It would drive the small companies, the mom-and-pop internet companies out of business. Can you imagine filing taxes for all 50 states? And what happens when a mom-and-pop internet company gets one sale from North Dakota? Filing the paperwork for one state would not make the sale worthwhile. For large companies like Wal-Mart and Amazon.com, they have the personnel and computers in place.
And to write a law to exempt "small" companies would be found unconstitutional by the US Supreme Court. Amazon.com, Wal-Mart.com, others are in a win-win situation. It's probably why Warren Buffett and Bill Gates are also in favor of an internet sales tax.
CNNMoney.com is reporting.
I would assume if I made the MillionDollarWay a pay site, I would owe sales tax -- it's a form of newsletter, and I would have to file in as many as 50 states. I assume foreign countries might want their cut also, before it's all over.
And so it goes. It will be interesting to see if the House buys into this.
[Actually, it probably won't be that big a deal. TurboTax, others, would provide the necessary software, pretty quickly.]
Bruce,
ReplyDeleteThere are 6,500 to 9,600 taxing jurisdictions in the U.S. -- localities, counties, seen different figures, whose regulations internet companies must follow.
On top of that the seller needs to have his product identification structure tie to the rules of the various taxing entities. For instance, certain merchandise items might be taxable in Cook county, while they are not in the rest of Illinois. Snacks may be taxable here and not there. This requires automated software, and information maintenance, that the real small guy likely doesn't have nor can afford.
Now, getting to the personal impacts of the proposed law. I buy what I think is a lot of "stuff", and trans-ship it from my California living room to relatives off-shore. Last couple years I bought 3 TV's from Crutchfield (they have the absolutely best product descriptions and related technology information imaginable) with no sales tax and free delivery to my living room. These are for personal use, and not subject to sales tax since they are not used in the U.S.
To do this under the new law, I will need to bypass the online ordering system, talk to Crutchfield and provide them paperwork, and then furnish additional paper to my California shipper and coordinate the product delivery directly to the shipper. This is certainly a business disincentive.
The new law's impact on Crutchfield, who has two little stores and a couple large fulfillment centers all located in Virginia, will be substantial. They have been a direct-to-customer business (catalogue -- internet) from their inception in the 1970's. One can argue the equitableness and other aspects of the proposed law, but I vary from Arthur Laffer on this one; he is in favor, I am not.
My view is tax statutes should not be a vehicle to promote fairness. Let the decisions of the 6,500 sales tax jurisdictions and related regulations fall as they might and remain the law of the land. A person or company that exploits them is keeping in the free enterprise spirit of the Bakkan, Three Forks and whatever other formations are down there.
1. I am not against taxes. I am against fraud, waste, and abuse which drives up taxes.
Delete2. With regard to fairness, if asked to provide a list of ten words that make America what it is, I would include "freedom" at the top, and "fairness" somewhere among the "top ten."
3. You have caught me at a bad time with regard to difficulty of implementation of an internet sales tax. I have just finished two books on the development of the computer, development of the hydrogen bomb, and weather forecasting. Internet sales tax implementation pales in comparison with computer requirements to build an atomic bomb and/or forecast the weather. The number of taxing jurisdictions 'macht nichts": that data is scalable.
a. If a taxing jurisdiction, wants to collect internet sales tax, it must provide InternetTurboTax with bank routing number and account number (routine; my younger daughter knows how to do it).
b. A four-column spreadsheet: i) zip code; ii) sales tax rate; iii) bank routing number; iv) account number.
c. Given a long weekend, I could type out the 4-column spreadsheet. My annual oil and gas permit list is now about 2,500 long/year (and I now have spreadsheets going back to 2006). The spreadsheet is seven columns wide and typing in the legal name of the well is much more challenging than typing in bank numbers.
4. South Dakota has no sales tax. I'm sure retailers, if you work with them, will be happy to trans-ship purchases through South Dakota.
5. But you are correct: if the business model of any company is one of tax avoidance, they will probably have to adapt.
Bruce,
ReplyDeleteI see I was quite inarticulate in my comments.
Your original post discussed some of the impact the proposed internet sales tax would have on "small" companies, or mom-and-pop operations. My initial comments were intended in the same vein; the impact on a guy trying to do some business from his garage or a storage unit, or a company that has two or three employees.
As you point out, the processes to handle sales taxes already exist in larger companies. Likewise a number of features have been built into off-the-shelf software and systems that smaller companies use for calculating, collecting, reporting and remitting sales taxes. Regardless of the degree of automation in the administration of these processes, one of the steps that must be done in the front- end is to take each item or product that is being offered for sale and determine whether it is subject to sales tax, this includes the location and conditions under which the sale is made. A retailer or etailer typically has some type of "item master file" in which he includes dozens of attributes for each product as it is added to the file, one of these attributes is the sales tax applicability.
So my point is sales tax compliance requires resources to administer, including some level of human knowledge, with which the guy in the garage must deal. While sales tax administration is certainly not comparable to development of the hydrogen bomb and weather forecasting, it is a bit more than just a spread sheet for reporting and remitting the tax.
I should have excluded my comments on transshipping merchandise offshore. They are just a sidebar and have no importance in the consideration of the proposed tax. The reason I transship merchandise is because of unavailability offshore or significant savings. It is a global economy you know. With the existing sales tax laws I can easily order, receive, pack and consolidate, then ship merchandise to relatives offshore. Under proposed law I would get sales tax exemptions on only the high value items, which means just dealing with a lot of paperwork. Thanks for the suggestion to go through South Dakota, but I can still do it in California. I doubt South Dakota has the same competitive infrastructure for offshore shipments as exists around here.
I am not sure what to make of your comment that you are not against taxes. Neither am I, but I am not in favor of this one. Nor am I in favor of fraud, waste or abuse. I don't think it is germane, but I definitely prefer money remain in the private sector, rather than go to government.
I am also in favor of fairness. Somewhere early on, probably in my public finance course, I was taught that taxes are not equitable. I agree with that and can live with it. As I stated in my comments, my view is tax statutes should not be a vehicle to promote fairness. I don't see this proposed internet sales tax law, which I haven't even read -- but I guess we don't even write the laws until after we pass them now days -- as being the spearhead of a huge initiative to revamp all our tax policy in the interest of "fairness". Leave the little guy alone for a while; I think Amazon and Wal-Mart will be fine. If we need additional revenue, put policies in place to grow the economy or get the tax revenue someplace else.