ICYMI: The end of tax-free sales online

online-shopping-price-cart-600 304My latest op-ed, title above, appeared in The Virginian-PIlot Friday. The U.S. Senate is expected to take up the Marketplace Fairness Act today. Most expect it will pass. While the House of Representatives is another hurdle, I’ll go out on a limb and say that it will pass there, too. The states are hurting and this legislation will allow them to collect money that they are already owed, anyway.

I have to admit: I buy almost nothing online. My reason is simple: if I’m not happy with a product, I want to be able to return it easily. While I use the Internet to help me narrow my choices, it is in the local stores that I generally end up doing my purchasing. My latest purchase – an iPad Mini – is a perfect example. I did all my research online and then went to a local store to buy it.

Some things, though, have virtually disappeared from the local stores, as the stores themselves have disappeared. I used to buy electronics gear – hard drives, cables, etc. – at various local stores. Nearly all of them have closed – Circuit City and CompUSA, to name two. Right now, I need a replacement car charger for my GPS unit. I’m forced to buy it online – and take my chances – because it simply isn’t available anywhere locally. Truth is that if I had a local outlet, the charger would have been replaced by now. As it is, I’ve got to find the time to track down the part, order it, wait for the delivery, and hope it’s the right one.

For the items that I do buy online – computers, printers, cameras – I find that I end up dealing with the manufacturer. And every one of them collects sales tax.

Internet sales weren’t designed to be tax-free. Consumers were supposed to pay the sales tax – generally called a use tax – on the purchases. But few do. So this Marketplace Fairness Act is about the only alternative.

My column appears in The Virginian-Pilot every week, usually on Thursdays. You can see the columns as they are published here, or navigate to them from the PilotOnline.com homepage by clicking on Opinion and then choosing my name at the bottom of the dropdown list. You can also see the columns by liking my Facebook page. Although my column appears weekly, I am not and have never been an employee of The Virginian-Pilot.


20 thoughts on “ICYMI: The end of tax-free sales online

  1. The difficulty arises in the seller’s requirement to determine the right amount to collect for each customer and to then distribute that to the States.

    A better way would be to require each seller to pay sales tax in the State in which he operates, just as a corporation pays income taxes.

    1. Alaska, Delaware, Montana, New Hampshire, and Oregon have no state sales tax. That sure be an economic boom for internet sales from those states.

  2. The supposed “fairness” does nothing but decrease the consumer’s available disposable income. Brick and mortar businesses won’t be enhanced; it does nothing to reduce their fixed costs. In fact they may see a decrease in sales because of a decrease in consumer dollar velocity. Politicians have accomplished a good sales job by framing and naming this event in the name of fairness; when in reality, it is nothing more than an economic draining governmental funding source that will result in putting more distance between the have and the have nots.

    1. ALL taxes have some negative economic impact, Wally. There is no way around that.

      The trick is to get needed State revenue with the least negative impact, and to spend that revenue where it will provide the most benefit.

      1. Unfortunately Warren, at contemporary tax levels, compounded by numerous regressive governmental source revenue diversities, each increase, no matter how nominal, is synergistic. The disparity of overall wealth is widening at unacceptable levels , personal leveraging sharply increasing, and the propensity to save and invest reaching record lows. Sorry, I can’t rationalize our dwindling economy as “some negative impacts”. Rather than the pablum framing title, “Marketplace Fairness Act”, it should be renamed, the “Household Consumer Inequity Act”.

        1. Although sales taxes are (at least in Virginia) regressive in the sense that lower-income people spend a higher percentage of their income than wealthy people do, overall, our tax system is quite “progressive,” in that higher income correlates to a higher percentage of one’s income taken in taxes (except at the very highest levels, where it declines slightly). Thus, one cannot blame income inequality on the tax system.

          There is simply less demand for unskilled labor (and more come across our borders almost all the time), and more demand for skilled labor and management. Thus, a larger share is made by those who are skilled, and by those who invest.

          1. How are you determining that VA’s overall tax system is quite progressive? If you are including Federal Income Tax, then maybe that flattens it. But real estate taxes are regressive. The income tax in VA is essentially flat in that there are very few brackets and the upper comes very quickly. Excise taxes are also regressive. While VA is generous on cigarette excise tax, it is among the highest in the nation on wine, beer, and spirits (I think the highest in fact for all 50 states on spirits). The state also relies on a lot of fees that are also regressive. When you add all these up, it is hard to see how this would be “quite progressive.”

          2. Well, I’m not sure how you get to real-estate taxes’ being regressive — if you don’t own property you don’t pay the tax, right? Same thing with the car tax — I pay very little in car taxes because my “new” car has 188,000 miles on it.

            And fees are fess, not taxes. Fees are a payment for a specific service. If you don’t want to pay the fee, don’t avail yourself of the service. Similarly, if you don’t want to pay the taxes on cigarettes, don’t smoke. If you don’t want to pay the taxes on alcohol, don’t drink alcohol — or make your own (it’s cheaper AND more fun).

            Still, now that I look back at from your perspective, our income tax system IS quite flat. Perhaps that is one reason we are so highly ranked as a business-friendly State.

          3. Warren: ” If you don’t want to pay the fee, don’t avail yourself of the service”. I can’t see Virginia Beach allowing me to refuse the Storm Water Management fee, Water Treatment Fee, Garbage fee, and a myriad of other fees that I have no option of refusing or selecting an alternate provider.

  3. I think the cap on businesses required to comply needs to be higher. I would think it would be simpler as well to just require the businesses to just collect and remit the state tax rate than have them also figure out every locality’s add on. But those are small points. It is nigh on impossible to enforce use tax among individual tax payers, which is why so many people take advantage of sales tax free sales on the internet or weekend trips to Delaware.

    I’m also not aware if this is possible, but it seems like if you vacation in say NYC and you do shopping that you bring back to VA that you should only be liable for the VA sales tax and not the NYC one. You are after all shipping it out of state.

    1. Good grief — I didn’t even think about differing taxes by locality. Will they have to pay the locality, or just the State?

      How about this (just thinking off the top of my head, so I won’t be upset if you shoot it down): Whatever is the average State sales tax is collected by the internet businesses and remitted to the IRS with the customer’s ZIP code. The IRS tallies that all up and forwards it on to the States (which they get from the ZIP code), and the States can distribute it to the localities as they so desire.

      You NYC example (though I cannot fathom why anyone would want to go there on vacation) as the law currently stands, is essentially what I would prefer — that the sales tax be collected based on the location of the business, not the buyer, and be remitted to that business’s State or local government.

      1. Localities enact add on sales taxes; so, why wouldn’t they. The money still get collected by the state. The state just doles it out to the localities. Well that is generally my experience. Maybe some states make you pay the locality, but that would be inefficient tax collection. I take back my earlier reservation though about locality’s add on. Accounting systems and the states’ filing process should take care of all of that.

        The idea of having the IRS do the tax collection actually makes a lot of sense. Then you save on administrative costs for filings, remittance, compliance and collection. Then maybe you only need to enter a set of tax jurisdictions that the IRS sets up for uniformity through and online form all the tax is calculated automatically. The states would have to give up some autonomy though in tax collection, and that probably wouldn’t be popular.

        Sad that you don’t appreciate what NYC has to offer. Administratively, your proposal would be easier. Doesn’t have any traction or possibility of implementation because you have 50 states all interested in maximizing their sales and use tax collections, not minimizing it. It just shifts incentives around though. If the benefit of increased sales offset the logistics cost of locating in Delaware, New Hampshire, or Montana, then they have an advantage for attracting internet retailers under your scheme.

    2. The cap is probably going to be higher than the $1 mil. And the free software will calculate all of the tax due, including the local add ons. The bill has the retailer sending the tax to a single state office, not to the 9600+ taxing jurisdictions.

  4. “Localities enact add on sales taxes; so, why wouldn’t they.”

    I missed something. Why wouldn’t WHO do WHAT?

    Requiring on-line businesses to buy such accounting systems and file with 50 States would be rather burdensome, don’t you think? And how will that be enforced? Will the States’ tax enforcement agencies be allowed to audit the records of every on-line vendor?

    I don’t think the States’ giving up autonomy in tax collection in this case would be an issue, because right they’re getting almost no revenue from internet sales, which it the reason this legislation is being proposed in the first place.

    “[You] have 50 states all interested in maximizing their sales and use tax collections, not minimizing it.”

    “If the benefit of increased sales offset the logistics cost of locating in Delaware, New Hampshire, or Montana, then they have an advantage for attracting internet retailers under your scheme.”

    First, those statements are contradictory. If the first statement is true, then the States you mention in the second statement would have sales taxes.

    As to your second statement, those States have no advantage over than any other State, since every State has the option of eliminating sales taxes.

    1. Why wouldn’t the state collect their localities add on sales tax? They would and they do.

      See Vivian above, but any good accounting system will do this for you anyway. An enterprise with sufficient revenue should already own of these accounting systems.

      They would give up autonomy because regular payments would be scheduled and remitted by a different agency. They would lose control of that policy.

      The statements are not contradictory. Those state have no state sales tax. So, if it costs less to ship from them from say a centrally located state like Tennessee, then internet retailer would locate there. It is a given that consumers understand incentives and will avoid sales tax when they can and not report use tax because it is essentially unenforceable in the current system.

      Do you not prefer consumption based taxation over income based taxation?

      1. I doubt seriously that any current accounting system is set up to track shipping destinations of all packages, calculate sales and use taxes accordingly, and print out the forms required by each State.

        If the statement “have 50 states all interested in maximizing their sales and use tax collections,” then all 50 States would have Sales and Use taxes. They don’t.

        If it is really an advantage to not have sales taxes, then States will eliminate their sales taxes.

        Yes, I prefer consumption taxes to income taxes. Maybe that’s why seven States have no income tax, compared to five that have no sales tax.

  5. I have found the bill on thomas.gov — S.743 “Marketplace Fairness Act of 2013”.

    I get that software must be provided free-of-charge to the remote sellers. The functionality required of that software is not part of any current accounting system. It will need to be a free add-on.

    Also, there are MEMBER STATES, which have signed on to the Streamlined Sales and Use Tax Agreement of 2012.

    What I cannot tell from the bill is whether remote sellers that are in States that are NOT part of that agreement can be required to collect and remit Sales and Use Taxes to those States that are.

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