To expand on what civver said above, a state cannot force a remote seller to charge sales tax. What the state can instead do is impose a use tax upon the purchasers.
What Michigan did was expand the definition of a nexus physical presence in the state. Because Amazon has affiliate business partners in Michigan, the whole of Amazon must charge sales tax to Michigan purchasers. That’s an expansion of the generally understand definition of what amounts to a presence in the state sufficient to demand the charging of sales tax.
The transaction is taxed, it is just the collection of the tax that is problematic. If I buy something, whether I buy it on the internet or at the store, I owe the state a tax. However the state has traditionally subcontracted the collection of that tax to the vendor, and if the vendor shirks on that there is no provision for collecting it from me directly, or even for me to volunteer it should I feel so inclined.
Compliance with this involuntary subcontracting is a burden on vendors, obviously, but as noted when it comes to local businesses the state has ample opportunity to force compliance. Which brings us to the thing missing in the OP. A big part of what is making the internet a source of such potent competitors is certainly the "we don't collect the tax you owe" benefit...but another big part is "we don't face the expense of being an unpaid contractor in the tax collection business."
While I sympathize with "oh but it would just be hard on us to collect taxes from our customers for the states" I'm not terribly sympathetic since their brick and mortar competition certainly has to and they aren't protesting what an unfair burden that is for them.
Related anecdote:
Spoiler:
I knew a family that was in the truck fueling business. Their truck stop pumped well over a million gallons of diesel fuel per month. Between fuel taxes and sales taxes they collected several hundred thousand dollars per quarter which were remitted to the appropriate agencies.
Across the street from their truck stop a guy bought an old minimart type store that had gas pumps. In short order rather than selling gas to cars the pumps were set to sell diesel. Even though the minimart was not in any way organized for trucks to get through the fuel lanes so the backups were monumental, and the new owners were not connected with any of the "trucker friendly" payment methods so they were cash/regular credit card only, they did booming business...because their price was twenty cents per gallon lower.
So, point of relevant fact, the truck stop set their price to make between twelve and fifteen cents per gallon, gross. There is no way the little minimart was paying less for product, since there are actually a very limited number of refineries that product could be delivered from.
The minimart is losing between a nickle and a dime on every gallon they sell. How does this work?
Spoiler:
The new owner of the minimart did not sell fuel. He leased out the pumps and tanks, and contracted the service of handling transactions for the company that bought and sold fuel. That company made no money at all by the time they made their lease payments and paid for the transaction services despite the fact that they never remitted the taxes they were collecting.
When they missed their first quarterly payment they would get a notice...which they would receive about the time they were missing their second quarterly payment. After a couple months they would get a more urgent notice with a threat to investigate. Generally they would start being investigated about the time they missed a third payment, and after about a year they would declare bankruptcy, having literally no assets and owing a couple of government agencies several hundred thousand dollars. The minimart guy would immediately lease the fuel tanks and pumps to a new company and never skip a beat.
I was involved in a business venture that didn't end up going anywhere. We were going to be selling products to Americans, potentially in all continental states.
A part of this was doing research in terms of what we had to do to make sure the IRS didn't go after us. The conclusion was that for every single item sold to a customer, we had to tally up the amount sold to that state. Then at the end of the year, if the total sales going out to that state were over a certain amount, we had to pay tax on it. I forget what the amount was, but anything lower than that and you can just ignore paying the tax.
This was years ago so I could be misremembering, but it's not the reason why the business venture didn't go anywhere. It's easy enough to log every transaction (what we'd be doing anyway) and producing a report each year to see how much we sold to each state. Not a lot of effort needed on our part at all.
I was involved in a business venture that didn't end up going anywhere. We were going to be selling products to Americans, potentially in all continental states.
A part of this was doing research in terms of what we had to do to make sure the IRS didn't go after us. The conclusion was that for every single item sold to a customer, we had to tally up the amount sold to that state. Then at the end of the year, if the total sales going out to that state were over a certain amount, we had to pay tax on it. I forget what the amount was, but anything lower than that and you can just ignore paying the tax.
This was years ago so I could be misremembering, but it's not the reason why the business venture didn't go anywhere. It's easy enough to log every transaction (what we'd be doing anyway) and producing a report each year to see how much we sold to each state. Not a lot of effort needed on our part at all.
I have to point out here that the IRS has nothing to do with collecting sales tax. The agencies you would have had to report to are state agencies. For California this would be FTB, the Franchise Tax Board. Not really a big deal, and from Canada US alphabet soup probably all looks pretty much alike anyway.
Yeah, the goal of our research was to see what our vague legal obligations were, so we could incorporate it into a business plan. It was at a very early stage of planning. So I don't remember a lot of the details. Plus on the Simpsons the IRS collects taxes but maybe it wasn't sales tax either
We had to deal with it all, or at least plan on dealing with it in our business plan, because our target market was the U.S. It's a much larger market and if you find a supplier also based in the U.S. shipping costs are very low. But the company (i.e. me and my friend and any future employees and/or office space) was actually based in Canada, so we had to figure out "if you can even do that" and then "what the hell do we actually do"
edit: I also used to sell t-shirts to Americans with a friend. Well, to Americans and Canadians. That was a huge learning experience, we didn't even do any research about taxes, we just sold stuff and assumed everything was good. Turns out we were right, our sales were not high enough to worry about it.. but looking back I feel so much wiser now, and yet still so clueless
The "assume we're okay until we get big enough to be on the radar" approach usually works out pretty well. It's when you start nosing around to see what maybe you should do next and find out you've been wrong all along, and the person you just asked about what's next is the enforcement agent, that it gets scary. This is why I advocate never asking.
Why? Being willfully ignorant of all sorts of legal, ethical, and other obligations is how many, perhaps most, businesses are run in the age of globalized capitalism.
Why? Being willfully ignorant of all sorts of legal, ethical, and other obligations is how many, perhaps most, businesses are run in the age of globalized capitalism.
Below certain thresholds enforcement is nonexistent, primarily because the potential revenue isn't worth the cost of enforcement. The same effort that costs more than it is worth on the enforcement side would be needed on the compliance side in order to comply...and no one ever gets paid for making that effort.
So, you can make this effort without being compensated, then voluntarily pay tax that you otherwise would not have paid. As a result the collecting agency will receive a small amount that triggers a necessity for them to review the effort you have made, which costs them more than you gave them. The best possible outcome here is a lose/lose. You wasted effort creating a cost for yourself, and they spent more on collecting than they collected. But the more likely outcome is that having brought yourself to their attention they will find that your unpaid efforts were inadequate and that you actually owe them more than you thought...unsurprisingly an amount that at least covers their costs of collection.
In case you didn’t know it, America is weird. The US doesn’t have a national sales tax, VAT, or GST. Instead, the various local states can impose local taxes on the sale and use of goods and services. However, the states have limited abilities to tax a remote seller; if a seller has no local presence within the state, the state cannot tax the transaction. This has led to most internet purchases not being taxed.
As internet sales have climbed and taken away sales from local merchants, states have seen their sales tax revenues dry up. As a result, many states are now pushing for a reform of the tax law to force remote merchants to remit sales tax to the state of the purchaser. This reform is a bit of a ways off from being realized, but it is clear that there’s a movement afoot to change how remote sales are taxed.
Merchants claim, correctly, that remitting sales taxes to a remote jurisdiction is a daunting technical challenge. In addition to imposing sales taxes themselves, many states also permit local jurisdictions to impose their own sales and use taxes. This can get really granular with some areas subject to state, county, city, and district sales and use taxes, all of which need to be sent to different agencies. Not every merchant is capable of maintaining those distinction in its sales.
Some states and merchants have reached a middle ground wherein the merchants voluntarily remit sales tax to the state. Amazon started to do this in 2012 under pressure from various states.
Further complicating things are the NOMAD states, five states that do not impose sales taxes upon purchases. If remote sales were to be taxed then these states basically get a bum deal because they will miss out on that revenue. At this point, remote sales generally have a level playing field for NOMAD states.
Should sales on the internet be taxed? Should the US adopt a national sales tax, GST, or VAT? Why is it that sales tax is decried as regressive but is imposed on a national level by most nations?
If you live in a state that has a sales tax, you are still technically supposed to pay that sales tax if you purchase something online, even if the seller has no local presence. That's why on your state income tax form they usually ask you to report any online purchases you made in which you were not charged sales tax. Of course, no one ever reports those purchases and the state has almost no way of verifying that everyone is being 100% honest on their tax forms, so they lose out on all that tax revenue.
EDIT: Should have read the thread first. Seems several other posters already basically said what I said.
Firstly because the consequences of not complying with the law can be significant.
In addition, it seems prudent to organize one’s business in such a manner that the business can easily comply with the law as growth necessitates. Far better to adopt best practices from the start than to try and shoehorn them in later.
Furthermore, complying with sales tax law is an ethical obligation. Governments use taxes to provide for the common good; not paying taxes inhibits the general welfare.
Finally, as Franklin noted, taxes are as certain as anything. So just pay them.
If you live in a state that has a sales tax, you are still technically supposed to pay that sales tax if you purchase something online, even if the seller has no local presence.
Technically, what you’re describing is use tax. Contrasted with sales tax, use tax is remitted by the purchaser, rather than by the merchant. Where this thread is about remittance of sales tax by remote sellers at the time of purchase and the barriers, legal and logistic, to such remittance, use tax seemed an ancillary topic.
It is appreciably more complicated in the United States.
Firstly because the consequences of not complying with the law can be significant.
In addition, it seems prudent to organize one’s business in such a manner that the business can easily comply with the law as growth necessitates. Far better to adopt best practices from the start than to try and shoehorn them in later.
Furthermore, complying with sales tax law is an ethical obligation. Governments use taxes to provide for the common good; not paying taxes inhibits the general welfare.
Finally, as Franklin noted, taxes are as certain as anything. So just pay them.
Technically, what you’re describing is use tax. Contrasted with sales tax, use tax is remitted by the purchaser, rather than by the merchant. Where this thread is about remittance of sales tax by remote sellers at the time of purchase and the barriers, legal and logistic, to such remittance, use tax seemed an ancillary topic.
Was this decades ago? Otherwise that state needs to get on board with the 'minimum markup' law that is effect in at least Wisconsin that says retailers must sell gas for at least x% above cost. Gas stations don't make money on selling gas (maybe 5% markup at most), they make money on the stuff they sell in their store (food and drink, at 100% markup or more).
But I suppose maybe enforcement of the markup law could be as slow as enforcement of collection of taxes.....but it seems to work around here so I don't think so.
Why? Being willfully ignorant of all sorts of legal, ethical, and other obligations is how many, perhaps most, businesses are run in the age of globalized capitalism.
The transaction is taxed, it is just the collection of the tax that is problematic. If I buy something, whether I buy it on the internet or at the store, I owe the state a tax. However the state has traditionally subcontracted the collection of that tax to the vendor, and if the vendor shirks on that there is no provision for collecting it from me directly, or even for me to volunteer it should I feel so inclined.
Compliance with this involuntary subcontracting is a burden on vendors, obviously, but as noted when it comes to local businesses the state has ample opportunity to force compliance. Which brings us to the thing missing in the OP. A big part of what is making the internet a source of such potent competitors is certainly the "we don't collect the tax you owe" benefit...but another big part is "we don't face the expense of being an unpaid contractor in the tax collection business."
While I sympathize with "oh but it would just be hard on us to collect taxes from our customers for the states" I'm not terribly sympathetic since their brick and mortar competition certainly has to and they aren't protesting what an unfair burden that is for them.
Related anecdote:
Spoiler:
I knew a family that was in the truck fueling business. Their truck stop pumped well over a million gallons of diesel fuel per month. Between fuel taxes and sales taxes they collected several hundred thousand dollars per quarter which were remitted to the appropriate agencies.
Across the street from their truck stop a guy bought an old minimart type store that had gas pumps. In short order rather than selling gas to cars the pumps were set to sell diesel. Even though the minimart was not in any way organized for trucks to get through the fuel lanes so the backups were monumental, and the new owners were not connected with any of the "trucker friendly" payment methods so they were cash/regular credit card only, they did booming business...because their price was twenty cents per gallon lower.
So, point of relevant fact, the truck stop set their price to make between twelve and fifteen cents per gallon, gross. There is no way the little minimart was paying less for product, since there are actually a very limited number of refineries that product could be delivered from.
The minimart is losing between a nickle and a dime on every gallon they sell. How does this work?
Spoiler:
The new owner of the minimart did not sell fuel. He leased out the pumps and tanks, and contracted the service of handling transactions for the company that bought and sold fuel. That company made no money at all by the time they made their lease payments and paid for the transaction services despite the fact that they never remitted the taxes they were collecting.
When they missed their first quarterly payment they would get a notice...which they would receive about the time they were missing their second quarterly payment. After a couple months they would get a more urgent notice with a threat to investigate. Generally they would start being investigated about the time they missed a third payment, and after about a year they would declare bankruptcy, having literally no assets and owing a couple of government agencies several hundred thousand dollars. The minimart guy would immediately lease the fuel tanks and pumps to a new company and never skip a beat.
So basically the guy setup fake companies to buy the gas and sell it cheaper by not collecting the tax portion? Sadly I doubt this kind of scheme is uncommon at all. Shell companies abound.
Was this decades ago? Otherwise that state needs to get on board with the 'minimum markup' law that is effect in at least Wisconsin that says retailers must sell gas for at least x% above cost. Gas stations don't make money on selling gas (maybe 5% markup at most), they make money on the stuff they sell in their store (food and drink, at 100% markup or more).
But I suppose maybe enforcement of the markup law could be as slow as enforcement of collection of taxes.....but it seems to work around here so I don't think so.
Question. What is the calculation for "x% above cost" based on? In the example the pirate station was certainly selling at a very high percentage above "cost" if you define cost as what they paid per gallon at the refinery. They were even charging a very high percentage above cost if you define cost as what they paid per gallon on delivery. They were not charging a high percentage above cost when you add in their overhead costs; ie facilities leasing and transaction service contract; but it seems unlikely that such a law would be based on such considerations.
Taxes are not technically a "cost" for the vendor, at least in California. They are paid by the consumer. The vendor merely collects the taxes as an (unpaid) agent of the applicable agency. Is your law based on "wholesale purchase price plus tax to be collected"? Or does your state have taxes collected at the refinery? That second one is a potentially good solution, since the number of refineries is small so monitoring compliance becomes much easier. Unfortunately refineries belong to oil companies, and when it comes to a fight over who is going to have to do the "unpaid agent of tax collection" labor they are far better equipped to say "not us."
As to the idea that "the money is made on the stuff they sell in their store" that is true if you look only at margins. But my friend's business was much more dependent on the ten cents a gallon that they made on a million gallons of diesel every month than it was on the fifty cents a can that they made on a few hundred cases of sodas.
So basically the guy setup fake companies to buy the gas and sell it cheaper by not collecting the tax portion? Sadly I doubt this kind of scheme is uncommon at all. Shell companies abound.
Well, technically they did collect the tax. They just never passed it on to the taxing agencies. And when the taxing agency shut them down for failing to comply they had no money because they had paid it all out in "operating expenses." So the shell is left with a debt to the government, no income, and the only asset is whatever fuel happens to be in the tanks at the time.
Whether or not the reasons for the increased complexity stateside are well-founded doesn’t make the collection of sales tax stateside any less complicated.
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