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Should You Pay Sales Tax on Internet Purchases? South Dakota Law Could Be The Test (pcworld.com)
An anonymous reader shares a PCWorld report: A new South Dakota law may end up determining whether most U.S. residents are required to pay sales taxes on their Internet purchases. The South Dakota law, passed by the Legislature there in March, requires many out-of-state online and catalog retailers to collect the state's sales tax from customers. The law is shaping up to be a legal test case challenging a 25-year-old U.S. Supreme Court ruling that prohibits states from levying sales taxes on remote purchases. Unless courts overturn the South Dakota law, it will embolden other states to pass similar Internet sales tax rules, critics said. The law could "set the course for enormous tax and administrative burdens on businesses across the country," Steve DelBianco, executive director of e-commerce trade group NetChoice, said in a statement. If dozens of states adopt Internet sales taxes, online sellers could face audits and changing tax rules in thousands of taxing jurisdictions nationwide. Even with software that could make tax calculations easier, that would be a burden, NetChoice says. And online shoppers could end up paying up to 10 percent more for many products.
Major retailers like Amazon already have to collect sales tax for out-of-state purchases in Illinois. I also live in Chicago, so I have to pay some sort of Cloud tax for Netflix and related services.
instead of enforcing tax law to reap a trivial amount of tax from middle and lower class americans, how about eliminating tax holidays for major multinational corporations and reforming tax law for conglomerates that often pay no tax in the state through creative chicanery? I mean granted it means your political class is going to suffer underfunded elections, but it would be a refreshing change of pace to have a legislative body that didnt operate to serve the allmighty dollar.
Good people go to bed earlier.
Let's be clear about what is going on here.
1) The laws already require you to pay sales taxes on EVERYTHING you buy. But the courts said that out of state sellers did not have to collect the sales tax - you were supposed to figure it out and send it to your state yourself.
2) The laws being proposed are not new "internet taxes", but instead simply attempts to force out of state sellers to collect the sales tax you owe for living in your state. If you live in Oregon, your state has zero sales tax (and no local taxes either), so this won't affect you at all.
This is about stopping people from failing to report taxes they owe on out of state purchases, not a new tax.
excitingthingstodo.blogspot.com
"The law is shaping up to be a legal test case challenging a 25-year-old U.S. Supreme Court ruling that prohibits states from levying sales taxes on remote purchases."
Actually, the law says that states can't require SELLERS to COLLECT sales taxes in states where the seller doesn't have a presence ("nexus"). Virtually all states that have a sales tax also have a use tax which requires people to (in effect) pay sales tax on items they purchase out of state. Few people actually pay this, since enforcement is very difficult, but that doesn't change the obligation.
The question isn't whether you're obliged to pay tax on an out of state purchase - the question is whether the entity you're buying the product from is required to _collect_ that tax from you.
It's likely that it'll be held to the state-level.
When Dad bought a car from an out-of-state dealer he basically did it as a catalog purchase with will-call pickup. The selling dealership did not collect any taxes, including anything for registration other than the fee for a temporary-use permit so we could drive it home.
He did still have to pay taxes, but those taxes assessed were state-taxes, no county or municipal taxes. Also, normally our state bases the sales-taxes on the MSRP of the vehicle regardless of the deal negotiated (probably in-part to prevent fudging the paperwork by offloading some vehicle costs as untaxed labor for the installation of accessories) but because this was an out-of-state purchase, the sales tax was based on the contract price, not on the MSRP. Even with three people flying in and with a hotel bill, fuel, and food, it was still a lot cheaper to purchase the vehicle this way.
I expect that taxes will be similarly applied to catalog purchases if retailers are forced to collect them on behalf of the resident's state. Counties and municipalities will either not factor-in (as they don't when you buy something in an adjacent city anyway) and the seller will only have to collect on behalf of the state. I furthermore expect some states to attempt to add more taxes to out-of-state catalog purchases (like New Hampshire, no local sales tax, so they could encourage local retail through out-of-state catalog purchase taxes) but that this may be a problem and could be ruled-against.
Do not look into laser with remaining eye.
So here's my take on it:
South Dakota is the fifth least populated state in the country, with roughly 860K people. It would be relatively low financial burden for retailers of any size to refuse services and sales billable to SD addresses.
Let the SD legislators jump on this political grenade so the rest of the country gets to witness the public uproar that results. Should give politicians reason to reconsider.
=Smidge=
It's more complex than that. Those in provinces without an HST don't pay PST when ordering from outside their province, as long as the e-tailer has no presence (brick and mortar) in that province. Legally however, you should pay PST yourself but nobody does it, which is tax evasion.
When ordering from outside Canada, both GST and PST must be charged, either at source or by the customs. Again, it is sometimes not charged by eBay sellers in China but this is tax evasion too.
Most states (and many counties and cities) have a sales tax for things sold within their borders. Many have a use tax for things to be consumed / used within their borders which were not purchased there. The seller is responsible for collecting sales tax, while the individual is legally obligated to pay the use tax (generally on state income tax return forms).
Why do I believe that online merchants shouldn't collect use tax for buyers of different locales? Taxes are complicated. One needs to know the exact address in many cases (different cities within the same zip code code have different / additional taxes!). This would force most online merchants to use a 3rd party system for calculating taxes. Place of purchase isn't always place of use. Just because I live in Utah doesn't mean I will use the goods in Utah. I may ship the goods to a friend or family member (birthday present?) who lives elsewhere. I may use the good on a road trip to neighboring Nevada which doesn't have sales tax. This may lead to double taxes on the same purchase. I may legally be obligated to pay sales tax in one locale and use tax for another locale for the same purchase! Online merchants are outside the jurisdiction of locales where they don't have a physical presence. New York City can't force Hawaiian Host to collect taxes from New York City residents.
If only we had some kind of calculating device that could reference a table of tax rates updated on a regular basis...
If that's all it took...
Let's say you are shipping a fluorescent yellow vest from California to Minnesota. In Minnesota, clothing is not taxable, but safety equipment is. Do you collect tax on it? Does their state consider it clothing or safety equipment? Add a pair of reading glasses to their order. Minnesota taxes general merchandise at one rate, while medical devices are taxed at a much lower rate. Which rate do you choose? Or are glasses considered clothing, because you wear them? What about a boxed set of grill accessories that includes a fork, a spatula, an apron, and an oven mitt?
Now ship a swimsuit to Pennsylvania. Clothing is taxable there, but sporting goods are not. Is swimwear taxable there? How does your cart service even know if it's a swimsuit when your online site only knows the product as Item#123456?
Next, ship a bicycle fender to a Houston, Texas, address. The law says you pay a higher tax rate if there is a public bus stop on your block. What tax rate do you charge?
Ship another fender to a Colorado address. They not only have sales taxes, but they have fees on some items, because some politician vowed not to raise taxes, but made no such promises about fees. Do you collect those fees on a fender? Do you charge sales taxes on those fees?
Do you charge tax on the shipping? That depends on whether you are shipping as a service to the customer (services are taxable in some states), or if you're shipping it because you don't stock the product in their state (a business expense.). Do you charge shipping taxes at the rate of the point of origin, or at the rate of the destination? To which state do you send the money?
In all these states, anyone doing business in their borders has to answer these questions because it's their law. Do I have to know every law in every town in America?
The states are a mess of thousands of such stupid and incompatible laws, each passed on behalf of some corrupt politician's crony. Never think it's easy just because it seems like simple math.
John
Supreme court precedent is that states can't do what south dakota just did. The first time SD tries to take an out of state retailer to court for non-payment of taxes they will lose and the law will be invalidated unless the SC is willing to review and undo the previous precedent. The SD legislature can't override the supreme court.
There is a very valid reason that sales tax is too difficult to collect out of state, even with software. Louisiana has over 1000 sales tax districts and every single district has exceptions in place that tax some items and not others often at multiple different rates and just this year they revised the system almost completely by changing around which are taxed and which aren't. That's one state, this behavior isn't limited to that one state.
My state has relatively simple sales tax rules with only half a dozen districts with consistent taxing polices between them only different rates but this isn't the norm. The complication here is immense and if the business doesn't have a presence in the state they shouldn't be taxed unless the hosting state joins these voluntary state efforts or the fed's pass a national sales tax harmonizing law for out of state purchases.
Those are really the only two options IMO.
If you were paying sales tax to another state, you'd have a point. The question is whether the merchant should be required to collect sales tax on behalf of YOUR state.
I did.....so I moved to Tennessee. The math doesn't work like you think it does.
It's no more of a burden then any other kind of taxes. Most small employers pay companies to help them calculate the correct payroll taxes taken out of everybody's paychecks, for example. It's a trivial service. This would also be trivial.
Sure, it's a small burden, but why shouldn't there be ANY kind of burden to a company selling things in all 50 states?
I don't respond to AC's.
Ayn Rand, much?
The funny thing is she had to go onto government assistance in her later years because she could no longer support herself.
You're messin' with my Zen Thing, man.....
Don't worry, they'll soon try to extract a tax for that too. This is the US government we're talking about, they want their greedy little hands in everything.
I haven't even lived in the US for more than a decade and the IRS still thinks I should pay them income tax. My answer every time is "go fuck yourselves".
Just saying "1000 different districts" doesn't even explain how bad this actually can get. I looked into some of this at one point when working QA on a web store back-end where they were possibly going to be required to collect taxes in some places, and it can get to be an absolutely insane nightmare to try and handle every possible case. IIRC, our worst edge-case scenario they liked to test against had a single block of a street where the houses had 5 different tax rates. Opposite sides of the street had different rates, different ends of the block had different rates, and one building in the middle had its own special rates (it was on a larger parcel of land that put it into a different district).
That case was only uncommon in that they were all in the same state, county, township, and zipcode. That sort of thing happened all the time where borders switched over, but at least then there's usually an obvious indication for it the system can latch onto.
Reciprocating state agreements for a relatively flat and simple sales tax collection seems like a reasonable course for making this work out -- until one state decides to be the Delaware of internet business and not join the system.
~Anguirel (lit. Living Star-Iron)
QA: The art of telling someone that their baby is ugly without getting punched.
The feds could pass a national internet sales tax harmonization bill. There's been one sitting in committee for about 12 years. It basically says collect the rate where the warehouse is or a minimum of 6% and remit that to the state of the purchaser. But it's never going to be passed by congress. It goes against Republican no-tax pledges and violates the idea that the internet should be tax free. It dies in committee every year because of this. And this is exactly why the supreme court precedent still applies because of federal inaction.
The state compact is interesting, but like you say all they need is one state to sit it out and the whole thing is a bust.