US Conference of Mayors Tells Fibs about Online Sales Tax

by: Philip Cohen

Whatever the amount involved, if everyone is already paying the sales/use taxes that they have always been required to pay, there will be no added imposition on taxpayers, will there? And, the states are required to supply commercial sellers with the software to facilitate the collection of any use taxes that have otherwise previously been is so easily avoided by buyers …

by: Massachusets Howler

I say let the mayors push it- it will be a BENEFIT for SMALL SELLERS and a DISADVANTAGE to big box as the THRESHOLD keeps us small original mom and pop ebay sellers safe and sets up a very DIFFICULT QUAGMIRE for big boxes to navigate.
With the way cassini is now showing our items there really is very little hope now, unless we get this sales tax thing through here in the US.
The writer and Phil bring up an interesting point- if the big companies already pay the tax (do they?- somebody TELL US- does walmart.com charge sales tax? I THINK they do already), what amount of increased revenue would REALLY be achieved- a lot less than even that 2.4 billion, that's for sure.
MH
PS: Phil, please send your excellent Australian regulators over here as ours have been ASLEEP for years.

by: Massachusets Howler

The Mayors simply do not understand that they are already getting the sales tax from 80% or so percent already.
BUT LETS LET THEM LOBBY FOR US.
Are all Amazon sales taxed now or is it still state by state?
MH

by: xcergy

@ Cohen
Use tax is rarely paid by the buyer unless the seller collects it.  Buyers are either ignorant of the law, or choose to be lawbreakers.
Taxpayer cost?  No, but there is a Business cost of $5000 or more/yr in compliance costs.

by: xcergy

> Are all Amazon sales taxed now or is it still state by state?

State by State.

by: Philip Cohen

Correct me if I have it wrong. If you buy at a physical point of sale you pay the sales tax payable at that point; if you buy by mail order from another state then the seller does not charge sales tax as it is an “export” from that state, such exports being exempt from that state’s sales tax (as are exports out of the country); but, domestically, the buyer is then supposed to pay in lieu a “use” tax in their home state; it’s that “use” tax that is being so easily avoided—indeed probably never paid—and will in future be payable by the purchaser and collected by the commercial seller on out-of-state and online purchases …

It’s not a new tax; it’s simply an attempt to collect taxes that have always been payable but have been previously too easily avoided, and the problem has been much exacerbated with the rise of online transactions …

We don’t have this can of worms of varying sales and use taxes in AU because the states don’t need it; our constitution considers our states to be part of one Australia, not separate countries; we have a uniform (currently 10%, and inclusive at the retail level) goods and services tax (GST) on nearly all commercial transactions, and it is collected federally and then returned to the states … so simple …

by: Philip Cohen

@ xcergy,

Do correct me if I am wrong …

A "use" tax is what is says it is, a tax by the state on the residents of that state on items that they buy commercially, generally out-of-state, and have paid no local or out-of-state sales tax on.

I can’t imagine that any commercial seller has ever been required to collect a “use” tax; if they did, it would be a “sales” tax for their state. By its nature the “use” tax has always been the responsibility of the “user” to pay in their home state, if such tax is due.

Once again, this is not a new tax; it’s simply an attempt to collect those taxes that have always been payable but have been previously too easily avoided, and the problem has been much exacerbated with the rise of online transactions …

by: xcergy

Yes, Philip, you are correct, and no, I doubt if the US, and the several States, want to adopt AU laws.

by: Philip Cohen

@ xcergy,

Notwithstanding that the US Constitution leaves sales taxing powers with the individual states anyway, of course you would not want to simplify matters and reduce the costs of compliance on business; why, I recall, you even had an horrendous war between your states over a matter of “states rights”; still, I imagine that the states wanted to simplify matters they could, if they chose, agree to allow the Feds to collect a simpler uniform tax …

And, in the meantime, while you all bicker about this “new tax”, China marches on …

by: Massachusets Howler

Hey Phil!
Here is what happened here in Washington, DC.
I believe congress passed the act but the republican senate is blocking it for their buddies in big business. Speaker Bainerd won't bring it up for a vote so we small sellers are waiting for SOMETHING to happen to force the vote (so we will benefit with the 1 million dollar threshold).
If ebay had been left alone and it was still mostly small sellers we wouldn't even be talking about taxing the internet- But we want this to be voted on and PASSED.
This legislation was not just introduced to bring in more tax income for the states, I BELIEVE that it was also partially proposed in response to small sellers like myself who have written and lobbied for YEARS to have ebay and PP investigated over this new and ILLEGAL unfair big-box DISADVANTAGE that JD created on ebay. That is what it has been- an ILLEGAL and CRIMINAL BUILT-IN DISADVANTAGE for we long-term loyal small sellers.
I really do believe that the FTC and other government agencies have received so many complaints, that they are trying to support legislation that will BENEFIT THE SMALL seller and not let the big stores get away tax-free when THEY sell on the internet. It would be hard for even the mighty FTC to go up against 25 big box corporations that sell on ebay all at 1 time so this is the easiest way to stealthily re-balance the playing field.(Now I know this may be wishful thinking but that is sort of how Washington and regulators really work).

I am writing you from Washington, DC. I am not from Massachusetts.

When the big boxes came here (ebay) and started making sales the physical stores in the US got worried and started pushing for this law, but we cannot get it to vote.
In particular, Best Buy (the LARGE electronics superstore- #1 here) was being used for what was termed ''showrooming '' Buyers went to Best Buy to check over the items they wanted to buy and were able to instantly compare the cost of the physical store price against Amazon via UPC codes on the products- Inspecting them and their features and turning around and buying it at home online on Amazon. This really pissed of Best Buy, and shoppers started doing it at other big stores that were not really on the net. Bezos surrendered and set up Amz. for the tax but JD is the 1 CEO here who is lobbying to get that threshold raised to 10 Million- for his beloved Diamond Sellers. IMAGINE THE BENEFIT of small sellers being able to sell tax-free but the big boxes having to collect the tax!

Bainerd is BLOCKING the vote by not placing it on the agenda (?), so this new push by mayors helps keep it in the public eye.

Phil- Do you guys have to pay this illegal duty to ebay when you buy there under a grand? You are correct that every purchase really can be subject to sales tax but the PROPOSED legislation says under a certain PROPOSED threshold, we do not have to collect- I forget the threshold, $1,000,000/year I believe and JD and his minions trying to get the threshold to 10 Million.
Watch- if JD's 10 Million dollar ''concession'' is made it comes up for a vote the next day, sadly that is how DC works.
Massachusetts (DC) Howler
 

by: askalice59

FairTax.org As a seller and buyer of used goods I would love this. This is simple.  

by: Philip Cohen

Hi Howler,

Correct me if I am wrong, but the problem has always been that in those states that have a sales/use tax, residents that buy on the internet and have not paid any tax on that purchase have always been required by law to pay a “use” tax to their home state.

I suspect that the percentage of people who have ever paid that “use” tax would be about zero, and therein lays the problem; and, it’s worth repeating, over and over and over, that it is not a “new tax”, it is simple an attempt to collect the tax that is due but is being too easily avoided, and, rightly, it will also remove a distortion that is creeping into the system.

The proposed exemption from the requirement to collect for “small” merchants being up to $1,000,000/pa is most generous. In AU the exemption from the obligation to collect tax on commercial goods AND services transactions is (I think) only $50,000/pa sales. Nevertheless, GST is payable on the same basis on commercial online sales and services transactions in AU; as always, it’s a matter of ensuring compliance; I understand that eBay is required to provide details of commercial sellers to the Australian Tax Office, so they had better be in compliance …

Regardless, I still get a good laugh out of eBay’s looking for a $10m exemption for the benefit of their “small” merchants; the suggestion that they are looking after anyone but themselves it simply laughable; that they would have the gall to suggest such a figure shows how utterly disconnected from reality are the people mis-running eBay …

Still, “The band continued to play on, even as the bow dipped lower and lower.”—The Titanic/eBay Story ...

by: FloridaSalesTax

Philip,

Your concepts on sales tax are fairly well educated, but are short sighted and somewhat misinformed.

Sales tax is a privilege tax on a business for the right to sell goods in a state.  The sales tax is allowed to be passed on to the consumer, and usually is.  But if the tax is not passed on to the consumer, then business is still liable for the tax.  A remote seller is not subject to a sales tax because the remote seller is not exercising the privilege of selling a good in the state.  Instead, the complimentary use tax applies to the instate user of the tangible personal property for the privilege of using the property in the state that had not otherwise already been subject to sales tax.

IF the MFA passes, the remote seller will now be subject to sales taxes which it was not otherwise subject to before.  The remote seller will be treated by federal law as if it is now an instate company as the sales are made instate.  This is effectively the imposition of a new tax on out of state businesses, despite what the press has been says for the last few years.

You are also severely off base on two other things.  First, the cost of complying with the MFA, if it passes will easily be in the range of $50,000 to $100,000+ per year for any business.  And the reason the cost is so high brings us to the other thing you are wrong about.  It will not give smaller businesses an advantage, because $1,000,000 in sales is a very small business for remote sellers.

Think about it. Right now both brick and mortar companies and e-retailers have to comply with sales taxes in their state of domicile.  1 sales tax return per month.  1 set of state sales tax laws.  The possibility of one state sales and use tax audit every 3 to 5 years.  This is even between the two businesses.  

E-retailers have the foresight to expand their market, as most brick and mortar companies are doing, to a larger customer base on-line.  If the MFA passes, then while the pure brick and mortar company will still have 1 state to deal with, the e-retailer will have 46 states to deal with.  That is 46 sets of state laws and over 9,600 local jurisdictions with their own sales tax laws, which on average have more than 500 changes is sales tax laws and local ordinances every year.

Then there is the cost of completing 46 sales tax returns every month.  Your are going to have to hire a full time accountant or outsourced accounting firm to do this for your business.

The worst part will be the audits.  A brick and mortar company has to go through 1 sales tax audit every 3 to 5 years.  The e-retailer under the MFA will have to go through 46 audits.  Even if the e-retailer is audited only once every 10 years (a very generous assumption), that will still be 4 audits per year.  The cost of going through an audit is in the tens of thousands and companies are liable for the mistakes because, under the MFA, the company is the taxpayer.  Those mistakes can and usually do cost thousands of dollars every audit.  This pushes the cost of the MFA exponentially higher than your $5,000 implementation estimates.  For your typical business with less than $5,000,000 in annual sales, then cost of compliance under the MFA will be higher than the tax collected and remitted to the states, which seems fundamentally wrong.

How do you think the e-retailer is going to pay for these costs?  Either they will raise prices or they will go out of business.  If they raise prices, then it will be the consumer that pays.  I wager the effect of the MFA, if it passes, will be to create a burst of inflation to the USA economy of over 5% above normal inflation in the first 3 years it is implemented.

Three final thoughts - most brick and mortar businesses will be moving into the e-retailing market.  So any that are complaining about remote sellers now are simply shooting their future selves in the foot.  Very short sided.  

Second, did you know that the American Association of Attorney - Certified Public Accountants formerly came out against the MFA?  This is group that would thrive on the added state tax controversy work that will bubble to the surface like a raging volcano if the MFA passes.  Even this group of tax professionals believes the MFA is a very bad idea.

Finally, the question really is how to you fix the problem of use tax going uncollected, which really is unfair to the states and pure brick and mortar companies?  I suggest a federal law requiring remote sellers to simply report remote sales to the states.  The states enforce their own use tax laws all the time, when the state has the information to track down the transaction and buyer. The problem now is the states don't have the information. A federal law requiring remote sellers would fix the issue. The cost of compliance would be minimal on remote sellers, who not be subject to the sales tax.  Magically, the states get their revenue and both remote sales and brick and mortar sales become subject to the same tax.  It would just be up to the states to enforce it.

Just my humble two cents...

by: InterenetSalesTax

MN, NJ, PA, RI, VT, NY, NJ & MA all have sales tax exemptions on clothing.

In addition AK, DE, MT, NH & OR have NO sales tax at all.

The tourists that visit all of these states return home & committ use tax fraud when they fail to discolse their sales tax free purchases.

Also brick & mortar businesses located in bordering states are disadvantaged by this. Is that fair & level?

If MFA supporters are so concern about fairness they should be happy to use the FREE software too at their checkout counter.  To really make the issue ''fair'' and correct the ''use tax'' issue ALL retailers no matter what size (online, brick & mortar, etc...) should ask their customers for identification to obtain their home zip code.

I personally think the states that support this legislation are going to shoot themselves in the foot.  

Example. MN claims to want ''fairness'' because they are part of the Streamlined Sales and Use Tax Agreement.  However, the Mall of america claims that 16 million tourists visit the mall each year and the main draw is tax free clothing.  MN had considered added a sales tax on clothing but they would have lost their UN-level advantage on attracting tourists.  They kept clothing sales tax free and continue to perpetuate ''use tax'' fraud on other states.

North Dakota’s FAQ page specifically states:

“Other items purchased by individuals subject to use tax could include exempt clothing purchased in Minnesota and returned to North Dakota, or purchases made in states with no sales tax like Montana, Oregon, Alaska, New Hampshire or Delaware.”

Call your congressman and say either level the playing field TOTALLY or leave the legislation in the committee and forget about it.  

by: Al G

@InterenetSalesTax

Gotta love the spin.

Merchants COLLECT sales tax on the buyer's purchase.

It is not a privilege, it is an obligation under the law.

by: The End

So, I'm working day & night, 7 days a week all year long. No vacation in over 30 years. I can only drive near around the block to keep expenses down. I walk around in the dark to keep expenses down. I do all the house maintenance to keep expenses down. At the end of every income tax season I only make LESS than 70% of the Poverty level. I would have even less remaining with traditional employment. Thank God I have a partner.
Government Entitlement : is when they take as much as they think they can get away with.
Get me the BIG HAMMER. We have to fix this broken government.

by: xcergy

@ Al G

Depends on the State.  Collecting tax from the buyer is optional, but the business must pay it whether it collects the tax or not.  Many States do not have a Sales Tax, but rather call it a Business Prevlidge Tax.  Hawaii has no Sales Tax, but does have an Excise Tax.

Either way, there are compliance costs to the business whether it be B&M or Online.  Merchant accounts collect fees on tax collected, in addition to the work of paperwork filed.  States offer little in compensation for being a 'tax collector'.

by: xcergy

@ Phillip
> The proposed exemption from the requirement to collect for “small” merchants being up to $1,000,000/pa is most generous.

This is gross remote sales, not net.  A typical net for a $1M business is 5%.  $50K net income is too low a threshold.

by: Massachusets Howler

The bottom line is sellers with less than 1 million gross sales will not be required to collect the tax. YES, buyers in other states are supposed to claim the purchase and pay the tax to their state. But we small sellers are not required ourselves to collect and pay it.
The VAST MAJORITY of sellers are WELL under 1 million, I have never broken 70 gross, and now I am at 32K (! STARVING) as are many sellers so WE WILL BENEFIT.
And yes, dungerhole is lobbying for a 10 Million threshold instead of the proposed 1 million.
We small sellers are not worried IN THE LEAST as this will benefit small original sellers and it will CLIP the big sellers.
Everything else is just rigormarole Phil.
BUYERS are supposed to pay in their states (no matter how much the sellers grosses) but you are right- practically no one pays this in their states.

(I make perhaps 25K on ebay now, living like a homeless person just keeping up with a mortgage & not eating).
Let them TRY to convince newly poor sellers like myself that the tax with ANY REASONABLE THRESHOLD is anything most of us have to worry about- This tax will be a BENEFIT and I wish the threshold was 250K as that would serve the boxes what they deserve- they have come onto the internet and SCREWED UP THINGS FOR WE ORIGINAL LITTLE GUYS.
Donahoe did this to us- he brought on big box- did the red eye bar code reader- brought in big business and pissed them off at the same time- Mislead small sellers and USE THEM then he wants small sellers to write their representatives to help big business by raising the threshold.
That's whats going on here Phil.
:-)MH

by: Philip Cohen

@FloridaSalesTax,

That’s a pretty good scare campaign, Too bad most of what you quote as being so scary about compliance is simply not true …

Or course there is cost in compliance, but I see not a lot of difference in cost between the computerized collecting of such an “internet” sales tax and your suggestion of sellers supplying the information on out-of-state purchasers, to the various states with a use tax, so that those states can then “track down the buyer”—that sounds even more inefficient to me.

“Marketplace Fairness Act of 2013 – (Sec. 2) Authorizes each member state under the Streamlined Sales and Use Tax Agreement (the multi-state agreement for the administration and collection of sales and use taxes, adopted on November 12, 2002) to require all sellers not qualifying for the small-seller exception (applicable to remote sellers with annual gross receipts in total U.S. remote sales not exceeding $1 million in the preceding calendar year) to collect and remit sales and use taxes for remote sales under the provisions of the Agreement, but only if such Agreement complies with the minimum simplification requirements relating to the administration of such taxes, audits, and streamlined filing set forth by this Act. … Allows a state that does not participate in the Streamlined Sales and Use Tax Agreement (non-member state) to collect and remit sales taxes if such state adopts and implements the minimum simplification requirements of this Act. …”
http://beta.congress.gov/bill/113th-congress/senate-bill/743


I find it perplexing that people can complain about US international corporations transferring their profits to foreign lower-tax countries (and then, as in the case of eBay, who has never paid their shareholders a cash dividend, beg for domestic tax relief so that they can repatriate those “off shore” profits), yet the US states are effectively doing the same thing in competing with each other by playing with sales taxes, rates, scope, …

Regardless, I would agree with “InternetSalesTax”, instead of the current convoluted mess of sales taxes, better to level the playing field totally, as is the case in many other civilized countries that have a general “value added” tax on the commercial supply of most, if not all, goods and services …