A level playing field? Or scorched earth?

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So, is this a fairness issue- or one designed to augment the coffers of the states?  Many local vendors complain that their markets are jeopardized because they must charge sales tax, while the same products delivered from Amazon are tax-free.   Many states see the revenue potential from taxing Amazon (and other internet company) sales in their domains and salivate with glee.

This concept is nothing new.  I remember when the issue was Quill (Quill v. North Dakota, 504US298, the Supreme Court, 1992) , the office supply catalogue store.  Every office supply shop across the nation was distressed because Quill offered small businesses products at prices 10% to 20% below their offerings- plus, their sales were free from sales tax.  To be honest, most (all?) of the local vendors never had the intention to even come close to matching Quill’s price- but the states were anxious to collect their revenue.

The interesting thing about the Supreme Court ruling- which held that a company needed a physical presence in a state to be subject to its sales and/or use tax- was that it added that Congress could pass legislation that would overrule this decision.  Which is exactly what it being considered now.

So, now the House (Marketplace Equity Act) and the Senate (Marketplace Fairness Act) have prepared bills to let states collect sales taxes.  (I do find their names interesting… I might have been tempted to call the bills the Amazon Tax Act.)  And, we are talking big bucks- just for DC metro area (MD, VA, DC), there will be some $ 800 million in additional tax revenue.

While our elected officials can wax eloquent about the fairness issue, we should recognize that many online vendors already have local presences and DO collect taxes.  Walmart.com, Netflix, among others, understand that their corporate parent’s presence means they are subject to the sales tax collection statutes that obtain.  Overstock and Amazon are two entities that have felt untouched by the states’ complaints.

But, given the realities of revenue shortages in the states, Amazon recognizes that the battle is all but lost.  It has carried the value, convenience, and choice argument just so far in its battle with the states.   So, it is building infrastructure in local states, warehouses for its popular products, that will afford it the ability to deliver the products in a day- instead of shipping from further distances.  In so doing, they feel their slightly lower price, more complete “showroom” (pictures and descriptions on the web), even with the newly added sales tax collection, will be able to maintain sales and almost satisfy the “instant gratification” we feel when we buy a new product at a local store and walk out the door with our purchase.

Sales Tax Reporting Fine

The real issue is going to be how vendors who sell products over the net will be able to juggle some 1000+ local sales rates, collect and segregate the funds, and fill out the local paperwork to submit the taxes to the authorities.  (It’s not just state sales taxes, but local sales taxes that require compliance.)  That is why the federal bills have some cut-offs to (partially) absolve the smaller vendors from compliance.

We don’t know which version will win out, though.  The House bill exempts those firms with less than $ 1 million in sales- and (or is that “or”) less than $ 100K in a given state.  The Senate bill has a single cut-off of $ 500K.

There also are different execution steps between the bills.  The Senate bill will have taxes collected based upon the local sales taxes.  The House bill makes this but one of three choices for the 50 states and DC, adding a minimum sales tax collection for all residents, and a blended rate that “averages” the sales taxes collected by all the localities within the state as three choices for states to deploy when enacting their internet sales tax collection efforts.

The fun begins…Roy A. Ackerman, Ph.D., E.A.

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6 thoughts on “A level playing field? Or scorched earth?”

  1. You make a great point about the challenges of local jurisdictions, Roy. This is already in play in NYS with, I believe it’s 57 different county jurisdictions, all having their local sales tax rate to calculate into product purchases. Even the accountants can’t keep track of it. I don’t think consumers are going to be screamed about being taxed but do feel some consideration needs to be weighed concerning the onerous paperwork and bookkeeping requirements placed on the smaller entities.
    Nanette Levin recently posted..Newsweek throws in the towel on print edition

    1. OK, you like milk, Jeffrey…
      Seriously, though, it is an issue. Citizens are skirting their requirement to pay taxes to pay for things. Believe it or not, most states already have laws on the books that require citizens to pay taxes on items they bought out of state and did not include sales taxes (which is why they are legally called sales and use taxes.) I remember when my ex- got nailed by Virginia to pay tax on some furniture she bought in North Carolina and got shipped in. (I know, not many people voluntarily pay these taxes.)
      The crux of the matter is to have a company- large or small- determine all these local and state sales taxes on each sale and then send them in. I think- given the desperate desire of the states to collect money- is to have each state determine a minimum sales tax. (One that is logical. New York State can’t pick 10%, which only obtains in NY City.) Then, each company collects the proper tax for the 50 states and sends in ONE FORM with all 50 states sales on it and ONE CHECK. This goes to the IRS who then collates the funds quarterly (which is how often the forms are required to be sent) and delivers same to each state,subject to a 2% collection fee. The state then appropriates the funds locally, per whatever political formula they wish to employ (i.e., it will never be logical, just political.) Much less paperwork for companies. And, everyone gets money.

    1. I am positive that Amazon has the computer programming capabilities- and the software- to make this an automatic occurrence.
      It’s the guys whose sales range from 500K to 25 million that are going to be swamped with this plethora of forms, formats, and filing dates, Ann.

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