States Losing $7 Billion in Taxes to Online Merchants
States are likely
to push measures that require online merchants to collect sales tax on
transactions conducted with customers located within their borders as more
face budget shortfalls along with heavier demand for services in an environment
of high unemployment.
According
to a report by the nonpartisan Center on Budget and Policy Priorities, states
are losing out on roughly $7 billion a year on sales taxes as consumers shift
more purchases online. Some states, such as New York, have adopted legislation
requiring retailers to charge sales tax if they have affiliates operating within
their borders. So-called “Amazon” laws tax items sold online that are taxed
when sold in stores within a given state.
Amazon.com has
fought against the adoption of such legislation, arguing it places an administrative
burden on e-tailers.
The Center on
Budget and Policy Priorities dismisses Amazon’s claim and
asserts the company “calculates and collects sales taxes in every state
except one for the Target department store chain, which has outlets in
those states and therefore acknowledges an obligation to charge tax on
its Internet sales made on Amazon’s site. The fact that Amazon charges
sales tax in connection with other companies’ sales but not its own suggests
that Amazon’s primary goal is exploiting its price advantage and not avoiding
sales tax compliance efforts and costs."
Discussion Question: Should online
merchants be required to collect sales taxes even if they do not have a
physical presence in states where they sell products? How would the imposition
of sales taxes on all online purchases affect the growth of the e-tail
sector?
There should be no sales tax on online purchases–ever. Imagine the nightmare this would create for small businesses that sell only a few hundred dollars of merchandise in each state and now they have to send out small checks to multiple state treasuries. Consumers should be rewarded for shopping online and not out wasting resources driving to stores. Sales taxes unfairly hurt lower-income consumers. I wonder if this would drive online retailers overseas?
Absolutely yes. The tax laws of the ship-to address should always apply. The argument about “administrative burden” is the same spurious bunk that the industry has spouted since this issue was first raised 10 years ago. The tax calculation can and should be seamlessly built into the online shopping cart transaction.
So-called “nexus” laws, like the one in New York State that requires entities with a physical presence to collect tax, do present unwarranted complexity. This may be easily remedied by substituting the “ship-to” principle and maintaining a national online sales tax clearinghouse for use by all merchants.
As a small, online eBay e-commerce merchant in Michigan who ships worldwide, the nightmare of collecting taxes from every state and district (yes, some states like California have multiple sales tax rates in different areas) or every county or region, like Europe’s V.A.T. (Value Added Tax) is very real. We only collect and pay sales taxes on items sold to and shipped to Michigan and leave the customers in other states or countries to pay or declare the sales or V.A.T. taxes themselves.
I am opposed to any tax collection outside of the state and country I live and do business in. I also pay state and federal income taxes on my business and personal income.
The real solution to income for the federal and state governments is to pass a balanced trade act amendment to the U.S. Constitution. It should state that all import trade with all countries must be equal within a million dollars per country annually, or larger in exports from the U.S.A., to the trade partner – with no exceptions. The increased U.S.A. manufacturing of products, goods and services would immediately raise incomes to businesses and individuals and provide the needed tax sources to run our government’s departments. The U.S.A. and world need fair and balanced trade which increases prosperity. It doesn’t benefit from the present so-called free trade which cannibalizes labor, whole industries and commodities with its race to the bottom costing for labor, environmental waste compliance, and raw material sources, along with the export of investment capital in whole countries.
The “administrative burden” is a bogus complaint. My company had a small internet sales business so consumers who could not find our products at retail could buy them online. We used off-the-shelf software for processing the orders. Within the software was a check-off on what states we would be required to collect sales tax. The software kept track of it and each month we could download a report that indicated what sales tax we owed to each state.
Noting that no one is a big fan of taxes, the fact is that giving the consumer the ability to avoid paying sales taxes is unfair to both the state they live in, and to their local retailers. If the state has a law based on their citizens’ consumption, all consumption should be taxed wherever possible.
On the retailer side, not requiring tax collection from internet retailers is essentially subsidizing them at the expense of the local economy. Every merchant in a state has a pricing disadvantage of the amount of the sales tax. There is no fair argument that internet retailers should not be required to collect taxes.
If $7 billion is the shortfall today, it will be multiple times that in the future. It is best now to solve the problem.
Goodness! This topic seems to vie with discussions about Macy’s for being repeated most often and as is the case with Macy’s, nothing has changed here, either:
1) E-commerce sales are no different than mail-order sales, so this is an age-old issue;
2) the Supreme Court long ago decided this issue is under the realm of Interstate Commerce, so if there is to be a change, Congress has to initiate it;
3) Practically speaking (and absent Federal legislation), it would be impossible for a state to attempt to collect sales tax unless a company has a physical presence in that state…what leverage would they have?
The taxes should (and must) be collected, whether online or not. The concept of a sales tax is to tax the sales of an item. It creates revenue for the taxing entity (the state) and we have computer programs which can easily calculate and adjust the customer charges for this product. This should be charged whether the customer orders online or not. The exception which has been enjoyed up to now, is not right, and everyone knows this.
Sales tax and how it affects intrastate commerce is an age-old question. Even without Internet retailers, savvy shoppers long ago learned that they could cross state lines to save sales tax. New York Taxi drivers often cross the George Washington Bridge to buy gas in New Jersey to save tremendously on gas tax. Massachusetts shoppers often take a quick run up to New Hampshire to do their shopping, saving an easy 6.5% on their purchases. Do we want to hurt Internet retailers’ Massachusetts sales by making it less expensive for Mass residents to go to New Hampshire than to buy online?
Thus, this is not an Internet issue, it is an intrastate commerce issue. If Congress wants to nationalize a sales tax, and take that away from the states, that’s a different challenge. But until that happens, Internet retailers should not be subjected to local tax authority in places other than where they choose to locate. They have no right to representation in these local governments, so they should not be subjected to the tax structure which has been approved by local political powers.