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Analyzing the Real Impact of Taxing E-Commerce
sashae writes: "We've heard a lot over the last couple of months about the gigantic dollar-figure sales the net has been generating, that the US Gov't has missed out on taxing. American Outlook magazine has an article about the true impact of Internet sales on taxes that the states would normally collect. "
NOT GOING TO HAPPEN!!!! At most you'll see what is going on now (and which I have no prob with): tax sales to states in which the seller has a retail point of presence. Fine, I'll just buy from businesses that don't have POPs in my state (Sorry Hateway, Borders, etc..) and screw the taxman just that little bit more.
/., et al, could you please Please PLEASE not bother posting anything about taxing e-commerce in the US unless it involves an explicit attack on the constitution (that is, legislation or judicial decision)? I don't care about any cockamamie theories, or any "it's inevitable" rantings by spread-the-wealthers. According to the Constitution and precedent set by mail-order, phone, and other interstate business concerns, it is UNCONSTITUTIONAL to charge tariffs on goods exported from one state to another state except for 'controlled' items and substances (like liquor, tobacco, etc). The only way to change this short of a constitutional amendment (or by judicial misconduct in not applying the constitution to any erroneous law that finds its way thru the congress) is by federal VAT. I think Washington DC will get anthraxed or nuked before the more reactionary segments of the US Population will permit a nationwide sales tax..
:p )
Unconstitutional, and I doubt the states will win any appeal. See my previous rant for the constitutional details.
Even if they do, guess what, I'll just use the phone or mail to order my swag, and the government will have succeeded in killing yet another golden goose.. The B&M oldthink shops will still lose business, and life will go on.
Hemos,
How hard is this to understand?
(but go ahead and post stuff not about the US, as their Constitutions don't necessarily defend the citizenry from the taxman..
Your Working Boy,
The author believes, and states, that Borders and B&N have to charge most US residents sales taxes, because they have stores in almost every state. Not so: these stores assert that their online operations are separate companies. borders.com says it has operations only in Michigan and Tennessee, for example; see their pricing policy. Barnes and Noble claim to have online operations in only four states. So large companies can locate their online operations only in states with no sales tax.
Consider a situation where a CEO, say, has most of their salary paid in some offshore tax haven, has most goods delivered from a company incorporated in another tax haven with a wharehouse in Mexico, say, whose government (hypothetically) removes all sales taxes for re-exported goods. I'm not sure of the import duty situation, but with NAFTA I'd imagine they are very low. Our executive ends up paying virtually no tax in the jurisdiction where he/she lives, works, and uses government provided services.
I suspect that in the not-too-distant future governments will need to come to additional treaty arrangements to ensure people pay a fair amount of tax, and this will probably involve a tax on internet-based transactions be they domestic or international. Is this intrusive and a bugbear? Yes? Is it any more intrusive than the IRS (or its equivalents)? Probably not. Is it necessary? Almost certainly.
Any sufficiently advanced technology is indistinguishable from a rigged demo
--Andy Finkel (J. Klass?)
Tax dollars started the ARPA net, provide education, and, if you live in a halfway civilized country, free health insurance.
s/civilized/socialist/
________________________________
His numbers might be off slightly, although not nearly as much as you think.
He hardly needs a "compelling" argument as to shipping costs, it's essentially irrelevant. What you seem to be implying is, that, because some Dot-Com has to contend with 30 (or ANY other number) dollars of shipping and handling, they should be given a break. Excuse me, but this, in any other context, would be called a subsidy. Under your apparent line of reasoning, a mall operation should be given a tax break over their discounted counterparts, because they inccur higher overhead costs due to their high end retail presence.
Businesses should operate based on the services (and/or products) and the efficiencies they can create, not because some politician (nor, for that matter, his constituents) think the internet is the best thing since sliced bread. If the internet is appropriate for that specific good or service, it will MORE than make up for whatever it has to cover in shipping and handling, without any artificial tax differentiation (read: where the consumer, in any given state, pays less on that specific good).
Furthermore, you are neglecting the various costs of traditional brick and mortar stores. In almost every existing field, BMs' overhead costs per item, exceed the shipping costs to domestic customers from Dot-Coms. Remember, that Dot-Coms are free to locate in whatever state they want, since most don't need to have actual operations in the states they're selling to (further reducing potential tax considerations of all sorts).
Tax rates and costs shouldn't play a significant issue in (Remember, it doesnt need to be absolutely 100% equitable in every single case...there will be some error, but such is life) choosing between buying a product online or at a retail store, should not be swayed significantly by any tax considerations (e.g., both the tax rate they're plied, at the costs associated with gathering, administrating, etc.) Despite the panicked pleas of some, this is not a huge burden on the DotCom, and even if it were, the rate could be adjusted to compensate. While it may be true that there are several thousand possible tax rates within the US alone, any reasonably compotent firm could handle such issues.
Despite popular opinion, not all mail order firms (e.g., firms that are located in some state and ship all their goods out directly to the customer, with little or no direct customer interaction) are tax exempt (perhaps just "true mail order" firms). I happen to know of a few, and they cope just fine. There are, in fact, services/software with keep track of all the tax rates for you, and they're easily integratable into software/databases. Furthermore, when, and if, DotComs have to pay tax rates like their competition, you can be sure that better services for tracking tax rates/districts will arrive. Also, the federal government could easily compile an official database of tax rates, zones, and methods for which all firms would be held exclusively accountable.
The "free tax collector" argument is similarly tired. Given the relative ease of collecting taxes (in the vast majority of cases), as demonstrated by other mail order firms, we're talking about mere fractions of a penny per transaction (if intergrated into CGIs and the like), maybe a penny or two to be generous. Few people today are swayed by such small change. But even if they were, it is still fair. Even though the DotCom may be loosing a penny, it's such a small price to pay when you stop and think about it. How do those goods get there? The customer's state's roads. Whose court will disputes likely arise in? The customers state. In the case of fraud or theft, who is going to give the thiefs chase? Most likely the customer's police. And those are just the DIRECT incremental costs involved in maintaining that type of commerce that I can think of.
You also have to consider the ASSOCIATED costs in maintaining a state with consumers capable of buying your products (e.g., education, courts, police, roads, bridges, airports, telecommunications, etc.). What happens to the tax revenues of truely boondock states where consumers start buying from out of state DotComs in record numbers? Sales tax accounts for roughly 30% of most states' revenues, something has to give, no matter how small some may think it is. But what does the DotCom care? All they're using are their roads, their police, and their courts. Maybe we can shave 5% off the budget of that state's education system, and only pay for roads that DotComs uses... As you can tell, the usage argument is ABSURD. Modern society simply can't operate like that. Like it or not, modern commerce depends on each and every state to facilate not only your particular transaction, but also the economy that allowed for that transaction.
In closing, my concern is less the "fairness" (for it's own sake), nor the changing revenues of particular states. Rather, economically speaking, there a strong argument against taxing the internet less (read: subsidy). Like all subsidies, it will lead to inefficiencies (these inefficiencies could also hurt the DotCom) in the long run. Anyhow, I've rambled on for long enough. I apologize if I've boxed you in, or put words in your mouth that you disagree with, but I tire of all the myopic statements on slashdot.
Granted, taxes are generally intended to pay for services that the government provides for citizens, and that's not necessarily a bad thing. However, what's important is that the things that are taxed correspond in some way to the expenditure of the tax dollars. To take your examples,
I can't complain about any of these issues - in each case, the people who will receive the benefit from the government expenditures are the people who are being taxed. What's different about this next example:
The difference is that purchasers are being taxed but not receiving any government services in return. All of the pro-taxation arguments which have been made so far are along the lines of "but everybody else is raking it in, why shouldn't we?" without any consideration of what those tax revenues will buy for the people who are being taxed.
It's fine with me if the states want to tax resident e-businesses at whatever rate they see fit, since those businesses do use the roads, fire departments, police, courts, etc. at their physical location. But as a customer of one of those businesses, I haven't used a dime of the resources of the state of California (for example and because many e-businesses are there), and I resent CA's or any state's attempts to extort money from me on that account. There are some situations in which taxation is good and useful, but this is not one of them.
Your right to not believe: Americans United for Separation of Church and
Yes, pre-election debate on whether to use it to shore up Social Security, use it to start new programs, or use it for handouts under the guise of "tax cuts". (You can bank on the last one, since it's an election year. The only thing still up in the air is how much they're going to hand out.)
There are several problems with the whole thing:
 
 
And since I'm already on my soapbox: The government really has the whole thing ass backwards. Traditionally they lower taxes when times are good and raise them when times are bad. If they gave a shit about their constituents (as opposed, say, to their need to get re-elected and their obligations to lobbyists) they would do just the opposite: lower taxes when times are tough, and raise them during boom times, to cover the bill from the last slump.
--
Sheesh, evil *and* a jerk. -- Jade
If I wanted to hear the lobbying of the right-wing political equivalent of Mindcraft, I would spend more time in the mainstream media.
/. needs more people researching the backgrounds of some of these stories. Or perhaps I'm expecting too much.
Read some of the other "reports" they publish.
What did you expect them to say?
Also, people seem to think that taxes get taken by the government and then thrown out the window.
Tax dollars started the ARPA net, provide education, and, if you live in a halfway civilized country, free health insurance.
Maybe
(Watch the moderation down because of political slant...)
Oh, get real.
The reality is that there are many things that the Net is being used for - such as BlueNile.com selling diamonds - that are heavily taxed in non-Net sales. And cars. And yachts. And sails for your sailboat. And Palm Pilots.
The way to measure this is to look at the money drops in local and state collections, compared to total sales. From this we can extrapolate that up to 25% of current non-Net sales are on the Net now.
The reality is that this will be taxed. Maybe not today. Maybe not tomorrow. Maybe not this century - but when 2001 rolls around, expect those tax collectors to start auditing, and people to start going to prison for avoiding taxation.
What's next, an article saying that death will be avoided by using the Net?
As long as there are politicians, someone will be taxed. And most likely based on the higher of the delivery address or billing address tax levels.
Will in Seattle
Disclaimer: I am NOT for internet taxes.
Looking at his numbers, I find something fishy.. He says that its ONLY 35 billion among 50 states... That's 700 million per state (or so. I don't know about other counties, but in Monroe county (in NY), the yearly budget is about a billion. It also has a 8% sales tax. Of that, 5% (?) goes to the county. But of the billion dollars, only about 200 million is actually discretionary spending. (The state forces them to spend the other 800 million for welfare and other state-required programs.) There are around 40 counties in NY, so Monroe's share of that 700 million would be about $20 million a year. That's a lot of money if you compare it to the discretionary budget. Its an increase of almost 10%. That isn't inconsequential or chump change.
I don't know about other states or other areas of the country, but at least in monroe county in NY, a lot of the sales tax revenues are given to local governments and to the schools, where they help keep property taxes down.
I remember this because about 10 years ago there was a big debate on whether the county should lobby the state to increase the sales tax from 7% to 8%.
I'm ignoring all of his arguments on the problems in collecting taxes on internet goods, but how he blows off 35 billion is fishy.
This article was interesting, and made some valid points, but all in all, I don't think it's going to matter. As the author states, figures being thrown around relating to e-commerce are just too large for any government to resist. No matter what is said by "experts", the government will have a tilt at reaping tax revenue, and only after probably throwing large amounts of money at the problem of collecting such tax will it be seen to not be a possible, or even a financially viable proposition.
In these states, where the main differences between shopping locally and shopping out of state is that the latter also adds a shipping fee, plus the time spent waiting for the order to arrive, shopping locally is obviously the more advantageous deal, and supporting local businesses is a no-brainer.
With the lack of a sales tax, consumers' purchasing power is increased as well, which means more cash flowing into local businesses.
And more cash in local businesses means they have more income which means more tax revenues for the state.
So "e-commerce" (silly term, IMO, but ubiquitous nonetheless) is not harming States' economies. Rather, high sales taxes are harming local businesses, lowering consumers' purchasing power, and overall dampening the local economies which means less revenue for the state and local governments.
And the perceived shortfall of revenue simply gets used as an excuse to raise sales taxes even further, which aggravates the problem rather than remedying it.
All this makes consumers even more interested in seeking out-of-state deals which cost less.
IMO, Tax-free Internet sales are a godsend for the consumer, and maybe to staunch the flow of cash out of state, states will have to make shopping locally a better deal, rather than trying to discourage interstate commerce.
Impeding or discouraging interstate commerce does not a happy economy make.
--
Stay up hacking each weekend. Sleep is for the week.
Honestly, I think internet sales should be taxed. Perhaps less than Brick and Mortar companies, but some. It simply comes down to not being fair. If I can buy a new Athlon 1GHZ for $1400 at a local store and play $102.20 in sales tax versus buying it over the internet for the same price but paying $5.00 shipping, then of course I'm not going to buy it from the local store. I may want to support local busineses, but a hundred bucks is a hundred bucks.
The argument that attemped to address this "Catalogs have always been tax exempt" failed, because catalog purchases haven't been as widespread, historically, as eCommerce. I've never bought anything from a catalog, but I have purchased several hundred dollars in computer parts over the Internet. I don't like paying more money than anyone else, but as far as I'm concerned, it's either a) Abolish sales tax, or b) Institute eCommerce/Mail Order tax.
It's just more fair that way.
-------- "All I want in life's a little bit of love to take the pain away" --Spiritualized
When telephone service and credit cards became common, making it easier and faster to order from mail order companies across state lines, the government didn't decide to tax those sales. now, the internet has made it possible to do EXACTLY the same thing (only easier and more user-friendly), and the government wants to tax it. why should transactions completed online be treated any differently than those completed over the phone? businesses like amazon.com must have warehouses or NOC's somewhere, so why not tax purchases in those states? if you look closely, ordering online is not fundamentally different from ordering from a catalog by phone, so don't treat it differently!
If you are in any doubt as to what that dose to an economy you need look no farther than Jamaica. Right now we carry a heavy tax burden. Our government is still trying to figure out new ways to bleed money from the economy. These include;
:)
25% income tax
15% sales tax
40% import duty on consumer items ( like cloths ).
20% Duty on trucks
40% to 280% on cars ( depending on the CC rating. There are around 3 Cadilacs in kingston
1/2 the cost of gasoline and electricity are tax.
In fact the only sensible thing is that most computer equipment attracts only the 15% sales tax and books and magazines of all types are tax free.
What dose this do to an economy ?
17% to 35% unemployment ( depending on which figures you trust )
Devaluation ( from J$5 to U$1 in 1989 down to J$42 to U$1 now )
Low tax revenue. The cost of servicing the government debt actually exceeds the total tax revenue. Seriously, the old concept that "the more tax you charge the less you collect is true.
If you Americans want to follow the same path then go right ahead. Tax everything and tax it heavily. Maybe after a few decades of such abuse you will drop into the same hole as we are.
BTW : Our government has not figured out how to tax eComerse yet anyway.
--= Isn't it surprising how badly I spell ?
Businesses are always one step ahead of lawmakers (that's what corporate lawyers are paid the big bucks for). Pick at random a large mail order business , say BMG or one of the other "12 for the price of 1" CD resellers. Look at the package your new Backstreet Boys cd came in . Note that the address is usually from some sparsely populated midwest state (North Dakota, Iowa, etc). Reason? These companies calculate where their business comes from and move their location to areas where they get the least amount of taxable sales. I assume most companies have avoided Alaska simply because of the expensive shipping costs, but if 6% sales taxes were levied in all 48 continental states you can bet there would be a huge jump in land prices in Anchorage. And don't get me started on how the state government would prove that these purchases actually occured. If i ever get a letter from the state of California that starts out "While routinely sniffing your ISP's network, we found a rather large set of encrypted packets which resemble a credit card number", I'll rescind my citizenship and head to the Keys. Of course, Uncle Sam can still tax my income for a few more years, but that's another story...
--BlueLines "The cost of living hasn't affected it's popularity." -anonymous
Also note that any future big dollars in general Internet retailing are likely to come from companies that also have a physical presence in most states, such as WalMart, and will therefore be required to pay sales taxes without any new laws.
This is true about walmart... at least it was. My roomate works in their internet engineering "team". After walmart online came "online" they realized this about the taxes and sold the online store to another company (that does not have stores in all 50 states). Now they dont have that nasty sales tax problem.
john
-- john
(I'll start with the standard IANAL disclaimer...)
;)
As far as I know, in the U.S., tax can't be charged on transactions across state lines. You'll see the simplest example of this on a mail-order catalog, where you only pay tax if you live in that state.
Now, for the Internet, the dilemma is that it has become very EASY to purchase goods out of your state. UPS and Fed Ex, and even the good ol' US Mail are getting very good at delivering things quickly. And sometimes, you can even download what you purchased.
No more 6-week waits to ship. This has made traditional merchants and the federal government fearful of lost revenue. So they say they want to tax the Internet. But the thing is, IT IS ALREADY BEING TAXED. Inside your state. The way it's supposed to be. The same rules mail-order catalogs use.
So in reality, the government wants to CHANGE the rules on us. So ok... let's say there's some flat tax on Internet transactions. Who ends up paying, really? The merchants (and I expect small business owners will get screwed even more, as usual).
Why? Because the tax rate, combined with the cost of shipping will make Internet purchases generally more expensive than traditional retail. So in order to maintain customer bases, the Internet merchants will have to either lower their prices (and profit margin), or find ways to make Internet shopping preferable, which is difficult. You are already removed from personal interaction with the customer by the nature of an online business.
I think tax changes will only benefit the old-school retail businesses. And I'd expect them to be lobbying heavily for it, if they aren't already. Oh yeah, and they'll probably want to vote for Gore too
Best regards,
SEAL
I haven't run any numbers on this myself, but that fellow's arguments look sensible. Wholesale isn't taxed anywhere in the U.S., the value of the transactions which are taxable will certainly fall if a tax is imposed, and so on. I think his basic point is sound: attempts to tax e-commerce will fail, and do far more harm than good in the process.
Another poster, above, pointed out the obvious: the solution is to eliminate sales taxes on the local merchants,too! That levels the playing field in a sane fashion. This is a solution that both ends of the political spectrum should like. Liberals are supposed to be against the sales tax because it's regressive. Conservatives are supposed to be against it because it puts a disproportionate burden on small business, and because it is economically inefficient. We need to make it clear to all who will listen that this is an opportunity to get rid of sales taxes everywhere. How to replace the revenue? Let each state figure that out for themselves. At least one will probably come up with a good idea.
See what I've been reading.