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To Tax or Not to Tax? The Online Sales Debate

The Marketplace Fairness Act would allow states to force Internet retailers to collect taxes from their customers.

by
Rodrigo Sermeño

Bio

May 2, 2013 - 2:34 pm
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Supporters of the bill say that the legislation would have no effect on federal revenues and would simply allow for the collection of sales taxes. The National Governors Associations (NGA) said that states need the $23 billion in lost revenue and the National Retail Federation says the proposal would simply roll back the unfair advantage online stores have on brick-and-mortar retailers.

“[The Marketplace Fairness Act] rectifies the discrimination against brick-and-mortar retail outlets of all sizes. Internet sellers now receive a subsidy of 8%-10% because they don’t collect sales tax on retail sales outside their states, a subsidy that harms other sellers,” said NGA’s Executive Director Dan Crippen. “Yet Internet sellers get the benefits of the world’s third-largest consumer base, not to mention state roads for delivery of their products, plus the protection of the state court systems to enforce business contracts.”

Lawmakers from states without a sales tax condemned the measure, saying it would burden retailers that are not currently required to charge sale taxes to customers.

Sen. Max Baucus (D-Mont), whose state does not collect sales taxes, said the bill would hurt businesses in Montana and other small businesses in America because it forces small businesses “to play tax collector for other states.”

The anti-tax-hike group Americans for Tax Reform (ATR) echoed the senator’s remarks, saying the bill would force businesses to collect taxes for all states.

“The legislation hands a small cartel of state tax administrators the ability to reach across state borders and export the burden of tax collection onto out-of-state businesses,” said ATR’s president Grover Norquist.

ATR maintains an anti-tax pledge that nearly every Republican in Washington has signed and suggested that the legislation can only be viewed as tax increase because “it grants states new tax collection authority without removing equivalent taxing authority elsewhere.” The group has yet to explicitly say that lawmakers would violate the pledge by voting for the bill.

The NGA fired back at ATR’s remarks about the bill, accusing the organization of trying to undermine legislation that “levels the playing field between Main Street and e-street.”

“The Marketplace Fairness Act is common-sense legislation that is simply about the collection of sales and use taxes already owed. The Americans for Tax Reform may not like this legislation, but they are not entitled to their own facts,” said the NGA in a statement.

The group also argues that the online sales tax bill does not violate the tax pledge because candidates for Senate office pledge to “one, oppose any and all efforts to increase the marginal income tax…and two, oppose any net reduction or elimination of deductions or credits.”

“Marketplace Fairness does neither. It is not a new tax or a tax increase. It clearly does not violate the pledge. In fact, the Americans for Tax Reform themselves admitted to leadership of the [NGA] that this was not a violation. To say anything else is disingenuous,” said the group in a statement.

House Republicans are by no means united in opposition to the bill. The House version of the bill already has roughly two dozen GOP sponsors.

“I’m a co-signer of the [Norquist] pledge. I’m a co-signer of the legislation. We have to collect the taxes that are due,” said Rep. Austin Scott (R-Ga.).

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Rodrigo is a freelance writer living in Washington, D.C.

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Top Rated Comments   
I'm tired of the gov't finding new ways to tax me. They get enough of my money already. Next you'll need a license and tax number to hold a garage sale or sell in the local thrifty nickel newspaper. The gov't can take a flying leap.
50 weeks ago
50 weeks ago Link To Comment
All Comments   (29)
All Comments   (29)
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Actually, this complication exists in spades in telecom. What happens is that there are companies that specialize in figuring out the tax down to the zip+4. You got amoney, you use Vertex, say - national coverage. You got less, you contract with someone like DPC (programmed by Satmar Chassidim, no kidding), now part of CCH, and buy a few states. They all send you updates every month, and the guys who do your billing osftware (like us :-)) interface their product to theirs.

Telephone VAR's have to do this. I'm not sure your shoestring operation could.
42 weeks ago
42 weeks ago Link To Comment
In the interest of fairness, Texas needs to raise taxes to stop the hemorrhage of business and people from California to Texas. And why would all cities not have a 10% sales tax as NYC does? How unfair is that?

Only a fool would think that this interest was "fairness". That would require the bill to be tax neutral. This internet tax scheme is obviously expected to bring in more tax revenue. But we have plenty of fools and the politicians who love them.

An internet tax fairness bill that lost tax revenue would never see the light of day.

Like an overweight person, the bigger that government gets the hungrier it becomes. There is not a single state or local government that needs money. What they need is privatization. Sandy Springs, Georgia.
50 weeks ago
50 weeks ago Link To Comment
You're right. No states needs that money just as there is no person who needs anymore money to live on.

Let me ask you a question Sandy Springs. If the state and federal government were to pull all their funding subsidies for Sandy Springs, have you made a list of all the things that would diminish to poor repair, poor services or just disappear? Maybe start with added unemployment at the top of what will be a very long list if you have a clue of what your community recieves in state and federal subsidies.
50 weeks ago
50 weeks ago Link To Comment
We are talking Federal.

What, the red states get money from the blue states? OK, go ahead, make our day. Abolish the welfare state and take your money back.
42 weeks ago
42 weeks ago Link To Comment
So the Oregon business says we're not collecting sales tax for Illinois. Or even better, it collects the tax and keeps it. What is Illinois going to do about it?
50 weeks ago
50 weeks ago Link To Comment
“[The Marketplace Fairness Act] rectifies the discrimination against brick-and-mortar retail outlets of all sizes. Internet sellers now receive a subsidy of 8%-10% because they don’t collect sales tax on retail sales outside their states, a subsidy that harms other sellers,” said NGA’s Executive Director Dan Crippen.

Keeping your own property is not a "subsidy". I wish journalists/bloggers would call out this ingeniousness every time some pro tax a-hole calls it a subsidy when they don't get to wet their beak. WTF?
50 weeks ago
50 weeks ago Link To Comment
As has been noted, the out of state seller uses no services, he gets no police or fire or EMS protection, his customers don't use the local roads or sewer systems, his children don't use the local schools. Additionally, requiring businesses to collect for states outside their location is more than just the money: there are byzantine state and local taxes throughout the country, some things are taxed one place but not another, multiple rates apply, it's a compliance nightmare for any smaller business. Of course Amazon would like nothing better than to slow down any new start-ups that might challenge them.

It also penalizes those state who have low or no sales taxes to foster a better business climate for the benefit of higher-taxing states.

It's a tax hike, without doubt, and only a liar would try to claim it isn't.
50 weeks ago
50 weeks ago Link To Comment
Gee, whatever in the world did we do before sales taxes?

Very well. More money in my pocket and less money in the gov't's pocket to finance absurd schemes. Give me street lights, schools, bridges - I'm okay with that. Stop with the social engineering and de facto reparations.
50 weeks ago
50 weeks ago Link To Comment
And EVERYBODY has their own list of wants-demands in addition to your list.
50 weeks ago
50 weeks ago Link To Comment
---- "House Majority Leader Eric Cantor (R-Va.) and Speaker John Boehner (R-Ohio) have not taken a public position on the bill yet."

And they wonder why they are despised by the rank & file. How is it that the GOP blew Pelosi out of office, in no uncertain terms, in 2010, and we ended up with these clowns (Boehner & Boys) in control of Congress? These guys are five steps behind on EVERYTHING. Is it no longer a basic tenet of the conservative party that raising, or creating new, taxes in time of economic distress is always a bad thing? Tap tap! Hello? Tap tap tap ... They're not listening. Must be dining out with Obama again, while Moochelle is off shopping. I don't know who I despise more: Barry or Johnny. Neither one of them gives a crap about the American Taxpayer.
50 weeks ago
50 weeks ago Link To Comment
Your mistake is in thinking that the GOP is a conservative party. The GOP is demorat lite.
50 weeks ago
50 weeks ago Link To Comment
Fraud is fraud. I don't disagree with that, but you don't need a new law to handle what is already subject to criminal law, do you?
50 weeks ago
50 weeks ago Link To Comment
Sorry: meant to be a reply a later post... Very silly me.
50 weeks ago
50 weeks ago Link To Comment
I'm tired of the gov't finding new ways to tax me. They get enough of my money already. Next you'll need a license and tax number to hold a garage sale or sell in the local thrifty nickel newspaper. The gov't can take a flying leap.
50 weeks ago
50 weeks ago Link To Comment
The problem is that 'everybody' wants the benefit of those taxes -- even you. Thats the hypocrisy of the anti-tax folks. States rely heavily on federal taxes in addition to their own and local communities rely heavily on their states tax revenues and federal tax revenue in addition to their own. If everybody was willing to regress back to the 50s living standards then we wouldn't be paying the kind of taxes we do, but........ That said, taxes were much higher back then, but it was for the purpose of the people investing in a new industrial, educated and economic america. Nobody sat around back then complaining about their investing in a greater nation for future generations. But, they were a diferent kind of americans.
50 weeks ago
50 weeks ago Link To Comment
As I've remarked to you on another occasion, I would be more than happy to forego many so-called benefits to have smaller gov't and lower taxes. Do you really think the gov't can be trusted to put these new revenues to productive use? You're a smarter guy than that, Zeke.
50 weeks ago
50 weeks ago Link To Comment
There is plenty of justifiable spending that could be cut. That said, if you really analyze the budget expenditures at the federal level you will see that its a miuscule percentage of the overall spending. If you really analyze the spending at the state level you find quite a different picture 'generally' speaking. Most states have a spending liability of 45-65% in education and education benefits and receive a large portion of that spending budget from the federal government. Ost staes have a mandated balanced budget requirement so they cut back their revenues and leave in place federal subsidies to balance. For example, in the state of GA this coming year educators are again being furloughed starting with six days intitially, AFTER having just blown through $400 some million dollars from the federal governments one-time RtT award. The only maintenance on state and federal highways comes ONLY when granted a federal subsidy. In other words, states are living off federal subsidies to balance their budgets today and at the same time, cutting all kinds of essential services and programs. How many bonds does your own state have floating that are federally backed bonds? How many bonds does your local community have floating that are both state and federally backed? Every state is running on Peter-Pay-Paul. Those states claiming reserves is a myth! Every dollar is allocated downstream as defined this next Qtr, the next and the next to help with known and unknown shortfalls coming.

For those who think private sector enterprise is the magic bullet, all historical data proves that to be delusional thinking. Approximately 80% of the nations wealth is held by the top 20% and again all historical data proves they don't invest in the welfare of the bottom 80% -- meaning, they invest wherever the greater profit margins may be in their 'consolidated' economic industries -- China, India and other developing nations as an example. Its the new global economy going forward with a 'core' of our labor force sustaining 40 hours plus and the majority working less than fulltime and or unemployed. There is very little monetary liquidity available for the average new-startup business and even then historical data show on average, about 40% survive beyond 10 years.

Everybody has only two choices to even remotely maintain the lifestyles they've become accustomed too. Higher taxes from those who have the incomes OR somebody coming up with a new sustainable economic model for the U.S. in this relatively new global market economy. NOBODY, has any solutions for the latter and all the unintended consequences they (both parties and external experts) helped create over many decades. Right now as I understand, everybody is busy trying to 'reconstituted" the old failed systems and ideologies which most all realists, in private conversation acknowledge is no longer sustainable in spite of any illusional spikes now and then.

I don't really care any longer about the politicians and the upper 20% whose supposed to provide the sustainable core economies for all to benefit from, as our families have far more than they can reasonably and prudently spend in their lifetimes. But I do care about the bottom 50% having an opprtunity to an equitable earned share of of the nations wealth in their futures. The partisan poltiticians and their political activists of all parties are doing dishonest and devastating job on Americas people today. I'm sorry you haven't yet accumulated the factual information to see whats going on and what the affects will be it continues much longer.
50 weeks ago
50 weeks ago Link To Comment
I admit that I don't know how these things work and that my reaction is knee-jerk. Since you agree that there is plenty of spending that could be cut, then we are in agreement. Each state should find a way to make do with the revenue they receive in their own state. There would be no need for Federal help at all. Let the feds do the collective lifting in defense, the Interstate highway system, international relations, etc and stay out of the rest of it.
50 weeks ago
50 weeks ago Link To Comment
"Each state should find a way to make do with the revenue they receive in their own state."

We can certainly agree on that. However, no state and it citizens are willing. I lived in times before government subsidies to states became so popular when the federal government partnered with the private sector economy. Sure, that allowed for the nation to rise up and become a global economic superpower but..... its come home in collosal failures, to roost. That said, the federal government has for most of its histroy provided some education subsidies. Both political parties have equal blame as each had their own self serving components over the many decades that have contributed to the failures to which are not yet near full culmination.

If we were to become the nation of old, we would sacrifice our global economic and political supremacy and be more an isolated economy and the return of very high taxes for far less services of every kinds -- but a more at peace and happy nation eventually.
50 weeks ago
50 weeks ago Link To Comment
"Ost" = Other
50 weeks ago
50 weeks ago Link To Comment
There are no legal difficulties in equal business taxation be it a brick and mortar or internet. The physical location of the POS, be it a private home or commercial location, is all that would be required to implement it.

To sell on the internet one must provide the States documents establishing their business and sales tax number from corporations down through individual proprietorships. Likewise, for tax exemption status. NO sales software can be sold or otherwise leased to any internet business who does not have the appropriate business documents filed.

The state of business licensure (POS) is the state that benefits from the tax revenues. For example. Your local Walmart fulfils an online order. That becomes the POS for tax collection. Corporate Walmart knows what every store numbers tax rate is, as does their POS sales software.

Individual sales offered as non business, such as garage sales or occaisional sales of 'personal' owned goods would have a software cap determined by class and or number of goods being sold -- generally, ever state has laws to govern such.

Its about time we removed all the tax fraud allowed by the largley unregulated internet.
50 weeks ago
50 weeks ago Link To Comment
The only fraud in collecting sales taxes on out of state internet sales is on the part of the states collecting it, the out of state seller receives no services from the state of the local buyer, why should they pay any tax at all?

The rational course of action is for states to abandon sales taxes altogether, and instead adopt as flat an income tax as possible.

The rational, of course, escapes Zeke1.
50 weeks ago
50 weeks ago Link To Comment
Oh wake up from your radicalism state of mind! Did you not read what I proposed? Taxes collected at the POS!!!!! Then I went further to define the POS and its business licensure, etc. What the heck is an "out of state seller" anyway? I know you're part of the elite that don't shop at Wamart so lets use your walmart equivilent macys as an example. When you buy something from Macys online and they charge you taxes, do they charge you the taxes for Cincinnati, Ohio or the taxes for the fiulfilment credited store in the state-city where you live? Okay for the next example. You order something from an internet site that has no busniness connections to the state you live in. If taxed, you pay the taxes of that business' POS physical location -- in the same manner as you do when you travel through different states on business or pleasure.

Nothing changes from what is already the taxing mechanism in the world of relaity. I'm from gatorville, la, travelling through TX and stop in stinkyville, tx and buy a pair of boots. I pay the local and state taxes on them even though I don't live there and benefit from those taxes.

Geesh! You'd think anybody, muchless a lawyer could understand something so accustomed to everybodys purchasing life in America -- the POS collects the state and local taxes from the purchaser regardless of where such purchasers resides in the U.S or abroad.
50 weeks ago
50 weeks ago Link To Comment
In reverse order, where did you get the idiotic idea I'm a lawyer? You have me confused with someone else. Of course, you are usually confused.

If I buy something from an online seller, the point of sale is at their location, if they don't collect the taxes on that sale they are supposed to, that's A) not my responsibility, B) not the responsibility of the state I'm in, and C) already criminal. There is nothing that is actually a problem which this law is intended fix to or capable of fixing.

Sales taxes are a costly way way to raise revenue, if applied universally are a compounding VAT, if not applied universally are nightmare to administer, and as written everywhere are an arbitrary mishmash of what's taxable when sold by whom to whom and at different rates when sold for differing purposes.

The reality is we would be better off scrapping them and using as flat an income tax as possible to fund government.

If technology makes the enforcement of a law impossible or impractical--20 years ago, my buying something from California was impractical for most things--then it is time to change the law, not make buggy whip makers business plans the law of the land.
50 weeks ago
50 weeks ago Link To Comment
LOL! Lawyers are the drafters of such policies -- "anybody, muchless a lawyer...."

I think we're generally whipping the same horse here. Heres where I disagree with you. Our bulls provide a commodity in which we sell. Generally by private contract but some genetics we sell over the internet. Likewise, in our operations, we have three vet clinics that do some limited sales over the internet. For those things we sell that are not tax exempt, we charge a sales tax based on the fulfillment location. If the customer were to drive however far, to that location they would pay the same sales tax.

In my proposal for the internet, nothing changes from what is already the norm in the brick-n-mortar taxation requirements. What seems to be confusing is the misunderstanding that -- it is always the point-of-sales that collects the tax. You're on vactation from Turnipville, OH and you stop in Savannah, GA and by a bag of chips speedys c-store. You pay GA and Savannah applicable taxes.

All the applicable software is already in place and can simply be expanded upon to allow-disallow sales on the internet predicated upon a recorded states issued business license and tax number, in addition to archiving for accounting and audit purposes just like in a brick-n-mortar instance. Most all national retail companies and most states already have all this in place for internet sales and charge their sales taxes to in-state and out of state purchasers. Its really no big technological or physical implementation problem. Just a simple matter of archiving business licenses and tax numbers and records and programing the software for the apllicable taxes on taxable items for retail.
50 weeks ago
50 weeks ago Link To Comment
So you have a rather obvious grudge against companies operating on the internet. Perhaps, you should adapt and cope. There's nothing fraudulent about selling on the internet, providing one delivers the goods advertised, of the quality advertised, in the time advertised and for the price advertised.

Shouldn't you be mithering about state and federal taxes on your own enterprise, rather than advocating protectionist taxes on businesses more imaginative than yours, just because you are too leaden-footed to keep up?

Being cleverer than you isn't fraud. It's human nature.
50 weeks ago
50 weeks ago Link To Comment
"...There's nothing fraudulent about selling on the internet

I made no inference that, that is the case. I was making the case for 'businesses' selling on the internet escaping paying taxes on those sales for which there is no regulated accounting required. I know of many people in our own industry that sells products and services online and operate with two sets of accounting books. Thats fraud. Not paying your sales tax on all sales made is criminal.
50 weeks ago
50 weeks ago Link To Comment
There are laws against fraud. You don't need new laws, to make illegal what is plainly illegal already.

Your general gripe against internet companies, as I said before, just shows you up as a Luddite protectionist. Any internet company (I'm not at all involved with any) has to pay tax in some jurisdiction. If there is one such that offers a very low tax-rate, why shouldn't any internet company base itself there? If it does, how is that fraud? Whether or not a company starts off in one jurisdiction doesn't imply a legal requirement to remain there for all eternity, or to remain there and there alone.

That's the "inter" bit about the internet; it does span the world (although I accept that the "united" nations, the eu and your own President are all keen to change that).
50 weeks ago
50 weeks ago Link To Comment
You see to be aruging with yourself over those points. Read my reply to TomDPerkins above. Everyday people and companies make strategic decisions on what state and locale is the best economic environment for their business' profit margin -- however, state and local 'retail' sales tax rates is hardly one of the more important variables. If it were to become a real factor in internet sales, then I supose, one could make such decisions and relocate if the sales volume warranted it. I think what you're missing is nothing changes from the brick-n-mortoar to the internet. National retail companies and many states have been collecting taxes on retail sales for quite sometime. Some states just for their in-state residents purchasing from an in-state retail seller. National compaines collect retail sales taxes based on the fulfilment location which could be a store unit in your state or in your town-city from a distant warehouse. If they have no business interest (locations) in your state then you pay the POS tax rate wherever that location may be.
50 weeks ago
50 weeks ago Link To Comment
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