To Tax or Not to Tax "To tax, or not to tax, that is the question." Internet 'tax free' shopping is under assault again in the US, as a coalition of state politicians, large retailers and tax collectors attempt to persuade Congress that online retailers should collect out of state sales taxes. The premise is simple: bricks and mortar retail outfits are legally obliged to collect sales tax for their state governments. When residents shop online or via out of state mail order they are supposed to declare the goods and pay over the tax themselves. I'm sure you won't be surprised to hear that few do! California's Board of Equalization calculates that the state lost US$1.34 billion in 2003 (US$208 million attributable to online sales) because of this. Of course, these are only estimates, and it's difficult to say to what extent they are exaggerated. What does seem to be the case, though, is that sales taxes have declined by 6.1%, according to a recently released Rockefeller Institute report. This drop is for the fourth quarter of last year compared with the previous year. That's the worst for 50 years. Of course, not all this decline is attributable to online shopping - far from it. One of the key drivers of the decline is the recession which has hit sales of consumer durables - new cars, washing machines, cookers, even TVs. As people get worried about losing their jobs or taking income cuts they put off new purchases until times are better. However, sales taxes are the second largest source of state tax revenue, and state politicians are getting more than a little agitated about their declining income stream. Of course, none of us actually like paying taxes, but we have to pay for the things we jointly use, like highways and other state facilities. Interstate trade is, by law, the provenance of the Federal Government. State legislators, and the large bricks and mortar organisations, who feel they are at an unfair disadvantage, have been lobbying for over seven years to have Congress pass a law that will oblige out of state retailers to collect sales taxes for the state in which the purchaser lives. So what's the problem? Complexity - the sheer complexity of collecting the taxes. It's not just that there are 50 different states, each with its own tax rates and rules on what should be taxed. In fact, there are more than 7,000 tax agencies setting the rules and collecting taxes. No, I didn't accidentally add a zero, that number really is seven thousand. In fact the situation is so complex that the tax authorities can't even agree on the definition of a candy bar! Last time they tried to define it they came up with a definition that would make Girl Scout peanut butter cookies be defined as candy, but Thin Mints and Caramel deLites would be classified as food. What a mess. So far, the online retailers like eBay and Amazon have been able to use the complexity argument to scotch all the previously proposed laws. To counter this the states have come up with a concept called the Streamlined Sales Tax Agreement, first proposed in 2002. The problem is, according to the online retailers, the 'simplification' is far from simple. They feel that the states have really made no attempt to simplify things and are trying to barrel legislation through Congress, using the financial crisis, before Congress realises that they've failed to simplify the tax. The net result is that both sides are squaring off for another round of this long running fight, with Congress as the referee. "Seconds away, round seven. Ding!" Originally published in Winding Down 26 April 2009 |
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