has desreves to go bankrupt.
Quemadmodum gladius neminem occidit, occidentis telum est
Yes, I realize that some little bit of government will always be necessary, but that little bit that performs the legitimate functions of a government is pretty cheap
Cheap != Free. Last time I checked, defense, law enforcement, building prisons were not only not free, but they were rather expensive items.
It is inefficient; ask any economist.
You need to talk to more economists before you make this argumentum ad verecundiam (appeal to authority). You may be surprised to find that there is quite a diversity of opinions on most topics, and the view you cite is decidedly a minority one. I am not an economist myself, but this is my understanding of the issue.
Markets work on the assumption exclusivity. In other words, when I buy a TV, I'm buying it for my benefit, not yours. It is usually agreed that their are "public" goods -- things which need to be paid for whose benefits are entirely or partially non-excludable. An example is national defense. These goods are the necessary province of government to obtain (although not necessarily produce -- a government might decide to pay mercenaries for national defense, for example). Defense is a pure public good, in that there is no exclusive benefit. By definition, there can be no market for the product national defense.
There are two problems with public goods. First, there is no way (or at least it is very difficult) for a market to find an optimal distribution of resources between private and public goods. It is entirely a matter for rational discorse, for which we rely, unfortunately, upon our political system.
Another problem is that there are many important goods that have both exludable and non-excludable benefits. Education is one; clearly it benefits the individual, and it also greatly benefits society to have a large pool of literate workers and consumers rather than a horde of illterate savages. In the US, education through the High School level is largely treated as a public good.
In other countries, health care is treated as a public good, although clearly there is a large private benefit involved.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
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The key to making this model is that the police will then only enforce the law when it is politically expedient or profitable. The trouble with that is it can lead to a police state, in which the police can harrass the general population on a whim and then back it up with the huge numbers of ridiculous laws we've got.
I used to live in New Jersey, and people from NYC would come there to shop, because the taxes were lower. Well, someone in New York government came up with the bright idea of sending cops into New Jersey mall parking lots and searching for New York plates. Later they would send threatening letters to the people who were shopping in the New Jersey stores saying, "You still owe New York sales tax and you'd better pay it!"
This, of course caused friction between NJ and NY, and was eventually dropped (I think, I haven't been back in a while, it was back when Florio was governor of NJ.) Of course, the original reason that interstate commerce was supposed to be exempt from taxation was to help keep the country united so you wouldn't have a bunch of little wars between individual states, and its worked pretty well for years (well, except for a few little altercations in the past.)
It is idiotic for the Federal government to allow individual states to tax the Internet this way, because the Internet is a national and International resource. The Federal government is supposed to be responsible for things which fall into the catagory of national. Personally, I don't think there is any pressing need to tax Internet commerce, but with all the hype about the Internet goldrush it is definitely going to happen. The rational way to handle it is on the national level, not the state level.
Of course, I'd rather we didn't get these wonderful new taxes, but then I'd rather Harry Browne would be the next president rather than George Bush or Al Gore.
All the creatures will die, And all the things will be broken. That's the law of samurai. (Jubai, 1605)
The hub-bub about E-Taxes and who pays what where is something that has been done and dusted (pretty much) in the shipping industry for over 100 years. The companies register themselves in the cheapest place to pay taxes, they register the boats in the cheapest ports with the lowest safety requirements. And then the country you are shipping TO takes its tax cut on delivery. Thus its the point of delivery where the tax occurs, no matter where you buy from.
This isn't new someone has just whacked an "E" infront of it and bumped up the lawyers fees.
An Eye for an Eye will make the whole world blind - Gandhi
Also in the current Washington Post, columnist Robert J. Samuelson argues the case for sales taxes on items sold over the net.
He says that the present tax exemption is like a government subsidy for e-commerce businesses, and tends to promote waste, since inefficient e-businesses may still have a lower end price for the consumer. Hence there is an unfair penalty for brick-and-mortar businesses that may be more efficient but have to pay taxes.
Always keep a sapphire in your mind
A rticle I, Section 9
"No Tax or Duty shall be laid on Articles exported from any State. No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another; nor shall Vessels bound to, or from, one Sate, be obligated to enter, clear, or pay Duties in another."
Cheers
Or you could run all of your servers off of a ship out in international waters using satellite connections. This isn't really ideal from speed purposes, but would avoid all of those pesky regulations :)
But many traditional retailers say they suffer an unfair disadvantage by having to add a sales tax to their goods in the 46 states that impose such a levy. Many governors and local officials fear a deep loss in revenue if online sales siphon business away from traditional merchants.
Further complicating the issue is the existence of more than 6,000 sales tax jurisdictions nationwide, with widely varying rules.
So basically what will happen is that different states will end up with yet another set of taxation rules that apply to internet sales. Seeing as how internet sales will generally occur across state lines this will result in vast amounts of confusion as different states attempt to try to apply different laws, and people and businesses will lose out from trying to comply with this patchwork of regulations.
Clinton is obviously in favour of such a tax, and is trying to get enough states to enact it so that it becomes more and more difficult for the advisory commision or his successor to keep the moratorium in force.
States have been trying to get taxes on mail order products for years, and some have passed laws that do tax out of state purchases. I would expect that some states will pass similar laws for internet sales, and some will stay in the clear.
A bigger problem will come when the federal government places tax on internet sales, bandwidth or usage, or whatever. This is primarily because there is no such all encompassing tax at this point. Whenever you purchase something, the only tax that goes to the federal government is the wonderful corporate tax that those who sold it to you pay each year. There is no "transaction" tax on any transactions whatsoever that the federal government collects. This is because it is unconstitutional to do so.
Now, IF the fed decides to make a "bandwidth tax" or a "transaction tax", which is what some are proposing now, that is a breech of our constitution. There is only one way to stop that, which is write your senators and congressman and tell them what you think about this, reminding them of what will happen to their job if they vote for any internet tax whatsoever.
I hope you all write at least one letter. Otherwise, you should'nt complain when bandwidth or transactions or whatever gets taxed. After all, you never officially complained, did you?
Real men don't need signitures!!!
Yes, I realize that some little bit of government will always be necessary, but that little bit that performs the legitimate functions of a government is pretty cheap. A government should enforce our property rights, and nothing more. That includes most of criminal law, and specifically excludes "income redistribution", AKA theft.
Even the socialists among you should be able to see flaws in the sales tax idea: it's regressive, and socialists are supposed to be against that sort of tax. It is inefficient; ask any economist. It causes underproduction and loss of welfare (in the economic sense of the word). Eliminating sales taxes would force the governments to collect the taxes more directly from the people. Yes, that's good. Then folks will see more clearly how deeply the government is gouging them.
I think that the tax-free status of the net is a great chance for all of us who don't like big government at any level to push for the elimination of sales taxes in general, so that the brick-and-mortar guys can keep up, and so we can keep government in check just a little better.
See what I've been reading.
I don't see why the net should be exempt from tax. Just because the medium in which sales are made has changed shouldn't change everything else. Not taxing net sales, will only mean longer, higher taxation on non-net sold goods