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State Technology Taxes Face Stiff Resistance
SonicSpike writes "As the nation moves from a tangible goods-based economy to a service-based economy, a few states are trying to keep revenues robust by taxing technological services such as software upgrades and cloud computing. But a backlash from the high-tech industry has quashed most efforts. As a result, the U.S. has a patchwork quilt of state taxes on technological services. Some states that have tried to impose such taxes have failed spectacularly, and most have not tried at all. According to the Tax Foundation, a nonpartisan think tank that studies taxes, only 10 states (Connecticut, New Mexico, Hawaii, South Dakota, Mississippi, Missouri, Nebraska, Tennessee, Texas and West Virginia) and the District of Columbia tax all writing or updating of software. Only New Mexico, Hawaii and South Dakota levy their general sales taxes on all software services. States with sales taxes do, however, levy those taxes on software that is sold on CDs or other hard storage materials. About half the states also tax 'canned' (non-altered) software that can be downloaded, according to the Tax Foundation. Elia Peterson, an analyst with the foundation, said in a recent paper that states are reluctant to tax computer services in large part because it 'is an especially mobile industry and could easily move to a lower tax state.'"
There ain't no such animal, Jim.
The Tax Foundation is nonpartisan in the sense they are against taxes and regulation and are run by representatives from Koch Industries, Exxon, former Bush-Cheney campaign advisers and Republican politicians. That kind of nonpartisan "think tank".
In Canada, all goods and services are subject to the GST (Goods and Services Tax.) In many provinces, they're subject to HST (Harmonized Service Tax), which basically takes the rules of GST and adds on a provincial percentage.
It hasn't caused our software industry to implode because the taxes are applied across the board throughout the country.
Unlike the US, you can't just lobby your way to a tax exemption here. The goobermint is gonna get their share come hell or high water.
I do not fail; I succeed at finding out what does not work.
Are you a country, or are you a federation of states? If you are a country, then get your taxes sorted out. Your states seem to be willing to deprive another state of $100 in order to get $10 themselves, that way has just led to a crisis in state finances.
As the nation moves from a tangible goods-based economy to a service-based economy
Because in the future, we will all move out of our houses to live in the cloud, we'll forego food in favor of HTTP cookies and email spam, and we will transport ourselves to our destinations not with cars but with through internet traffic.
Now, I know what you're thinking--we'll still need to buy computers to make this magic happen. But, you see, in the future, all of our computers will be virtual machines.
There should be only a single tax. Sales tax. It should apply to all sales equally. There should be no loopholes and it shout not be "progressive" (i.e. higher rate for the rich) There should be no deductions or tax deadlines. It would be very simple and fair. Lastly it would encourage savings rather than consumption which is something we need desperately right now. Our current "progressive" system results in the rich paying less than the poor in many cases because they are better equipped to use the system in their favor. In a sales tax only system they would naturally pay more in taxes because they have more discretionary income.
There is absolutely no reason we need separate little "mini" taxes on every product, sales event, and service there is. The sole purpose of all of our tax mess is to obfuscate the real percentage we're all paying in taxes.
Given how easy it is for tech companies to uproot and move their entire operation elsewhere, we might be looking at a slow end to the effectiveness of state level taxes. Over the last few decades we have been seeing a 'race to the bottom' in some industries, with regions dropping corporate taxes to near nothing or even investing public money in encouraging companies to move there, while shifting the burden of paying for it onto the middle/low end workers. If a state tries to stand up and tax an industry, companies move to another state. The net result is a steady decrease in state's ability to fund themselves and an increasing reliance on federal money (since companies have a harder time escaping those taxes easily).
Long term we might simply be looking at a situation where it is pointless to even try to tax some industries at a local level.
You're missing his point. At the point of sale, states have no rights to collect taxes if it's on an out of state sale. Then, once the product is given/delivered to the end user, their home state doesn't have that information to collect the tax normally, since the seller is from another state. The end user is supposed to declare this spending and pay taxes on it, but nobody does, and it's really rough trying to figure it out from the state's point of view. They don't have access to the financials from companies located physically outside of the state, so they're SOL in figuring out that I bought a copy of some software from Amazon.
How does this relate to the GP's point? When a company declares that they bought a copy of Win7 as a deduction, then they also have to pay sales taxes on it, since the state government now has a record of the sale, so they can collect their sales/usage tax. It's the same reason why you don't get away with buying a car somewhere like New Hampshire to avoid paying sales taxes on it - you have to provide the proof of your purchase to your state government in order to register it. There's some technicalities around that, but for the most part, the loopholes aren't easy.
Read "Wealth of Nations" by Adam Smith and take microeconomics 101.
Service economy is a transitionary state where you have no creation of value, and the money hasn't yet been drained, and poverty. People pass around the same dollar bills, but only a tiny minority actually create value. Given the natural system perturbations that must come - that is an unsustainable model. It is the glass vase on the top of the wobbly table. It must crash.
The problem is that if you want public services you have to tax something.
So, in the states that have sales tax on sales of software on CDs or other tangible media, does this mean we can forego the "license" fiction and consider the purchase to be an actual sale?