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U.S. Ecommerce To Be Broadly Taxed?
fl!ptop writes "ZDnet has a story about U.S. Senators proposing sweeping changes to how Americans are taxed for online purchases. As proposed, businesses would be required to collect sales taxes and send them to the state the purchase was shipped to. As a small business owner that primarily sells via ecommerce, I am shuddering at the prospect of having to deal with government sales tax forms and coupon books for 30 or more states. Will I have to register with each state's tax department? As an ecommerce Web developer, I'm also wondering what implications this will have on maintaining code that calculates sales taxes, expecially in states like Ohio where they differ by county and municipality."
Start a company that acts as an intermediary and provides the taxation service for small businesses.
Throw in some mumble about Ajax and Web 2.0 and watch the VCs line up to throw money at you and beg you to have sex with their women-folk.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
Why don't they just implement the fairtax and be done with all these other convoluted ideas?
"A revolution without dancing is... a revolution not worth having"
E-commerce sales take away from brick-and-mortar sales, which are taxed. The gov't feels they are losing money.
This is going to be a nightmare for small business owners to implement. Most states make you pay to register with their sales tax department. Multiply that by every state that you have customers in. No wonder big companies like WalMart are supporting it.
Bradley Holt
First Data Corp, which owns Taxware and handles taxation in multiple states and coutines nicely, even in jurisdictions that have different tax rates within the same zip code.
The other big e-commerce tax product is Vertex which has a bigger Fortune 500 footprint, but they are not publicly traded nor are they owned by a publicly traded company. Good acquisition target.
If your eCommerce business is run in, say California, then it should charge California sales taxes.
It makes no sense for a company in California to try to figure out the sales tax for an order from New Hampshire.
Last time I checked there were a lot more than 30 states .. I'm not even American, and I know that.
I understand that mail order in the USA is not taxed, unless the purchaser is from the same state that the mail order house is in.
So far, ecommerce had the same rule (or similar).
If this gets implemented, then will it apply to mail order as well, or will it be for ecommerce only?
What about if an American buys from a Canadian business via the internet? Will the Canadian business be required to collect US state taxes too?
2bits.com, Inc: Drupal, WordPress, and LAMP performance tuning.
I am by no means an expert on the subject, but my feeling is that this is somehow against the constitution. And for this to be trackble and enforcable, the states would have to collect their tax money with the federal government as the intermediary. Just on the surface, this idea seems unworkable due to the complexity.
And how about taxes for the local state? Do you get taxed twice or does one take precedent? I speak of situations where you buy from a company online and they have presense in your state as well as others. At present, if the company has presense in my state then I also have to pay local state tax. But what if the transaction is with a company in, say, N.Carolina (just pulled that from a hat) but they also have a presence in Texas where I am at now. Current practices say I have to pay tax to Texas. But with this, am I paying double tax?
The thing the ticks me off about this is that the mail order lobby was the group that started all this crap back in the 90s, because they saw their revenue going down. Back then, it was "oh, tax the internet, but leave us alone".
Personally though, I don't think either of them should be taxed, but if they do pass this, the better make all the regular mail order companies comply with it too.
Nothing creates business opportunities like gov't regulations. You will see clearing house companies spring up to process taxes for you. Funny about Ohio- when you buy someting in a county with lower taxes, and take it home, you are supposed to send the state the difference.
btw- Counties in Ohio have different tax rates. It has nothing to do with municipalities, so you only need to know the tax rates for each of our 88 counties... (Mine is Summit county, 6 3/4 percent)
And All I Ask is a Tall Ship And a Star to Steer Her By
http://www.boston.com/news/nation/washington/artic les/2005/12/09/house_approves_561b_cut_in_taxes/
From the above article: "They cut vital programs and services that benefit hard-working lower- and middle-income Americans, and with the money saved, are giving more tax cuts to the wealthiest of the wealthy."
From the ZDNet article:
"...Sen. Mike Enzi, a Wyoming Republican. "This is costing states and localities billions in lost revenue."
So the Senators think they shouldn't tax the rich, but its okay when it is everyone else.
Anyone think that this is unfair? Or is this okay with you?
He who knows best knows how little he knows. - Thomas Jefferson
The reason is the states are loosing money on sales tax for online purchases. Now don't get me wrong, I like not having to pay taxes on my online purchases, but you have to understand the states point of view on it. They rely on taxes for revenue and a big part of it is sales tax for many states.
I browse on +1 so AC's need not respond, I won't see it.
That's what I'm talking about!
:)
How's somebody in California supposed to keep track of all that!
They've already been there and done that.
The problem is tax revenue. Sales tax makes up a considerable percentage of revenue for many states, especially states like Texas that have no income tax.
Back in the day, most people bought almost everything they bought from local merchants, meaning that there was very little way to avoid sales tax. Catalog mail order and later, telephone orders, made up such a small percentage of commerce that the items remained untaxed. The smaller northeastern states, and even some municipalities (like in the Oklahoma City area) sometimes lower their tax rates to encourage people to come shop in their malls. Delaware makes a big stink about not having a sales tax, and there's a lot of outlet malls that advertise as such. Still, it wasn't much money.
Now, thanks to advances in shipping technology and Internet ordering, people are spending more and more money online, especially in the holiday season. This money isn't being taxed.
Some states have provisions to attempt to curb this. Virginia, for example, has a "use tax" where if you purchase any item and do not pay sales tax, you have you pay a "use tax" on it. Problem is, it's hard to track and almost no one reports anything, much less what they really spent.
The tax system is so convoluted and fucked up it should be changed, I agree, but this is totally legal. The sticky point comes in where states are trying to force e-merchants to collect their own sales taxes. Depending on how this is accomplished (i.e., not a federal law) if you've got a state that isn't part of this agreement you're going to see e-merchants move to those states to avoid having the additional burden of collecting those taxes.
Maybe I am calling for reform here but tax for services rendered is the system I would like to see.
CS: It is all sink or swim...oh and did I mention there are sharks in that water?
Poster: As a small business owner that primarily sells via ecommerce, I am shuddering at the prospect of having to deal with government sales tax forms and coupon books for 30 or more states
Article: The legislation would apply only to businesses with more than $5 million in "gross remote taxable sales" each year.
Of course, maybe my definition of small business is different than the posters.
Tis better to be silent and thought a fool, than to open your mouth and remove all doubt --Abraham Lincoln
Right now, I am working on an app that calculates tax by county. What fun. There are roughly 3200 counties, parishes and independant cities in the US and every one has different rules on what is taxed and how much.
Something like this is really going offer employment opportunities for programmers. It will be a bigger boon than Y2K! Because if the states are getting their tax money, the counties will want theirs too. Of course it will crush commerce for the small guy and most everyone. Just think of the cost of tracking and sending these funds out on a regular basis. So it will be like a bigger bubble and a bigger crush. The nineties all over again.
Yow, Where's my aereon chair and foosball table?
The Federal Government isn't taxing you for the items, they are considering giving the states authority to do so. As the article explains, currently in states with a sales tax, you theoretically are supposed to pay sales tax on goods ordered from out of state. (There is usually a form for this that you are supposed to file w/ your State income tax.) Almost nobody actually does so. Court rulings mandate that one state cannot collect, or require to be collected, tax on behalf of another state without Federal law giving them that power.
This law isn't really an "e-commerce" law like the article title would have you believe. It would apply to old-fashioned mail-order also. It is just that mail-order has really become MUCH bigger with e-commerce, so it is a bigger problem that it was before.
The justification behind the law makes sense. There is no reason that customers of say, Amazon.com, should be mostly exempted from paying sales tax while customers of bestbuy.com or compusa.com have to do so for the exact same items.
I expect if this law gets passed, there will be:
1) Be cheap software available to help retailers work this out. The software already exists, since web sites like target.com already have to deal with it.
2) A single form you file with your own state taxing authority that you would then list how much tax was supposed to go to each state. I don't think they would require you to register with each state individually.
SirWired
I think it is well past time to ditch the different taxation systems (income, property, inheritence, sales, capital) and replace them all with a single sales tax. That gets rid of this problem and also alliviates the massive problem with a competly wacked tax system that actually increases the difficulty of moving between the different classes.
I don't know much about the so called "FAIR Tax" although I have heard people say that it is similar to this idea. I dislike the flat tax because it unfairly impacts larger families (although I am sure the population nazis would love that).
But in general, why on earth do we maintain this system? It's not efficent, not effective, and benefits no one except politicans wanting to play social engineering!
http://en.wikipedia.org/wiki/Dns_root_servers
CS: It is all sink or swim...oh and did I mention there are sharks in that water?
All interstate commerce should be subject to a 5% sales tax collected by the federal government. At the end of the year the feds would distribute the collected taxes to the states in proportion to their own sales tax collection from in-state purchases. That is if state X's collected sales taxs were 3% of the sum of all the 50 state's collections, it would get 3% of the federal collected taxes.
All of us, including me, love to evade sales tax, but we all want the roads, schools and police services that it pays for.
State Governemnets, (The ones that charge Sales taxes,) use the money to do things like fund schools, pave the roads, etc. It's not a user fee for the internet or e-commerce, but rather it's meant to pay for all government functions. Personally I think this is a good idea, (objections to Sales Taxes generally aside.) If you're going to tax sales as a way of funding public projects and programs, there's no reason to exempt ecommerce.
Facts do not cease to exist because they are ignored.
My wife operates an E-commerce store (which also has a physical location). I write e-commerce software for a living.
This isn't a big deal, so long as states simply have one rate per state, and there is an easy way to find the rates and be notified of changes. Collecting differently based on county, municipality, etc, is gruesomely inconvenient. Of course, it that were required, I'm sure a couple companies providing a tax-rate web service would spring up, assuming that you didn't already receive such a service from someone like your payment gateway service.
but the gov't is a non-profit. Not a money making machine. Or at least it is not intended to be one
Have you ever heard of a government making a profit? Even if they ran a surplus, it would take several hundred years to wipe out the deficit they've already incurred!
Yes, but the arguement is that the states do nothing to EARN a piece of that ecommerce money and have no right to tax it. Hell, I'd argue that the states do nothing to earn the money they tax on brick and morter stores either, but that's a debate for another day.
I think, therefore I doh.
Well, government needs revenue, that much we agree on. If the revenue goes down either they have to cut spending or find a way to increase their revenue. Cutting spending is a nice idea, but it usually requires cutting things that the citizens need or want (like student loans programs, which were just cut yesterday) and you can only go so far with that without causing other problems (like poverty, homelessness, crime, etc - or simply not getting re-elected).
So usually increasing the revenue is the way to go. That can be achieved either by increasing the tax rates, imposing new taxes, or closing loopholes on people that previously didn't pay taxes when they should. Increasing taxes or creating new taxes also has nasty side effects (like not getting re-elected). Closing loopholes, however, tends to be politically viable since it's seen as fair. The tax-free nature of internet purchases is such a loophole. I think the government let it slide for many years while the revenue it represented was still small, but it's becoming harder and harder to ignore since it's growing.
Actually, there is a big reason. Best Buy and CompUSA have a physical presence in almost every single state and therefor must collect taxes for the states they exist in. Amazon only has a physical presence in 4 states (and they DO collect taxes from those 4 states). Best Buy and CompUSA a free to kill their physical stores and go with the online-only distribution model like Amazon.com, but they CHOOSE not too. Amazon.com most certainly should be exempt from paying sales taxes in states they are not even present in.
I think, therefore I doh.
No taxation without representation....
Screw'em. If they want me to pay taxes out-of-state, they can give me a representative to vote on my behald in their state.
How long until one state makes itself a no online tax state. And a company sets up "receiving/shipping" and you just have it sent to a PO Box and then it's routed elsewhere. You bought it in "x" tax free state.
Love you fair tax people. Fair tax is the worst idea ever. No poor person protections are going to make this a good idea, except for the very rich. Not even the rich elite think this is a good idea. Warren Buffet had this to say about the Flat Tax (not the "Fair" tax idea, but close): I wouldn't support it. We have, in my view, a taxation system that's much too flat already. If you look at the payroll tax--which is over 12% now, and that applies on the first $80,000 or $90,000 of income--Bill and I pay practically none of that in relation to our income. For the people that work for us, their tax rate in many cases is the same or even higher than my own, since the rate on capital gains and dividends was cut to 15%. What has gone on in this country in recent years is a huge benefit to the very rich and not that much relief to people down below. Frankly, I think that Bill and I should have a higher tax rate on the income we get. We pay less than half the rate that I was paying 25 years ago when I was making a lot less money. They have really taken care of the rich. -- Fortune [fortune.com]
The article does state that it would only require it for businesses that have over $5 million in gross taxable sales, which would eliminate the truely small businesses. The big problem would be the small businesses that have just over the $5 million minimum and that has a very narrow net profit. You would probably find a large portion of them that operate in good faith, but failed to collect the proper taxes for one reason or another and could be fined. With a narrow net profit and fines, could easily mean a downward spiral for that small business.
Any policy enacted in the United States should help promote small business, not make it more difficult to operate. Especially, since they accounted for 99.7 of the businesses in the U.S. in 2003 and they account for over Half of the employment in the US. Small Business Administration
Now, thanks to advances in shipping technology and Internet ordering, people are spending more and more money online, especially in the holiday season. This money isn't being taxed.
The money isn't being taxed?? You mean it is not being taxed for a fourth or fifth time. For every dollar you earn, it is taxed by the Federal government, probably your State government, maybe your local municipality, and it has FICA and Medicare taxes removed. Then, even if you don't pay a sales tax on the Internet purchase, the company you purchase from will pay income taxes on it, and out of the profits that it makes, it pays it's employees who then pay Federal, State, local, FICA, and Medicare taxes all over again. Eventually, that untaxed dollar will be spent locally, where it will get a sales tax applied to it.
Even illegal profits get taxed when they get spent through the system on something legal. Don't we have enough taxes?
I think the Canadian government has a surplus. I know alberta has a surplus. They're giving a big chunk of money back to each and every citizen. Oh, and Canada doesn't have a deficit.
Anthropic principle: We see the universe the way it is because if it were different we would not be here to see it.
Don't lose sight of the fact that there's some company that's pushing for *their* tax-calculating software to be adopted by all the states. Supposedly, internet taxation hasn't happened yet because it puts too big a burden on the e-stores to calculate all the different states, citiy & municipalities taxes. I don't have time to look up who it is, but this company has the idea that if they can get their software legislated into a certain number of states for e-commerce taxation, then *all* the states would have to adopt them, and they'd get an instant lifetime monopoly.
Couple points:
1) If somebody comes to my online business hosted in CT from New York, why would I have to pay NY taxes? I have no representatives in New York, I am not a citizen of New York, and my business is not incorporated in New York. We have no New York offices or interests, save being taxed. How then, would I have recourse to adjust my taxation from New York? Move there? Payoff a politician from there? Seriously, how is it that a state in which I have no connection with able to impose it's legislative will on me? And if it is allowed to do so, where does it stop? Can they apply extra taxes to out-of-state purchases to allow for more in-state businesses? Tax certain businesses but not others? States are notorious for adjusting their tax systems to have some sort of social impact. Should CA be changing economic conditions in TX?
2) Somebody is going to start doing the math on this one. If I buy big ticket items, it would probably be best to tranship them to a tax free entity (Canada? NH?), deliver them there, then continue shipping to the original destination. For anything with a tax over 30 bucks or so (and a small item) it would be cheaper. (And for those of you who say it would be illegal, please see #1. Illegal where?)
Town Attacked By Giant Snowman (on my blog)
"1) Be cheap software available to help retailers work this out. The software already exists, since web sites like target.com already have to deal with it."
Please define "cheap" when you are talking about small business? Small business drives the economy more so than the businesses that can afford such things.
Making retailers jump through hoops to collect the taxes is the ultimate cowardice of polticians who want the money but are unwilling to go after their own citizens except through middlemen, because if they did force people to account for their own spending then people would suddenly realize how much they are getting taxed and you would see how much the government really is representative.
This would be a heck of a lot simpler than having every small business in every state register with the tax department of every state. Simply have the small business require out of state sales to be placed on a credit card, and report to the credit card company that the sale was of taxible goods. You credit card company bill you the sales tax, and sends a check to the state.
Another alternative is to have an alternate 10% federal Value added tax (higher than most state sales taxes). A merchant would have the option to _either_ charge its customers their state tax (and fool with all the required paper work) _or_ pay the federal sales tax. A merchant would then have the option of figuring out which was more worthwhile. Give your customers a small break in price, or simply their paper work.
One of the reasons why I like the FairTax is that it takes away a few of the games the politicians can play to repay their big campaign contributors for putting them in office. Oddly enough the Buffet quote you highlighted doesn't seem to illustrate his opposition to a flat tax, but his opposition to special taxation categories, like capital gains and dividends, set up by politicians to benefit their high-dollar campaign contributors. These favored categories wouldn't exist under a the FairTax or flat tax scenario.
To me the FairTax is just that, "fair." Any spending up to the poverty line is essentially exempt from taxes. Everyone, not just poor people would receive a check in the mail every month to rebate the taxes they paid on all essential items. If you choose to consume beyond what is generally agreed on as essential, then you pay the tax.
In the meantime, everyone, gets to take home more of their paychecks and you and I get to choose where that money goes, not the government. If the essentials are tax-exempt, how is it unfair to tax people when they buy a TV, or a DVD player, iPod, whatever?
How does that benefit the rich any more than it benefits the middle class, or the poor? When a rich guy buys a 150,000 car they have to pay the tax, just like me when I buy my 15,000 car, or a $400 MP3 player.
Besides, the theory goes, that with the 23% embedded tax burden removed, even with the added sales tax, we would be paying the same price for non-essentials as we were before the FairTax. So, we pay the same price for things, but we have more of our paychecks to buy things with. That sounds good to me. So, if you're going to attack anything attack the embedded tax premise.
Under the current system a lot of rich folks' money sits legally untaxed in offshore trusts. So, the "soak the rich" mentality only ends up hurting people who can't take their money offshore and/or those who don't receive most of their income through passive investment, namely the middle class.
The weak point to the FairTax as I see it, is the relative leap of faith required that the embedded tax burden is actually 23%, and the all or nothing implementation it requires. It also would discourage the purchase of new items in favor of used items, because used items have already been taxed, they aren't taxed again. Encouraging conservation in our current economic system could be problematic.
If anyone can explain to me why this would only benefit the rich, I would like to hear it. I'd like a reason to maintain the status quo, it's easier that way, right?
Until recently I worked at one of the more significant Salestax / VAT software places.
Frankly it's all a bit of a mess. Some place, like Louisana with its Parrishes, are just crazy. These tax companies are hoping to get in on the Streamlined Sales Tax Initiative, where they would act as Service Providers, giving retailers an easy way to cover their bases, but not every state wants to play along, because a lot of the states have different definitions for how to handle locations and what not.
In the 90s, I used to be against online tax just because I wanted to see companies like Amazon etc suceed. Now that online shopping is a pretty well established part of life, I can kind of see the desire to level the playing field a bit more.
SO YOU'RE GOING TO DIE: The Comic for Dealing with Death
Who wants to bet the low/no tax conservatives will let this thing through?
I'd take that bet. Almost every time an Internet tax is brought up, it's by some Democrat jackass like Senator Mark Dayton, and done in the name of "protecting" local merchants. (Never mind that most of the smartest mom & pop stores are already doing a lot of e-commerce on the side themselves.)
When these proposals get shouted down, they are typically shouted down by conservatives and libertarians, who see that the Internet is to the US as Hong Kong is to China: A petri dish of glorious less-regulated commerce, which will continue to make us all richer if we can just be smart enough to leave it the fuck alone.
Information wants to be anthropomorphized.
Seems to me there is a simple solution to this (which means no politicians would ever go for it, of course).
Create a tax pool and use some tax percentage that is a reasonable average. Businesses would simply report how much of their taxed revenue went to each state, then each state would get a payment based on the revenue derived from shipments to that state. Perhaps purchase data could be kept as granular as the county being shipped to, and then states could divy up the money appropriately.
So, for example, a flat 7% could be charged on all goods ordered via mail, phone, or internet and shipped. If California accounted for 20% by revenue of all orders, then CA would get 20% of "the pot". Then CA could divide the money however it wished. Maybe they could apportion it based on per-county purchase amount, or they could just rebate income taxes to counties based on each county's contribution, or whatever.
There will be some states (namely those currenty without sales tax) that will find this a great boon, and those that won't like it so much (namely those with sales tax rate higher than whatever flat rate is chosen). And yes, it means that the money won't get distributed precisely as it would if the purchases we actually made locally, but I suspect it would be close enough to matter little in reality.
Overall, this would be far simpler to administer and probably no more prone to abuse than any other system that might be dreamed up.
Remember when Republicans eschewed taxes as an undue punishment on trade and wealth? Remember when the Republican Party was committed to cutting taxes? And now a fully Republican/conservative US government wants to implement what would be the biggest tax since excise tax?
Do parties even mean anything anymore?
Terrorists can attack freedom, but only Congress can destroy it.
To be honest, my take on the subject is that if businesses want paved roads to their stores so that consumers will be more likely to drive to them, then the businesses ought to pay for those roads, not the consumer. The same goes for residents of residential areas...if they want paved roads, they ought to pay for them via the purchase of their house in association fees and a very small annual maintenance fees agreed upon by the residents. There is no need to drag the government (and its associated buearacratic and non-competitive costs) into it. All the other roads (like those joining city to city) should be paid for by the DMV when you register your vehicle and at the pump with a gas tax (that is to be used only for roads and road lights). In other words, the only people that should pay for the roads are those that benefit from them (drivers, businesses, residents etc). There needs to be a tighter accountability for funds paid out and the recepients of those funds...and I garauntee you, the road building and maintentance costs will go down drastically (because private industries will compete for the money).
Also, believe it or not, roads and street lights require only a tiny tiny amount of money compared to the amount of money collected by sales taxes and/or state income taxes.
In any case, if the people are unwilling to pay taxes for out-of-state sales, then the people should be heard, not the politicians that are buddy buddy with the complainers at the huge brick and morter outfits that see legitimate competition creeping onto their margin sheets. This is no different from the MPAA/RIAA asking the government to crack down on consumers because their business models are flawed. The government has no business protecting monopolies.
I think, therefore I doh.
People hear no income tax and think "ooh.. how nice, I'd only have to pay that little bitty sales tax instead of my huge painful income tax". This is incorrect. Unless they cut spending you have to pay just as much, just in a different form. Since the tax is regressive a higher tax rate would be needed on most people to raise all the money. In order to average 1/3rd (which is about what income taxes average) it would need to be around 50%. That means that nice things like that new $100 video card would now cost you $150. The $600 one you dream of, now a cool $900. No thanks.
It's basically a cheap way of cutting everyone's saving in 2/3rds. Savings are now post-tax (for the most part.) You pay the tax, then you put the money in the bank. Doing this switches it to pre-tax which basically makes everyones savings double-taxed reducing them by 30% or so.
Sales taxes should be banned permanently. They are evil and unfair and ineffcient and I hope to never live in a state with one.
The answer is simple and hard:
No need to throw everything out, just un-screw up the system that used to work.
set softtabstop=4 shiftwidth=4 expandtab nocp worlddomination
Yes, but what they don't say is that reporting will likely be for the current year, so if you grossed $1M last year, and you hit "critical mass" you may be subject to reporting/paying for the current year, but not know it until you cross then $5M in December.
Don't think this can happen? That's EXACTLY the way reporting for payroll taxes to the federal government. If you have less than $2500 in taxes due in a quarter, you may pay quarterly. Otherwise, you must pay monthly. Here's the catch: if, at the end of the quarter (or, just in the second month) you find that you've gone over the $2500 limit, you are retroactively charged penalty and interest for not filing monthly even if you were on track to owe less than $2500 that quarter. Not really very business friendly.
Anyway, it's worth noting that $5M in sales in extremely competitive industries will often only make $50,000 to $100,000 in profit in a year (1-2%). For a "small fee" of $500/quarter for tax updates, you've just cut into profits by 4%. All because states are too lazy to police their own laws.
Is it just my observation, or are there way too many stupid people in the world?
Maybe Canada has a surplus at the moment, but per every figure I could find, Canada also has about $600 billion in debt, and is paying about $42B/year just in interest on that debt.
~REZ~ #43301. Who'd fake being me anyway?