The shakedown will continue until you have nothing left. The only retail growth area in the U.S. has been online. Now Congress and the clueless state politicians want to drive thousands of small businesses into bankruptcy while handing you a 5% to 10% price increase on everything you buy. Once sales taxes are allowed for on-line sales, the bricks and mortar retailers will be free to raise prices. But don’t worry. The BLS won’t consider this a price increase because it is just a tax. Presto!!! – no inflation.
The Online Nightmare Sales Tax Bill that is Sitting in the Senate
Never trust anyone in Congress. Congressmen are all about aligning themselves with certain power centers, creating new power centers, but always about expanding government in one direction or another. That said, a congressman may, not very often, but from time-to-time find himself on the side of truth, as he tries to maneuver some power center.
Senator Jim DeMint has found himself on the side of truth when it comes to the online taxes. He warns in WSJ:
The Marketplace Fairness Act recently introduced in the Senate would require online retailers to collect and pay sales taxes to states where they have no physical presence or democratic recourse. Overstock.com, eBay and the like could have to pay sales taxes to any state from which an Internet user placed an order, even if the company’s headquarters, warehouses and sales staff are located entirely in other states.
Such online sales tax proposals are taxation without representation. The proposed federal law tells businesses that there is no escape from the clutches of tax-hungry politicians. That concept is antithetical to our federalist system, which promotes competition among our states for the best economic policies…
The Supreme Court ruled (in Quill Corp. v. North Dakota, 1992) that retailers can be required to collect sales taxes only in states where they have a physical presence. The proposal before Congress, however, would give a federal blessing for states to chase revenues far outside their borders.
Consider the absurdity of such a law. When a customer buys a product in a store, does the cashier ask for the customer’s home address? Of course not. The store simply charges the state and local sales taxes applicable for its physical location, no questions asked.
The proposed law would hold online sellers to an entirely different standard. Websites would have to add taxes to a sale based on the shipping destination of the product, which may be a state in which neither the seller nor the buyer resides. We would never ask mom-and-pop store owners to do such a thing.
Politicians want this bill passed to raise new tax revenue for broken state governments facing budget shortfalls. But legislators in state capitals don’t want to make the hard decisions to cut spending or raise taxes on their constituents—they fear the voter backlash. So they’d like their allies in Washington to make it legal for them to tax people who can’t vote against them.
At its core, this is a nationally mandated Internet sales tax on businesses. Once a single state demands these sales tax collections under the new law, businesses in every other state would be forced to comply with that state’s tax laws. Dozens of states are eagerly waiting to raise those taxes, as soon as Washington opens the floodgates.
The burden on Internet entrepreneurs could be staggering. There are already nearly 10,000 state, local and municipal tax jurisdictions to navigate nationwide.
Just complying with a single state’s tax laws costs small businesses disproportionately more than larger firms that can afford accounting and technology teams to help them work through these arcane laws. A 2006 PricewaterhouseCoopers study found that tax-compliance costs for small businesses (those having $1 million to $10 million in annual sales) are nearly 2.5 times greater than those of larger firms. For businesses under $1 million in sales, those costs explode to 16 cents on every dollar of revenue.
And woe to online sellers if they have a dispute with one of the many states that will be unleashed to tax them. A small business owner in South Carolina could face simultaneous audits from California, New Jersey and Hawaii, with no political recourse.
Who would want to do business in this environment? That’s a problem that the Senate bill’s authors implicitly acknowledge, since they included an exemption for companies with less than $500,000 in annual sales. But that is a very low threshold to cross. Businesses will be discouraged from growing, encouraged to locate overseas, or even regulated out of business.
Nor would these new Internet taxes satisfy tax-hungry politicians. Already Maryland Gov. Martin O’Malley, a Democrat, has called for a 6% tax on all downloads—music, movies, e-books and more—from vendors like iTunes. It probably wouldn’t be long before the burdens of complying with myriad state sales tax laws led to talk of a streamlined national sales tax to replace it, with Washington taking a cut and destroying our nation’s healthy tradition of state tax competition.
ThePessimisticChemist says:
In no way does this surprise me.
I’m sure it will go straight through. Obviously the solution to all our problems is to make the tax code more convoluted and to finally get rid of those pesky small businesses once and for all.
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4th August 2012 at 1:13 pm
IndenturedServant says:
This illustrates the complete disconnect between DC and the rest of the country. Discretionary spending continues to decline and the multi-millionaire class, ruling oligarchy wants to completely kill it with another tax. Fucking wonderful!
My wife and I have been able to save approximately 45% of our after tax income even after the 2008 crash but in the last year I have noticed a serious decline in our savings rate. The only bills I can attribute this too are gasoline, electricity, natural gas, clothing and food. Although we could easily still be spending money (cash) like a drunken sailor, we don’t. We never have really. I guess you could call us anti consumers.
We try to do our discretionary spending with as many locally owned small businesses as possible. Shipping alone can easily cancel the savings found in online purchases so most of our online spending is limited to items we NEED but cannot find locally and luxury items. We have a great love for Spanish cuisine and can only find some ingredients online. Luckily, many of the ingredients we buy online are non-perishable so I guess it is time to stock up. Try buying an ounce of La Mancha saffron sometime. It takes about 70,000 flowers to yield one pound of finished saffron and it is strictly manual labor to get it!
I_S
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4th August 2012 at 3:23 pm
Persnickety says:
If you believe in the current concept of a sales tax, this bill is entirely reasonable and the essay above is so much BS.
However, one might question whether a seller should be taxed for a transaction based on where the buyer is located. I can easily defend a state taxing the seller on any sales occurring within its borders, based on the seller’s location, and taxing the buyer on any purchases occurring within its borders, based on the buyer’s location. The latter is a “use tax” and most states have them, but few states effectively enforce them – probably because of the outcry from voters that would occur. Likewise, states generally don’t tax the seller based on its sales, although a few anti-business states do. Hmmm, could this all just be one big cost-shifting political ponzi? Nah, couldn’t be.
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4th August 2012 at 4:15 pm
Administrator says:
Not a cost shift. It’s a cost increase on us by them.
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4th August 2012 at 4:48 pm
Persnickety says:
I may not have articulated my point well. Like so many state taxes, this is an attempt by various states to impose a tax on non-residents of the state, because non-residents can’t vote (except in FL, IL, etc.).
Honest state legislatures would impose legitimate taxes on their residents and resident businesses, rather than trying this shady maneuver to have the feds legitimize a tax on non-residents that isn’t otherwise allowed.
Compare to the way that NY, CA and some other states impose a tax on retirement benefits paid to anyone who was a resident of the state at the time that, in the state’s view, the retirement benefit was earned.
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4th August 2012 at 4:51 pm
harry p. says:
It’s not a “tax” bill, it’s a “theft” bill.
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4th August 2012 at 6:44 pm
DaveL says:
IS says: “I guess you could call us anti consumers.”
According to Steve Cohen (D-TENN) you need to have your money taken away from you and given to Americans who will spend it.
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4th August 2012 at 8:19 pm
DaveL says:
Isn’t taxing a person in one state who buys something in a different state a tariff and unconstitutional?
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4th August 2012 at 8:22 pm
Llpoh says:
Blatantly, and I mean fucking blatantly, unconstitutional. The Constitution specifically forbids one state to tax the goods from another.
What a piece of shit.
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4th August 2012 at 10:04 pm
IndenturedServant says:
DaveL said:
“According to Steve Cohen (D-TENN) you need to have your money taken away from you and given to Americans who will spend it.”
In that case, I strongly suggest that he himself come and take it away from me! When the hell did saving money become a crime?
I_S
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4th August 2012 at 10:06 pm
ThePessimisticChemist says:
@IS – It isn’t, Comrade. Its just punishable by prison for not giving it to those who need it more!
You would think the downfall of the USSR would have taught us a lesson, as if we needed a current example of this: Even the mightiest can fall.
Compared to the Brits, Romans, Chinese, Egyptians, or Incas we are nothing.
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4th August 2012 at 10:09 pm
Screech says:
In the mid-80s, I used to purchase music CDs from BMG International which had a corporate presence and shipping warehouse in Indiana. On each billing invoice which I received, Wisconsin state sales tax was applied to the purchase amount.
Something smelled about this so I wrote to BMG and asked by what authority they were charging me WI sales tax on my purchases. Their response was that they were required to do so by law regardless of their location.
I checked the WI statutes to see what I could find and found nothing. Ditto the USC.
I then called the state revenue office to see if BMG had any lawful presence in WI. Nope! I asked them if they had ever received any tax revenue from BMG. Nope, again.
Are you beginning to smell a rat yet? Don’t count on your state receiving more that a pittance from Amazon or eBay or any large online seller and then only after substantial litigation and political posturing. This proposed tax will be a corporate revenue fattener and nothing more. Oh, and more CEO bonuses, of course.
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4th August 2012 at 9:44 am