[RD] Taxing the Internet

[BvBPL]

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?

 

[warpus]

Each time I'm south of the border it blows my mind how low sales taxes are. You can go to a restaurant, order a big steak, some beers, and when the bill comes you can look at the tax part and laugh at it. You get out your wallet, pay, leave, and there's no sidewalks, and you think: "Well where would they get money to build sidewalks if nobody pays taxes?", and then some guy jumps out of the bushes and says: "That's not how taxes work here"

Americans suddenly starting to tax internet purchases wouldn't surprise me. I mean, you guys have a lot of infrastructure that needs maintaining and like 17 aircraft carriers. The money has got to come from somewhere. I might or might not be against it. On one hand it would make Canadian online retailers more competitive, but on the other it might give our government more stupid ideas.

 

[civvver]

Afaik most states are simply changing the wording of their tax laws. Michigan did this recently, I'm very sure amazon and other retailers didn't voluntarily charge customers sales tax, they did it in response to legislation. The legislation change was, previous you only had to pay sales tax if there was a storefront was in the sate. So companies like best buy had to charge tax online, but amazon, since they have no brick and mortor stores, didn't. It changed to say if you have any physical presence which is much broader so if you have any warehouse or distribution center you now pay tax. Amazon has warehouses in michigan, hence the tax. Many companies still don't and don't charge tax like newegg I believe.

I think it's really pretty simple, just have the states require if the billing address of payment is that state then sales tax goes to that state.

By the way I found your title misleading. It should probably say something like taxing ecommerce. Taxing the internet makes it sound like you're adding sales tax to my internet bill or data usage.

 

[Lexicus]

Why is it that sales tax is decried as regressive but is imposed on a national level by most nations?

Because in most nations, the rich have a lot of political power and tend to object strongly to being taxed.

Should sales on the internet be taxed? Should the US adopt a national sales tax, GST, or VAT?

The US can come up with all sorts of crazy ideas because taxing the rich is against our religion, but in the end we're going to have to do it.

 

[civvver]

Because in most nations, the rich have a lot of political power and tend to object strongly to being taxed.



The US can come up with all sorts of crazy ideas because taxing the rich is against our religion, but in the end we're going to have to do it.

How does sales tax tax the rich? I mean it does, but it taxes everyone who buys anything. Wouldn't rich people be more in favor of this is the could drop some income/capital gains taxes? Rich people seem to love flat taxes I thought.

 

[BvBPL]

I'm very sure amazon and other retailers didn't voluntarily charge customers sales tax, they did it in response to legislation.

+
Amazon’s decisions to collect and remit sales tax were largely voluntary, except for those states where the company has a physical presence.
Amazon’s decisions to collect and remit sales tax were largely voluntary, except for those states where the company has a physical presence. That the choice was in response to legislation didn’t make those choices less voluntary.

 

[Lexicus]

How does sales tax tax the rich? I mean it does, but it taxes everyone who buys anything. Wouldn't rich people be more in favor of this is the could drop some income/capital gains taxes? Rich people seem to love flat taxes I thought.

I didn't say the sales tax taxes the rich. It does precisely the opposite.

 

[Samson]

In the UK / Europe we have a similar problem, with companies like amazon paying a tiny fraction of a percent of their turnover in tax with various accounting "features". While I really have no idea how to actually solve it I think it is clear that something needs to change with so much trade now happening outside of bricks and mortar stores.

 

[TheMeInTeam]

I didn't say the sales tax taxes the rich. It does precisely the opposite.

"Precisely the opposite" is false. It taxes everyone who makes purchases. If you want to make a case that it puts undue proportion on lower incomes, say that .

There is nothing in principle to support undue burden on variable incomes from sales tax. Those who have more money do spend more money, or else their money isn't conferring the benefit it allegedly confers. So if the proportional tax hit isn't manifesting that way, it's not a fault of sales tax *in principle*, but loopholes (planned or otherwise) in practice.

 

[uppi]

The problem can only be solved by centralization: Either the tax laws are centralized, or the taxes are determined by the location of the buyer and the tax collection is centralized. You could create an interstate agency that keeps track of all the tax laws, collects those taxes and distributes them to the entitled entities.

Unfortunately any real solution would require political cooperation, which american politicians seem to be incapable of currently.

 

[BvBPL]

A centralized taxation system would really do a number on a variety of means by which state and local government use sales tax to fund local programs. A centralized system of sales tax might be poorly orientated towards raising a sales tax to fund a stadium or other large local project. Similarly, a centralized, unitary system would limit the ability of states to use taxation policy to support certain interests. Some states don’t tax clothes, others don’t tax feminine hygiene products, and still others tax tonics and confections. Those choices to tax or not tax certain products and services reflect policy understandings of what is best for the local community. A centralized system would remove that flexibility.

 

[civvver]

I didn't say the sales tax taxes the rich. It does precisely the opposite.

Then I didn't understand the tone of your post. Elaborate?

Because in most nations, the rich have a lot of political power and tend to object strongly to being taxed.

This seems to imply that the us doesn't have vat or a sales tax because the rich aren't in favor of it. Which is why I proposed why would the rich care about a sales tax as opposed to other taxes that impact them more harshly?

The US can come up with all sorts of crazy ideas because taxing the rich is against our religion, but in the end we're going to have to do it.

Again seems to imply we won't implement a vat/sales tax cus taxing the rich is against our religion.

Can you see why I'm confused?

 

[Lexicus]

Then I didn't understand the tone of your post. Elaborate?

I was saying it is imposed despite being (accurately) denounced as regressive because alternate measures like, taxing wealth for example, are not politically possible.

This seems to imply that the us doesn't have vat or a sales tax because the rich aren't in favor of it. Which is why I proposed why would the rich care about a sales tax as opposed to other taxes that impact them more harshly?

Oh, not what I meant.

Again seems to imply we won't implement a vat/sales tax cus taxing the rich is against our religion.

Again, saying the opposite: that if we do, it will be because taxing the rich is against our religion (another part of our religion is that the federal government needs revenue, which is simply not true).

 

[civvver]

"Precisely the opposite" is false. It taxes everyone who makes purchases. If you want to make a case that it puts undue proportion on lower incomes, say that .

There is nothing in principle to support undue burden on variable incomes from sales tax. Those who have more money do spend more money, or else their money isn't conferring the benefit it allegedly confers. So if the proportional tax hit isn't manifesting that way, it's not a fault of sales tax *in principle*, but loopholes (planned or otherwise) in practice.

That's true but in the implementation in general as most use taxes are proposed they result in higher tax rates on the lower and middle classes. Which is pretty obvious since nearly half of households in the country pays zero income tax (not including fica taxes of course).

It just reminds me of herman cain's stupid 9/9/9 plan back in 2012 since probably like 60% of americans pay less than 9% actual income tax rate and very few states have a 9% sales tax rate (I found only a couple when you combined local + state taxes, see here https://taxfoundation.org/state-and-local-sales-tax-rates-2015/ ). It was a tax increase for most people, a huge handout to the rich, disguised as tax reform and tax breaks for all.

Really if anyone was serious about making our system truly progressive tax wise, we would stop the farce that fica directly funds social security and medicare and stop treating it as "insurance premiums" and remove the ridiculous income cap. It's the only tax that gets cheaper the more money you make, it's astounding. I think it should be reversed, don't tax the first 10-20k of income or whatever, and then no cap after that. I think an idea like this could get off the ground too cus a lot of seniors are worried about ss being non solvent and if you did this right it could fund it forever. The question is just how much can you shift the burden off those on the bottom and still increase revenue?

 

[steve_indy]

Let's be clear - if an outside company with no presence in a state makes a sale into that state, they are legally liable for the sales tax. Amazon is not complying "voluntarily", they have chosen to comply because they are everywhere and continued operation would be very difficult for them if they were afraid of asset seizures or executive arrests in a growing number of states. However, the state has no way to enforce their law outside of their borders, even if the relevant transactions are deemed to have occurred inside their state. The state is not going to issue arrest warrants and watch airports and highways to see if anyone responsible ever shows up. A national system would largely clean this up, because the federal government has a greater reach, and it's much more difficult to avoid the US than [Michigan]. The US can also exert treaty pressure, has greater resources to identify server locations, and so forth.

I think a national system is inevitable, but it's going to take some time. States currently have a myriad of sales tax positions, and any wholesale change in internet sales taxing is necessarily going to be disruptive to the brick and mortar taxing system.

 

[TheMeInTeam]

That's true but in the implementation in general as most use taxes are proposed they result in higher tax rates on the lower and middle classes. Which is pretty obvious since nearly half of households in the country pays zero income tax (not including fica taxes of course).

Comparing it in the relative sense to present standards, yes. However it is not accurate to claim that sales tax is "regressive" on its own merit as a concept. It's closer to flat, though spending trends would throw a wrench into calling it perfectly flat. Relative to present system a flat tax would increase it for many and thus be "relatively regressive", but not regressive in the absolute sense.

It's more a debate of what "should" someone pay in general, and why. For present purposes taxing billing address of that state sounds reasonable enough to me.

 

[BvBPL]

That’s completely inaccurate, Steve.

 

[rah]

Yeah, tax according to billing address is not that hard.
If you want to believe the fantasy that it is too hard, go ahead and put an income limit on it so only the larger retailers would have to comply.
This might even be preferable since it would help smaller vendors be competitive and encourage them.

 

[Perfection]

Twitter should charge Trump 5k a tweet all proceeds go to CAIR

 

[civvver]

Let's be clear - if an outside company with no presence in a state makes a sale into that state, they are legally liable for the sales tax.

Uh no they aren't. You aren't issued a state tax id/code/whatever unless you had a store in Michigan previously. However, state tax was still supposed to be applied, it just didn't fall on the seller to collect it as mandatory. What was supposed to happen was as an individual on your state tax return you were supposed to list all the stuff you bought online or out of state and pay the tax there. But of course there was no proof of any of those sales so it ended up being all voluntary and no one would fill it out. Thus the taxes were never collected

So when people complained about the new law (I think it was called main street fairness act or something), it actuality they were supposed to be paying tax all along but just enjoying a loophole. The guys who finally got it passed were all the local stores, presumably the big box ones, cus big chain stores like discount tire and best buy get tired of being undercut by amazon by 6% just cus of the tax difference.

http://www.mlive.com/lansing-news/index.ssf/2015/01/michiganders_will_have_to_remi.html

So anyway, your opinion may vary, but I think it's quite possible for states to handle this themselves.