Laffer and the online sales tax, Pt. 2

posted at 9:31 am on July 21, 2013 by Jazz Shaw

Yesterday’s discussion of the Marketplace Fairness Act, as well as Arthur Laffer’s editorial on same, certainly sparked a lively discussion. It not only delivered a lot of feedback and links in the comments, but discussion on Twitter and e-mails coming in from interested parties on both sides. As promised in a later update, it proved very educational (at least for me) and I’d like to highlight a few of these for further discussion today. These include two of the most frequent points made in the forum here and two e-mails we received, one from a business owner and one from a rural, online shopper.

Item 1: This is a point brought up frequently by readers, but this particular comment seems to sum it up nicely.

I’ve never understood why internet sales taxes aren’t simply charged in the SELLER’s locality? Treat it as though the consumer is coming to the seller, rather than the somewhat more absurd notion that the seller is building a tiny little shop in each consumer’s living room.

This has the added advantage of letting states compete for big retailer employers by keeping their sales taxes low.
SoRight on July 20, 2013 at 11:42 AM

This is a pretty good argument, and honestly I can’t think of a single reason which contradicts it. An admittedly cursory search didn’t turn up anything which would make such a proposal illegal, but this may vary from state to state, so we’d need to check in with some legal experts. But essentially, this correlates to the fact that many people travel across state lines and purchase things. If there is a sales tax in that state, they pay it at the cashier, the state collects the revenue and the person later returns home with their purchase. How is the retailer supposed to keep track of the home state of every person coming in to pick up a box of diapers? They can’t. So why not treat online sales the same way? I suppose the governors are arguing that they aren’t getting their share of the tax revenue when their residents shop online from e-retailers who are based in other states, but what do they do now about people who cross state lines and shop? I understand there are limits placed on how many of certain items – such as cigarettes – you can bring home over state lines, but isn’t that a different debate?

Item 2: Some of our readers repeatedly brought up a constitutional question.

US Constitution, Art. I, Sec. 9:

No Tax or Duty shall be laid on Articles exported from any State.

Separate clause.
Passive clause.
It pertains to all governments in the US and all branches thereof.
It is not part of a State restrictive Section, either.
ajacksonian on July 20, 2013 at 2:55 PM

When I checked on this one, the argument seems to run into a few problems. Article 1, Section 9 is collectively known as the “Limits on Congress” section. Remembering that the document was written when the nation was envisioned as a looser collection of powerful, more independent states, it would seem that the Founders were concerned about trade between the states (much like trade between nations) and between the many states and other nations. It restricted Congress – i.e. the Federal government – from putting any form of duty or tariff on good “exported” from any of the states. The MFA doesn’t deal with a federal tax, but rather giving permission for the individual states to levy a tax. Now, my best constitutional sources found two cases where this clause was invoked, but they both dealt with exports from a state to a foreign nation. I’m prepared to be proven wrong if anyone has conflicting references, but thus far it looks like Article 1 Section 9 does not apply to the MFA or any state levied sales tax.

Item 3: Online retailers have expressed many concerns. Following is a response from one such person who contacted Hot Air after the original piece was published. Rick Smith is a small business owner and member of emainstreet.org.

$1 million in sales sounds like quite a bit but frankly, it isn’t. None of these family-run businesses I spoke with are in any position to retire. And these new burdens and costs are enough to put some under. Even Avalara, a major tax cloud services company has this in a whitepaper from a couple months ago: “Considering the already impenetrable maze of sales tax collection rules, businesses face an uphill battle this year. Sales tax compliance in 2013 requires more resources and expertise than most small to midsized businesses possess.” – Sales Tax Survival Guide 2013, Avalara. Page 1.

and the bill requires that free software which calculates the tax for other states must be provided for those complying“. Yes it does. But as one of our groups founders states “it’s free like a puppy is free“. Every state is free to choose any method of “free software” to provide. Costs of complying with this can’t even be fully computed by my small company now because even industry leader Avalara can’t actually handle our fairly simple setup. They can do very simple calculations for our Yahoo shopping cart, sure. But they can’t do anything with the other types of orders and all other business processes related to order processing. It’s far more complex that people state, and if they state otherwise they either are lying or just quite simply don’t understand business processes. There is no free solution here in the real world. Just in theory. The time and actual costs initially and every year are more than we can handle. It’s a gold mine for the tax providers.

More importantly, I’m terrified about the audits. We quite simply can not handle up to 45 states auditing us in any given year. Small business owners wear many hats. Responding to information requests and audits would become a full-time job and one we again, could not handle. MFA only holds a business owner harmless if the free state software computes something wrong.

This covers three different points, some of which also came up in comments. First is the definition of “small business” in this bill. I’m convinced. $1M in sales rather than profits is very different and it looks like it could sweep up a lot of struggling small businesses.

The software question is a bit more murky. There certainly is a lot of verbiage in the bill which seems to do back flips to ensure that the software is not only free, but able to provide the needed information for any sale to any state. But I take Rick at his word, particularly since each state will implement it differently and there are probably holes in those protective clauses you could drive a truck through. Again, I’ll defer to some lawyers on that one.

The last one, about the audits, though, seems to be covered pretty specifically in the bill.

implements each of the following minimum simplification requirements:
(A) Provide—

(ii) a single audit of a remote seller for all State and local taxing jurisdictions within that State; and
(iii) a single sales and use tax return to be used by remote sellers to be filed with the single entity responsible for tax administration.
A State may not require a remote seller to file sales and use tax returns any more frequently than returns are required for nonremote sellers or impose requirements on remote sellers that the State does not impose on nonremote sellers with respect to the collection of sales and use taxes under this Act. No local jurisdiction may require a remote seller to submit a sales and use tax return or to collect sales and use taxes other than as provided by this paragraph.

If Rick starts getting hit with 45 audits – or even two – it sounds like somebody in his state is breaking the law. But if I’m missing something in reading that code, let me know.

Item 4: This one deals not with sellers, but with shoppers, and comes to us from Rich Scheuerer of North Pole, Alaska. (Yes, there is such a place.) His concern is specific to rural online shoppers in states with no sales tax.

I have read your sales tax article at Hot Air and I am going to say that the little people in rural areas are going to get screwed big time. I live 6 miles outside the city of North Pole, Alaska (yes, there is a North Pole where Santa Claus and Kris Kringle lives year-round.). Alaska is a no income tax and no state sales tax state except for small city sales taxes. The city of North Pole has a sales tax which everyone tries to avoid by buying gas (the three gas stations charge $.30 more per gallon than Fairbanks and the two refineries are two miles away-another story) and food in Fairbanks 12 miles away. The problem is that the people that live outside the city of North Pole have the same zip code as the city of North Pole. Companies will practice zip code taxation on us and we rural outside the city limit dwellers will be illegally charged sales taxes. Even if the companies get software to identify tax areas, they won’t have a GIS/Google Earth component to identify non-taxable areas so we will get taxed. It will cost a lot of time and money to get our illegally paid taxes back.

Rich brings up a couple of interesting points, but I’m not sure his specific situation applies to the discussion of MFA. As I read this, the MFA will allow states to collect taxes on sales, not municipalities. If Alaska has no state sales tax, then they wouldn’t be able to collect anything from the e-retailers, would they? And, as such, the retailer would not be able to charge Rich a tax on the product at the time of sale. Or am I misunderstanding that part?

But this does tie back into item one above. If we were to change the concept of MFA so that the retailer simply charged everyone a sales tax based on the state where the seller is located, what of the people who live in states with no sales tax? I suppose this is the other half of the double edge sword from my answer to that item. It seems as if it would be treated the same as if Rich were to leave Alaska, travel to California (or wherever the seller is based) and buy something. Of course, this would discourage sales in states with no sales tax, but as so many of you have pointed out, any increase in taxes will result in some decrease in economic activity.

You are free to discuss.

UPDATE: (Jazz) I completely forgot one of the most cited comments in the original thread, which was meant to be Item 5 originally. My apologies. That was the point that Laffer’s argument of the benefits of the state collecting sales tax relied on the state also lowering income tax and other fees, producing a net wash of revenue while flattening the tax burden. This, of course, relies on the state actually lowering those other taxes to be true. And given our recent history, except in a handful of very conservative states, that’s pretty much a fantasy. I completely agree and acknowledge that, noting that I left it out of the original article entirely. The point was well made by many readers here.


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Kill the bill.

If an Internet Sales tax is to be implemented then item 1 is the only logical method.

Meat Fighter on July 21, 2013 at 9:38 AM

Frankly, there should be no sales taxes. There should also be no property or corporate income taxes. The only tax we should have is an income tax, preferably without credits or deductions, and it would be nice if it was more or less flat. But it will take a constitutional amendment to do any of that.

Count to 10 on July 21, 2013 at 9:44 AM

I’ve never understood why internet sales taxes aren’t simply charged in the SELLER’s locality? Treat it as though the consumer is coming to the seller, rather than the somewhat more absurd notion that the seller is building a tiny little shop in each consumer’s living room.

This has the added advantage of letting states compete for big retailer employers by keeping their sales taxes low.
SoRight on July 20, 2013 at 11:42 AM

….so right!

KOOLAID2 on July 21, 2013 at 9:49 AM

This is a pretty good argument, and honestly I can’t think of a single reason which contradicts it.

I completely agree.

Don’t know Laffer’s argument and haven’t read it…but maybe his economic point is in favor of a tax, period. Not hard to see, if that is the case, why Norquist is diametrically opposed.

Jaibones on July 21, 2013 at 9:52 AM

Large tax hungry central planned Democrat states like NY and California aren’t going to let retailers sell to their citizens without a cut. Sorry but that was what the Amazon sales tax battle was all about.

Viator on July 21, 2013 at 10:02 AM

As a small etailer, I can say this is a disaster in the making. I can barely keep up with my state paperwork now. We are a two person company and I do all the admin.

Filing 50+ sales tax returns per month would be impossible. While I am currently under the one million dollar sales cap, it won’t take long before they lower that cap. Once the states get the boodle they will want to expand it by using the “it’s not fair argument”. In fact when the law was first mentioned the cap was ten million dollars. It took a week to lower it to the current one million dollar mark.

The only way it would work is to use the sales tax in the state and locality where the etailer is located and that’s not what they are talking about.

Also, we deal with different marketplaces (ie Amazon, Buy.com, Ebay). How would I separate out the taxes being paid for goods on these marketplaces and the ones on my website? The customers who purchase through theses Marketplaces would be paying online sales taxes but not the ones ordering through my site.

I repeat, it will be a disaster for all small business etailers and would be our death knell.

ukgoods on July 21, 2013 at 10:03 AM

I have no sympathy here. Even small businesses have access to sophisticated marketing intelligence tools.

Figuring out sales tax isn’t that complex. All you need is a national database of sales tax rates by zip code. These databases exist, and even if they didn’t, could be compiled fairly easily. The only “hitch” would be for states that charged different rates for different goods–and that’s where the MFA could contain a rule saying that no special rate rules apply to internet sales.

What you have here is a ridiculous “sky is falling” display being put out there by internet retailers who don’t want to see their government subsidy taken away. Tax-free internet sales is corporate welfare, it’s harmful to brick & mortar retailers, and it’s time that it stop.

Outlander on July 21, 2013 at 10:07 AM

I have made Point 1 here before on this same topic.
It’s the only truly fair way to have an Internet sales tax as it treats brick and mortar stores and online stores identically.
Unless states are going to require brick and mortar stores to track the home address of all their customers and charge sales taxes based on where they live, the present proposal would treat online retailers differently and imposes a much heavier burden on them than any disadvantage currently placed on brick and mortar stores.
I would think it would run afoul of the Equal Protection Clause.

Curmudgeon on July 21, 2013 at 10:10 AM

Simply put, this bill should be called the “Large Internet Retailer and Big Business Protection Act”. As stated, the bill requires small internet retailers to have to engage some service to collect taxes in the multiple taxing entities across the country (and no, I don’t believe for a minute that county and municipal taxing authorities are excluded from this bill), therefore those small retailers are going to have to both collect taxes and charge shipping fees for everything they sell. Large internet retailers already need to do that because they (Amazon and Walmart especially) have established physical presence in most states. That gives them an advantage on the shipping side because they can use their internal infrastructure to ship merchandise within the states in which they have a presence.

States are definitely prohibited from charging sales tax on merchandise shipped across state lines, I don’t have the cite to court decisions, but this was firmly established in the mail order industry over a century ago. The constitutional question was to prohibit states from acting like European countries and charging excises on goods being shipped across state lines. This was one of the arguments for adoption of the Constitution and one of the failings of the old Confederation of States.

AZfederalist on July 21, 2013 at 10:11 AM

Outlander on July 21, 2013 at 10:07 AM

I take it from your comment that you’re an online retailer.

If so, it’ll be interesting to hear your experience on this issue.

If not …

PackerBronco on July 21, 2013 at 10:15 AM

But essentially, this correlates to the fact that many people travel across state lines and purchase things. If there is a sales tax in that state, they pay it at the cashier, the state collects the revenue and the person later returns home with their purchase.

In Washington State, Agents of the Stat prowl parking lots of Shopping Centers in Oregon (where there is no sales tax) to record purchases of vehicles with Washington State license plates.

That way when the purchasers get home purchase, they can get a nice letter from the State Department of Revenue for the Sales Tax they didn’t pay in Oregon.

jaydee_007 on July 21, 2013 at 10:18 AM

first of all I believe that sales tax should be applied at point of sale, wherever that is.
second if this becomes law be prepared for internet specific tax above the sales tax.

RonK on July 21, 2013 at 10:19 AM

Post updated (already) because I left off one of the points from my notes. In fact, one of the most frequently cited in comments and the one which is pretty much beyond dispute. I confess, I’ve learned a lot more from you guys on this subject than you ever learned from me. But it’s an important topic which will keep coming up, so we should all get up to speed on it.

Jazz Shaw on July 21, 2013 at 10:20 AM

I like the idea of collecting sales tax where the seller is located.

p0s3r on July 21, 2013 at 10:21 AM

What you have here is a ridiculous “sky is falling” display being put out there by internet retailers who don’t want to see their government subsidy taken away. Tax-free internet sales is corporate welfare, it’s harmful to brick & mortar retailers, and it’s time that it stop.

Outlander on July 21, 2013 at 10:07 AM

Excuse me?

This isn’t a ‘subsidy’ nor ‘corporate welfare’ this is a simple extension of what has always existed in interstate purchases. I gather you are too young to remember Mail Order Catalogs.

jaydee_007 on July 21, 2013 at 10:21 AM

Figuring out sales tax isn’t that complex. All you need is a national database of sales tax rates by zip code. These databases exist, and even if they didn’t, could be compiled fairly easily. The only “hitch” would be for states that charged different rates for different goods–and that’s where the MFA could contain a rule saying that no special rate rules apply to internet sales.

In my zip code, there are no less than four unique taxing authorities: state, county, and two different municipalities. My residence is in the county, therefore, I should only have to pay state and county taxes while others in my zip code would also have to include the sales tax for the specific municipality in which they live. The only way to get to that level is to have an address specific geographic database for applicable taxing authority. Such a database would not be static because various locations become incorporated into municipalities on a frequent basis. So no, this is not simple or straightforward.

What you have here is a ridiculous “sky is falling” display being put out there by internet retailers who don’t want to see their government subsidy taken away. Tax-free internet sales is corporate welfare, it’s harmful to brick & mortar retailers, and it’s time that it stop.

Outlander on July 21, 2013 at 10:07 AM

Ah, the old, “if it isn’t being taxed, it’s a subsidy argument. Yes, brick and mortar stores have to pay for their retail location and build that into the cost of their goods. On-line retailers have to charge shipping and handling. In most cases, that amount is usually equivalent to the sales tax that would be charged on the goods being purchased and is often more, so it really seems like pretty much a wash. Adding internet sales tax will make the online goods more expensive and provide an advantage to the brick and mortar stores.

AZfederalist on July 21, 2013 at 10:23 AM

TEA

Bmore on July 21, 2013 at 10:26 AM

Thank Gaia I don’t do any internet selling. If anything I enjoy trading labor for physical returns, such as a plow blade for a cow’s worth of beef, or custom fabrication in return for a piggy.

The worse the feds make it the more people who will find ways around these ridiculous tax schemes.

Bishop on July 21, 2013 at 10:38 AM

He is definitely a “laffer”

Art on July 21, 2013 at 10:38 AM

Build it they will come.

Tax it, they will go.

Here’s a slant…online businesses…how many are young people just starting out? Minorities who are trying to break into legit business…on their own…or retirees just trying to make it till the next retirement check?

The initial profit margins are slim..real slim…and working from your kitchen table is the only affordable option for a lot of people these days.

Anyway…there you are, a fresh out of high school or college Latino, or Black, or just some kid who has a good idea…and nobody is hiring…nobody.

Flip burgers or wait tables till something better comes along…maybe a promotion to floor manager? Master of the Deep Fryer…get 75 cents more an hour…wow.

Or you go online…and market yourself and your idea or skills or product and build a business.

One of the innovations as a business I have seen recently involves 3-D printed parts for all sorts of hobbies and avocations…the software is simple, the cost of 3-D printers is coming down…and folks will pay a good chunk of change for a unique part for their model railroad layout…1937 Cord 812 for your HO or N layout? As many as you want? Less than the price of those factory-made models from overseas? (Which either have generic models or a very small selection.) I’m looking into it myself…overseas folks seem to be willing to spend money…and online is the best way to reach them. Niche markets…yeah…find one, nail it…sew it up…make money.

I digress…sorry.

The point is, from Ebay to innovator-entrepreneurs just trying to make some money with their very own start up…online makes sense…and often, very often, leads to brick and mortar shops, and factories…build it they will come….a better mousetrap or the latest in gadgetry…or just unloading your grandfathers stamp collection one stamp at a time.

Try doing any of that as a start up and having to buy, rent,lease a building or office space, pay utilities, and licensing and permits of all sorts…and at the end of the day realize you are already hundreds if not thousands of dollars behind the eight ball…and why the hell didn’t you just keep that waitress job at the diner?

I thought the whole point in this day and age was to encourage growth, encourage job creation, encourage the flow of capital…

Build it, they will come.

Tax it, they will go.

In the middle of the longest recession in our history, seems driving more and more people into welfare and dependence on government is a sure way to make that recession permanent.

Lighten up on the taxes…it’ll improve the lot of everyone over the long run.

coldwarrior on July 21, 2013 at 10:38 AM

He is definitely a “laffer”

Art on July 21, 2013 at 10:38 AM

Yes, who is he, to even suggest a tax increase, despite any notion of fairness about it? Just another statist economist.

rickv404 on July 21, 2013 at 10:45 AM

Nice work, Jazz.
I work for a small on line retailer and this puts her out of business. Unless, it is where the seller is located because there is no sales tax here. In the meantime, she is on pins and needles about the future.
This is another money grab by the insatiable beast that is government, IMO, but I understand the argument.

ORconservative on July 21, 2013 at 10:51 AM

Outlander on July 21, 2013 at 10:07 AM

Wanna bet? When I still lived in S. Cal every locality had different sells tax rates based on local overrides. I am now in NE Arizona and the local area also has overrides subject to change every couple of years or sooner. That type of software would be expensive to develop and update. I know the law says free software but somebody has to pay for it.

chemman on July 21, 2013 at 10:51 AM

That is not a ‘free puppy’ they are giving you to comply with the INFINITE sales and use tax jurisdictions across the country.

As an SAP Business Analyst who has worked with Vertex, Taxware, etc., this is more like a ‘free hippo’.

The law needs to SIMPLIFY if you want compliance.

This will be a HUGE burden if not handled right, much like Obamacare.

KirknBurker on July 21, 2013 at 10:52 AM

Outlander on July 21, 2013 at 10:07 AM

You obviously have no clue what it takes to run a business.

Trolling? Or, are you a government worker? Or, maybe an employee of a large company with 50 full-time employees who handle nothing but US Sales/Use Taxes?

Get real.

KirknBurker on July 21, 2013 at 10:54 AM

If something like this is done at all, it should be one rate from the origin to simplify greatly the compliance.

You cannot expect small businesses that sell over the internet to be f’ing tax experts. Most people have NO CLUE how complicated and messy it gets with US Sales/Use Tax.

Tax version of O-care is what it will be.

KirknBurker on July 21, 2013 at 10:58 AM

Each shopkeeper also has to remit the collected sales tax to the State on behalf of which they were collected.

45 new calculations every month, 45 new forms to fill out every month. And I’m sure that those forms are all very simple, no?

Every time we comply with the law, we get burdened with even more law. There is no end to it.

Kill the bill.

ss396 on July 21, 2013 at 11:11 AM

Item 3:

All you need to know is that the retailers that are pushing for or voluntarily charging sales tax (Looking at you Amazon) are doing so for a marketplace advantage. Item 3 highlights the difficulty small retailers will have complying with these 50 different tax schemes each with their own scheme within a scheme. This is a GM tactic. They never fought the unions because they thought the regulations hurt Ford more than themselves. Amazon wants a marketplace advantage and internet sales taxes will give it to them.

***Beware this could also be used to push for a “simpler” national internet sales tax. DO NOT LET THAT GENIE OUT OF THE BOTTLE

Theworldisnotenough on July 21, 2013 at 11:40 AM

In my state there’s no such thing as a state sales tax. Its local, by county. And the counties rates are always changing at random times. If all states are like this it would make the companies keep up with literally thousands of rates, not just 50 that can change on a daily basis. It’s a business op for somebody in software to keep up with this, but its inconceivable that it can be provided for free. What a mess.

Allahs vulva on July 21, 2013 at 11:40 AM

If Rick starts getting hit with 45 audits – or even two – it sounds like somebody in his state is breaking the law. But if I’m missing something in reading that code, let me know.

Excuse me, Jazz…

Harharharhahahahaha!

Ahem…

Bwahahahahahahahaha!

That’s a hoot, man! You actually trust government, at any level, to do right by the citizens?

Idiot.

gryphon202 on July 21, 2013 at 11:43 AM

Let me be real clear on something:

You can “break the law” in good faith, particularly as regards tax law NOW. If the IRS can audit individuals at its pleasure, which I think is all but beyond argument in any practical sense, why couldn’t the states do the same? Yeah, I’m looking at you California and New York. There are places where it’s already a living HELL to be a small business person, and the MUFA ensures that you don’t actually have to be a resident of those states to live in that hell. That states will lower other taxes isn’t the only false assumption Laffer is making here.

The reason that some of us are so skittish about tax increases and government malfeasance is that we’re proven right more often than not.

gryphon202 on July 21, 2013 at 11:47 AM

If we were to change the concept of MFA so that the retailer simply charged everyone a sales tax based on the state where the seller is located, what of the people who live in states with no sales tax? I suppose this is the other half of the double edge sword from my answer to that item. It seems as if it would be treated the same as if Rich were to leave Alaska, travel to California (or wherever the seller is based) and buy something.

I don’t know about other states, but Washington doesn’t require people from out of state to pay their sales tax when in Washington. You tell the cashier that you’re “tax exempt”, show them your out of state driver’s license, and then you or the cashier fills out a form that is similar to if you were returning merchandise. Easy way to save 8% on every purchase.

TeleL on July 21, 2013 at 11:54 AM

The problem with Item #1 is: what constitutes the seller’s locality? Is it where they’re incorporated? Where their physical location is? Where they ship from?

Which state gets to collect the revenue if those three things are different places?

How about a seller whose physical location amounts to a server outside the country because all they are is a website?

CrankyTRex on July 21, 2013 at 12:05 PM

The reason that some of us are so skittish about tax increases and government malfeasance is that we’re proven right more often than not.

gryphon202 on July 21, 2013 at 11:47 AM

I would change the above to “much more often than not!”

Laffer is a statist, big government tax person if there ever was one. He predicts that States will lower income taxes etc., if the internet tax is implemented. This will never happen. Yeah, Laffer was a Reagan advisor and the bad results of that are shown in David Stockman’s new book, “The Great Deformation.”

Look at Laffer’s track record on the 2008 financial crisis. In 2006 and 2007 he was arguing with Peter Schiff that there was no housing bubble or MBS problem in the financial services sector but when pushed by Schiff he was only willing to wager a penny that he was right. Of course, he was horribly wrong. Nothing that comes out of his mouth anymore is worth considering as the video link below makes quite clear.

http://www.youtube.com/watch?v=2I0QN-FYkpw

Falcon46 on July 21, 2013 at 12:16 PM

If states could charge their own sales tax on transactions for items that were being exported from that state to other states don’t you think they would have been doing that for all these years (which they haven’t and don’t). I think you need to ponder the question of why you can go to another state, buy furniture to be delivered to your home state, and not have to pay the sales tax at that transaction. There’s a reason why things HAVE ALWAYS BEEN THIS WAY and why no state has tried to charge in-state sales tax on such items. What has stopped them – every single one of them for all these years??? That’s a real poser for people who think that it’s nothing to just have states start charging in-state sales tax on EVERY transaction in that state, whether it’s shipped to another state or not.

While you’re bouncing that idea around you can also think about what it’s like to live in a nation where there is no law – just legislation and Executive dictats from some retarded Sukarno knock-off.

ThePrimordialOrderedPair on July 21, 2013 at 12:34 PM

Just wait until the “all-wise-and-powerful” taxocrats start withholding sales tax from your income and then you’ll have to prove you didn’t spend what was proposed you’d spend to get back the excess that was taken from you. It’ll be withheld from your other wealth, too, not just your income, because People do spend from savings or trade assets, etc. Nothing will be “safe”.

Got a credit card? A certain amount of that will likely be drawn from your account to cover some more sales tax withholding as well.

Am I out there in la-la land? No. Proof of the possibility exists today. It’s called income tax withholding. The income tax was put in place without withholding. Along came World War II, and in keeping with not letting a disaster go to waste, we were smote with a disaster that that won’t go away – income tax withholding.

Woody

woodcdi on July 21, 2013 at 12:44 PM

Get rid of all sales taxes. Shrink government accordingly. That is the only Conservative position worth taking.

echosyst on July 21, 2013 at 12:44 PM

I will support this tax grab in the name of “fairness” when Walmart (one of the big corporate sponsors) stops demanding (and getting) special property tax deals every time it opens a new store.

HTL on July 21, 2013 at 12:53 PM

I have worked with Brick and Mortor Retailers for years. When they sell a high ticket item to someone from another state,, like a Swiss Watch, the retailer can ship it to their residence and charge no sales tax from the state which the retailer is located.

The consumer is responsible to pay the tax in his/her state of residence. The consumer is to do this reporting and paying voluntarilly. This never happens and no tax is ever paid.

Therefore, it seems to me that state sales taxes ARE the responsibility of the buyer, not the seller. Thus the charging of the buyer in the case of internet sales.

PleaseFlyOver on July 21, 2013 at 2:03 PM

If Rick starts getting hit with 45 audits – or even two – it sounds like somebody in his state is breaking the law. But if I’m missing something in reading that code, let me know.

I think you are. At least with respect to what Rick’s concern really is. It has nothing to do with complying with the regs in his state. It’s complying with the other 49 states. And if he starts getting audited by other states, he’s dealing with a potential disaster.

My wife leads meditation workshops. She is based here in Maryland, and has lead courses in several other states. As a result, she has had to file taxes in each of those states. It is a difficult process, and she has to rely on her accountants to keep it really clean. Aaaand … she has had repeated issues with Illinois, dating back to … 2003, I believe. It has taken an enormous amount of time, and not a little bit of money paid to the accountants, to keep the IL state IRS from filing liens against her because Illinois can’t keep its records straight.

My wife has filed the proper forms countless times, demonstrating that she has paid what is owed. To no avail. And this is just for one year! Were she to go back there and lead more workshops, there is a real concern that more trouble would occur.

Now, map this onto what I believe Rick is arguing. Any e-business would have to be concerned with dealing with BS bureaucracies in every single state in which they make sales. This is not a minor issue by any stretch of the imagination.

The whole tax system needs to be completely trashed and rebuilt from scratch. With a big ol’ hat-tip to a Flat Tax as the fundamental principal driving the process.

Then the states can duke it out for collecting their own taxes. And the idea of collecting at the origin of sale, rather than the destination, is a great idea. Let the states compete for businesses by lowering their sales taxes and creating business-friendly environments. Totally makes sense to me.

nukemhill on July 21, 2013 at 2:15 PM

When I checked on this one, the argument seems to run into a few problems. Article 1, Section 9 is collectively known as the “Limits on Congress” section. Remembering that the document was written when the nation was envisioned as a looser collection of powerful, more independent states, it would seem that the Founders were concerned about trade between the states (much like trade between nations) and between the many states and other nations. It restricted Congress – i.e. the Federal government – from putting any form of duty or tariff on good “exported” from any of the states. The MFA doesn’t deal with a federal tax, but rather giving permission for the individual states to levy a tax.

By your argument Congress does not have the power to tax these transactions.

It does not, therefore, have the power to GRANT others to do so, either.

It is a PASSIVE CLAUSE and a standalone clause as well.

It does NOT say ‘Congress shall make no laws…’ but uses a passive voice. When there is not stated actor in reference to ANY government, then it is restrictive on all governments.

It is a use of the English language.

You may want to check out Nicholas Rosencranz on The Objects of the Constitution and The Subjects of the Constitution. The Framers knew how to use clauses, had good examples from English history dating back to Henry I and even before that to the agreements outlined in the Anglo-Saxon Chronicles… way before the Magna Carta which ALSO used passive and active clauses…

The Framers did not see fit to limit power references but utilized them throughout the Constitution and the Bill of Rights. Once you see a passive clause and examine other references to similar powers in the Constitution, then you begin to understand its structure as given to us by English language syntax. Now if only more people would bother to study the structure of the language… the Framers certainly understood it pretty well. The modern era? Not so much.

ajacksonian on July 21, 2013 at 2:22 PM

Thanks, Jazz, for the follow on the original post. I really appreciate your attention to the rebuttal arguments and your highlighting them in a post of it’s own. Good on ya.

Dusty on July 21, 2013 at 2:34 PM

bwahahahahahaha

When a new source of taxation is found it never means, in practice, that the old source is abandoned. It merely means that the politicians have two ways of milking the taxpayer where they had one before.

roflmmfao

donabernathy on July 21, 2013 at 3:18 PM

Item three is telling, and the math is simple.

What is your profit margin after everything is sorted?
2% isn’t out of the question is it? Several corporations make 2% on gross. It’s not optimal, but for a stay-at-home job done in your spare time it might be reasonable.

What is 2% of 1,000,000? $20,000.

You made $20,000 profit, so you must pay for your own tax software and implementation; you’ll need to hire a $50,000/systems operator to manage that.

OR just fold your company. That’s probably better. Letting people work for themselves is a problem; we have too many people making money and that’s hurting the economy.

gekkobear on July 21, 2013 at 5:38 PM

The only reason I can think of against point #1 of taxing according to seller’s location is that it’s not always straight-forward either. For instance, you can make a purchase from Amazon and they might send different items from different warehouse in different states. They might not even know which states they are shipping from at the time of your payment.

And of course many companies ship from warehouses that have not much to do with the business except simply storing the item. And some use drop-shippers. In fact if tax were to be levied based on sellers location, depending on how that is technically defined, I image the no-tax states would suddenly be full of storage warehouses, or company headquarters in name only, whatever it takes to define the “seller location.”

Which I’m not against, I’m just saying, it’s not all that easy to define either.

Also, is that pushing companies overseas? How would purchases from foreign companies be handled if we taxed based on seller location?

rose-of-sharon on July 21, 2013 at 7:48 PM

While Article I, Section 9, prohibits Congress to impose a tax on exports from any state, Section 10 of Article I basically does the same thing, i.e., prohibiting a state from imposing a tax on exports UNLESS it has been granted permission from Congress to do so. But, why would a state do that in the first place? All proceeds of such a tax beyond what that state would use for its inspection laws would go to the US Treasury.

Regardless, Congress does not have the power to make a blanket “grant of permission” to the several states. To grant such permission, a state would need to ask permission from Congress to collect such a tax to execute its inspection laws – which, in turn, the state would have to enact before asking Congress for that permission.

If anyone believes Congress has such power, please cite the Article, Section, and Clause.

Woody

woodcdi on July 21, 2013 at 8:25 PM

While Article I, Section 9, prohibits Congress to impose a tax on exports from any state, Section 10 of Article I basically does the same thing, i.e., prohibiting a state from imposing a tax on exports UNLESS it has been granted permission from Congress to do so. But, why would a state do that in the first place? All proceeds of such a tax beyond what that state would use for its inspection laws would go to the US Treasury.

Regardless, Congress does not have the power to make a blanket “grant of permission” to the several states. To grant such permission, a state would need to ask permission from Congress to collect such a tax to execute its inspection laws – which, in turn, the state would have to enact before asking Congress for that permission.

If anyone believes Congress has such power, please cite the Article, Section, and Clause.

Woody

woodcdi on July 21, 2013 at 8:25 PM

Ummm … we have to pass it before we know what’s in it?

*ducks*

nukemhill on July 21, 2013 at 10:01 PM

The last one, about the audits, though, seems to be covered pretty specifically in the bill.

Jazz Shaw: you are WRONG!!!!!

The bill says only one audit PER STATE!!!

You apparently did not read the proposed bill carefully enough.

Yes, the “ONE AUDIT PER STATE” is better than one audit for each of the (for instance) 1700+ taxing entities in Kansas and tens of thousands of taxing entities nationwide, but each state can still have its own rules regarding the items which are subject to tax (food? medicine? sales to schools? documentation required to be on file for exempt organizations? seller registration? etc, etc). This is a totally unrealistic burden for businesses to bear, so it will force thousands of small businesses to either move off-shore, or to close.

The ONLY MEANINGFUL restriction on audits would be a SINGLE entity which audits using ONE and ONLY ONE set of rules!! This will be impossible unless the seller’s home state is the single entity responsible for any such tax collection. “Destination Sourcing” is completely impossible to implement…even within some states: this stupid concept was created by greedy software vendors in cahoots with greedy rural municipalities which have little or no businesses which pay sales tax.

Please re-read your source material and correct your assertion about the burden of audits.

landlines on July 21, 2013 at 11:31 PM

I have no sympathy here. Even small businesses have access to sophisticated marketing intelligence tools.

Outlander on July 21, 2013 at 10:07 AM

You apparently have absolutely no business experience. There are no “sophisticated marketing intelligence tools” which solve this problem.

You probably are not aware of the huge number of issues involved in determining the sales tax: it is NOT SIMPLE!! Among these things are:
* You need to know the identity and taxing-entity classification of the item sold (food? medicine? other exempt items?)
* You need to know AND HAVE ON FILE the taxing-entity classification of the buying organization.
* You need to be registered with EACH state which levies a sales tax: there is no such thing as “universal registration”!
* The proposal lacks uniform reporting rules, so classifying sales of each line item by tax type, taxing entity, and customer exemption status and then reformatting it into the correct one of 50+ possible reports is a major, expensive problem.

And the proposal counts on ALL states having on-line tools to determine current rates: can you find one which does this correctly? Can you imagine an environment where all 50 states actually have all the rates correctly coded on a single day? Can you imagine how you would survive an audit in this environment?

Can you imagine even creating an interface which could automatically and seamlessly communicate with the correct state’s on-line tax software and return a usable result to a shopping cart without causing internet time-outs and/or buyer fatigue and resignation? If so, you need to talk to someone who actually implements real-world programs.

Third party software vendors are totally worthless unless they receive special exemptions from state audit rules, along with permission to sell these exemptions. This is not only unfair to all businesses, but will force all internet prices to increase: this is the real goal of the non-internet and large businesses who are pushing this horrible anti-consumer and anti-business measure.

landlines on July 22, 2013 at 12:05 AM

States will lower tax ratesis a “laffer”!!

landlines on July 22, 2013 at 12:22 AM

The last one, about the audits, though, seems to be covered pretty specifically in the bill.

If Rick starts getting hit with 45 audits – or even two – it sounds like somebody in his state is breaking the law. But if I’m missing something in reading that code, let me know.

Jazz: Your view is extremely naive!!

Are you aware that there are private firms which offer to perform audits on behalf of a state tax entity for a percentage of the recovery?? This makes audits much more likely and burdensome: it doesn’t matter whether Rick is breaking the law or not, because the ‘hired guns’ don’t care how many innocent businesses they disrupt.

In addition, states can demand filing and remittance each month: this turns this burden into 12*45 = 540 filings per year!!! This effectively doubles the Invoicing/Sale cost…making a huge number of small sales unprofitable.

Most of the folks driving this discussion need a remedial course in “getting real”!

landlines on July 22, 2013 at 12:42 AM

Y’all said “let it burn”. well just stand back.

it is.

WryTrvllr on July 22, 2013 at 1:53 AM

The only tax we should have is an income tax

Count to 10 on July 21, 2013 at 9:44 AM

No. And we’ve had this discussion before. You tax what you want to discourage. Why would we want to discourage income?

Tax consumption and create a nation of savers.

John the Libertarian on July 22, 2013 at 2:13 AM

Jazz Shaw,you are mistaken. The Marketplace “Fairness” Act expressly stipulates that *each* “STATE” may audit a small online seller once per year. Then it defines what a state is – it’s the 46 states that have sales taxes AND all U.S. Territories AND 500 Native American Tribes : over 550 different Departments of Revenue can audit a remote seller once per year (up to 550 audits annually) if a remote seller makes a single sale into their tax jurisdiction.

It is NOT one audit. It’s one audit PER STATE.

That fact alone deserves it’s own post at Hotair.

It’s OUTRAGEOUS.

SBABG on July 22, 2013 at 1:42 PM

This is crazy logic.
1. a state passes a sales tax on residents for transactions they make shopping with an in-state business
2. a state passes a use tax law on residents to make them pay a tax equivalent to a sales tax if they shop with a business outside the state.
3. a resident shops with an out of state business and doesn’t pay the use tax, nor does the state make an effort to collect the use tax
4. the state – instead of enforcing its OWN use tax laws on its own residents – goes to congress to compel congress to turn out of state businesses into its tax collectors.

If states don’t want to enforce their own use taxes, and it’s a big deal to them that their residents shop with businesses out of state, don’t set up financing through sales tax in the first place …

But to pretend that somehow it’s the remote sellers that are the scofflaws, or that this is a “loophole”?????

Why do we have to shred the constitution just because some states insist on sales tax financing and don’t have the political will to collect their own damn use taxes?????

SBABG on July 22, 2013 at 1:46 PM