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Newegg Defies New York Sales Tax Law
JagsLive informs us that the electronics retailer Newegg.com is defying New York lawmakers; it has suddenly stopped collecting sales tax from New York online shoppers. The "Amazon tax," which went into effect June 1, requires online merchants to collect sales tax if they have any affiliates in the state. Amazon is complying but has sued the state on constitutional grounds. Overstock.com dropped all of its New York affiliates and then joined the Amazon lawsuit. Newegg started out complying with the law on June 1, but stopped collecting taxes for New York on August 21. From Newegg's letter to its customers: "After careful review and consideration, we are pleased to inform you that we have stopped collecting New York sales tax, effective August 21, 2008," reads an email the company tossed at customers late last week, including at least one loyal Reg reader. "This decision was driven by your direct and candid feedback and our continued commitment to you as our valued customers."
You don't have to pay sales tax in your state on goods purchased in another state. The whole problem with internet companies is deciding what "state" they are in.
The argument Amazon et. al make is that under the US constitution the federal government has sole jurisdiction to regulate interstate commerce - and New York imposing a sales tax on goods purchased in another state would run contrary to that.
The arguments in court certainly are going to surround in what "state" Amazon.com is operating in.
It is required, in theory, but the Interstate Commerce clause of the Constitution prevents them from collecting tax on any sales across state boundaries.
They still try to do so, generally under the guise of a "use tax" that's conveniently only applied to purchases from out-of-state, but as far as I'm aware such unequal taxes have never been tested in court. IANAL, of course.
Benford's Corollary to Clarke's Law: "Any technology distinguishable from magic is insufficiently advanced."
Basically states claim that if a retailer has a physical presence in the state they must collect sales tax. If they do not have a physical presence they do (or did not) have to collect the tax although technically the individual doing the purchasing was supposed to have sent the tax themselves to their own state. That's called "use tax" and is starting to become something more states are getting picky about collecting. Here's a longer explanation: http://articles.bplans.com/index.php/business-articles/running-an-online-business/tax-on-internet-sales/
"You don't have to pay sales tax in your state on goods purchased in another state. The whole problem with internet companies is deciding what "state" they are in."
Yes you do, albeit indirectly. You have to pay a "use tax" on anything purchased outside of your tax jurisdiction which you then bring in for use or consumption. This is a whole branch of our tax code that doesn't cope well with the modern, internetworked world.
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An outside observer might wonder why this is such a big deal since the tax is going to be paid as use tax rather than sales tax. The difference here is that sales tax is charge at the point of sale while the use tax is charged on state tax returns.
Use tax is notoriously hard to enforce because the state necessarily doesn't know about any items you bought in a different state. Many people lie about their use tax liability on their state tax returns because the state usually doesn't have any evidence to the contrary.
It doesn't matter how they feel. New York State can't tax a purchase made in Texas (or wherever Amazon is located) any more than they can tax a purchase made in Mongolia. Moreover, they can't impose taxes on New York citizens importing goods from other states, because the Constitution and its commerce clause forbid that.
He who lights his taper at mine, receives light without darkening me.
And just to make things more difficult, the NY law in question isn't even talking about warehouses. It's talking about affiliates. NewEgg is located in California, but they have an affiliate program. I'm an affiliate of theirs and I live in NY. Does that make NewEgg have a physical location in New York state? Of course not. I'm not an employee of NewEgg, I'm just an affiliate. I post a link to NewEgg on my website and get a small kickback for any sales that it generates. The website that I run is hosted by a company in Texas. Does that mean that NewEgg has a "physical presence" in Texas also and should pay Texas sales tax? The whole "affiliate = physical presence" argument is just a money grab. Then again, we shouldn't be surprised. This is the state that also taxes telecommuters on their full income even if they only work inside NY for a short period of time. (See the story of Scott Smallwood: http://www.nytimes.com/2008/02/20/business/businessspecial2/20tax.html )
My sci-fi novel, Ghost Thief, is now available from Amazon.com.
NewEgg put the onus on the NY taxpayer. On a NYS Income tax return form you're supposed to report the amount of any items you bought out of NYS which you didn't pay sales tax on. And you're supposed to then add the sales tax based on that line. Dont yell at me, just letting you know that its the NYS taxpayers responsibility.
Except, you do have to pay sales tax if you buy something out of state.
It's just that if you buy something out of state, the store isn't obligated to collect the sales tax. The purchaser is supposed to declare the item and pay it later to their state.
Help! I'm a slashdot refugee.
They have been, at least in the pre-web era. I don't recall the specific name of the case but the upshot of the decision was that as long as the use-tax wasn't discriminatory toward out-of-state purchases (i.e. as long as it closely mirrored the sales tax), it was ok.
Now the real question is what Constitutional grounds does the state of NY have to enforce *Newegg's* collection of this use tax. Is the State of NY going to sue Newegg in Delaware court? This could get quite complicated...
Use tax is also not well enforced because use tax can be deducted on tax forms, so what you don't report in use tax doesn't increase your tax return. In a sense, you're paying use tax indirectly by not reporting your purchases. Although, this isn't the case when you itemize your deductions and report deductions on goods purchased out of state.
sort of...
I do know that if you buy a car in a state with a sales tax of, say 3%. And move to NY a year or so later. They're going to want the difference (4%) when you go to register your car. So when you think your registration's going to cost $100* and it ends up costing $1000, it's a bit of a shock.
*Not sure what a registration costs these days. I've been living in Europe for the past 6 years. w00t!
Oz
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Wow, I'm really hoping you aren't an Economics teacher. No wonder things are getting bad here with this kind of thinking.
Repeat after me, ALL taxes come from the consumer. There is no such thing as a "corporate" tax. They just apply whatever taxes they have to pay to the cost of their goods.
All corporate taxes do is increase the costs of the goods these corporations produce. Well, that and has them leaving the USA to avoid the punitive taxes applied to them. Anyone want a Miller High Life(Corporation now based in South Africa).
If you are any kind of economicist you would realize that no functioning economy in the world today taxes at a rate that exceeds the Laffer curve inflection point. Regeanomics is a ridiculous idea
First off, the argument of Reaganomics is that the industrialized world is actually to the -right- of the inflection point, in other words, taxes are too high.
Meanwhile, the rest of the industrialized world has lowered corporate tax rates and investment tax rates below that of the USA. So, yeah, on one hand, you have the Europeans saying that Reaganomics is terrible, and people like you say, "oh yeah, you are so right"... but then, the Europeans lower their taxes, and suddenly the Euro goes sky high because of the flood of investment into the old continent.
Yeah, the EU is saying Reaganomic sucks, but that's not what they did, and they are laughing all the way to the bank.
This is my sig.
"This is a whole branch of our tax code that doesn't cope well with the modern, internetworked world."
Modern? Ever heard of a Sears, Montgomery Ward, or Best Catalog? Buying goods from an out of state vendor predates the modern income tax system and even the IRS in this country. Heck, buying from catalog predates indoor plumbing in a lot of places. The Sears catalog was commonly used as toilet paper in outhouses. This was a big deal back then when it was hard to enforce use taxes but now that the technology exists to squeeze more money from the taxpayer, governments are jumping at the opportunity.
The states have different ways of determining whether a seller has nexus. Generally, these involve operating a facility or having employees in that state.
What New York did was to extend the definition to include the affiliates of the seller in the definition. This is not on its face silly, since the affiliates operate in much the same way as a store would.
Therefore, what will be before the court will not be the constitutionality of the sales tax, but the more limited issue of this extension of the definition of nexus.
This is a way to close a loophole the online retailers are using to give themselves a leg up over brick and mortar stores.
You're omitting the difficulty in figuring out the tax status of items.
For example, in MA if you buy 1,2 or 3 donuts, that's taxable. If you buy a dozen donuts, that's not taxable. Why? One is consider "a meal", and one is considered "food" (i.e. groceries). Snacks over $3.50, taxable. Under $3.50, not taxable. Some clothing is taxable, some is not. Books are taxable, Textbooks are not. What makes a textbook a textbook? Retailers have fancy computer programs to figure out the tax status of each item, and even they get it wrong. The MA DOR recommends that you call or write for specific determinations "Because of the complexity of the law". http://www.mass.gov/?pageID=dorterminal&L=6&L0=Home&L1=Individuals+and+Families&L2=Personal+Income+Tax&L3=Forms+%26+Publications&L4=Publications&L5=Publications+Index&sid=Ador&b=terminalcontent&f=dor_publ_sales_use&csid=Ador#exempt
Uh, according to you own link, there are several states in the West that pay more than they receive. California ($0.78), Washington ($0.88), Oregon ($0.93). In fact, California subsidizes at a higher rate than New York ($0.79). So, yeah, we are pretty independent.
"Maine gets a little more than it pays"
Maine gets a shitload more than it pays ($1.41). Do you even read your own link before you post?
Actually, the "lazies" you're talking about are the "Red States", which all get more money back from the Federal government than they send it in Federal taxes. The "Blue States" like New York pay to prop up those Welfare States by sending more taxes to DC than we get back.
Well, there's a textbook logical fallacy for ya. Just like those nationwide red/blue election maps that make it look like 90% of the country voted for Bush.
Big cities pay more taxes because they have more people, and big cities tend to vote Democrat. Those two data points aren't necessarily related, and without showing that they are, your entire argument falls apart. Come back when you have some "laziness per capita" figures.
Red States, not just "Western States", are the Welfare States, as I clearly state in my post, as is clearly supported by the data. California is a Blue State. So of course it's paying to carry the Red States (that attack it for the fraudulent opposite), just like I said.
You've really got a lot of nerve pretending you can tell me about reading comprehension, when you got that basic premise of this discussion so basically wrong.
And though Maine receives the welfare at a substantially higher rate than it it pays in taxes, it pays so little in taxes compared to, say, New York, that it's actually getting a little more than it pays, compared to the huge amount the US is paying to prop up Maine and the other net recipients.
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You're timing is off a bit. Mail order sales started in the late 1800s. The first sales tax was in 1921, and most didn't start until the 1930s.
Infuriate left and right
So it seems like you don't come out ahead by reporting, you actually lose money...
You come out ahead until you get caught, in which case you're looking at having to pay the tax, interest and penalties on pain of tax evasion charges. If you get caught a second time (i.e. after you've been cited for a previous "underpayment") or the tax in question is large enough, your state's tax authorities might decide to press criminal tax evasion charges right from the get-go.
Don't think you you're going to get caught? That's about to change as a result of the recent passed housing bill. This bill contained a provision to report nearly all online merchants' credit card transactions to the IRS; it's pretty hard to survive as an online business if you're not making more than 200 credit card sales a year or grossing $10,000 in credit card transations. Since the vast majority of Congress represents states that have a sales tax, if this data isn't already being shared with the state governments, expect it to happen in a bill in the next congressional session.
Five years from now, it's going to be very easy for states to find out their residents' out-of-state transactions, confirm the shipping address is within the state, and bill people for unpaid use taxes. If you hate the idea of paying sales and use taxes that much, you can move to one of the handful of states that doesn't have a sales tax. Otherwise, while it's been nice to catch a break from easy enforcement for the past 10 years, it's time to realize that buying online "tax free" in most states is basically tax evasion and that eventually Mr. Taxman will be looking for his cut.
Only twice?
Your employer pays its taxes. Then they pay their share of your taxes. Then you pay your share of your taxes. Then repeat all three steps for the state.
Then, you spend your income. You get taxed on the purchase. You then get taxed to keep several of the items you buy in many states (home, car, etc).
Then you pay taxes to use your phone, even though your tax dollars helped pay for the infrastructure for the phone company in the first place. You pay a tax on your car's fuel, to register it, on top of the insurance premium you're required to have for it, and on any parts and labor to maintain it.
If you buy an investment and it actually does return money, you get taxed on that even though the company that issued the bond or stock pays revenue and profit taxes or that you're paying property taxes on real estate investmenats.
This really only scratches the surface. If everything was a simple, one-step tax, people would be horrified at the amount they pay.
You should try living in the Netherlands. Income tax averages to about 40% (highest scale is 52%), sales tax is 6% for food and entertainment, 19% for everything else.
I especially love cars here, for those who buy them. You have the manufacturer price. Add about a third in a purchase tax (purpose unknown, except moneygrabbing government). 19% sales tax over that all. Then to keep it, you pay road tax. Gasoline is about US$8.6 per US gallon, 70% of which is tax (I shit you not).
Mine's a company lease car. So the company pays everything to the lease company (who paid that purchase tax over the car, mind you). But because I use it for personal use, I have to pay income tax over 25% of the list price (including all taxes) of the car every year.
Yeah, your taxes sound really bad... *sigh*