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Political Hay
Here Comes the Internet Tax
What is the single modern invention most responsible for enhancing peoples' freedom and standard of living across the world? Arguably, it is the Internet. Yet, Democrats from revenue-starved states and Congress are proposing to make it less free by taxing Internet commerce. (Content regulation should be coming soon to a screen near you.)
This should not come as a terrible surprise. After all, the Internet was just too good, too free, too easy, too innovative, and too favorable to small businesses for government to stay away. So now, several states, and Congress, are considering laws that would require online retailers to collect state and local taxes from online consumers.
New York was the first state to pass such a law last year in defiance of the 1992 U.S. Supreme Court decision, Quill v. North Dakota, which held that retailers must have a physical presence within a state for that state to require sales tax collection. The decision, which was based upon the dormant commerce clause doctrine -- which essentially says that Congress’s power to regulate interstate commerce implicitly denies such power to the states -- upheld a bright line physical presence test. It also held that only Congress, through legislation, could delegate broader powers to the states.
New York's legislation attempted to end run around Quill by requiring online retailers to collect state and local sales tax if they had affiliate advertisers within the state. (It depends on what the meaning of physical presence is?) Affiliate advertisers basically consist of websites, often run by small businesses or organizations like the Parent Teacher’s Association, that carry advertisements from other online retailers, like Overstock.com or Amazon.com. As a result of the massive administrative costs that the law would have imposed, Overstock.com immediately terminated its relationship with approximately 3,400 affiliates. Jonathan Johnson, Overstock.com's president, explained that "New York’s law made the cost of doing business with affiliates based in New York prohibitively high."
Overstock.com and Amazon are now litigating the constitutionality of the New York law before the New York Appellate Division, but other states are considering passing similar laws in order to generate more tax revenue. Thus far, opponents have succeeded in defeating these proposals in many states where they have been proposed, although the Hawaii and Minnesota legislatures recently passed Internet sales tax bills that still must be signed into law. However, the real fight appears headed for Congress, where proposed legislation would allow states that are part of the Streamlined Sales Tax Project (designed to simplify state tax collection) to force online retailers to collect state sales tax.
As part of the growing co-dependency of big government and big business, the National Federation of Retailers supports the tax, since it would significantly burden pesky online competitors who provide consumers with lower priced products. And proponents of the proposed federal law argue that it would not significantly increase the burden of online retailers to collect state and local taxes. However, despite the Streamlined Sales Tax Project, online retailers could still be forced to collect taxes under thousands of separate tax regimes -- something that would be technologically difficult and very expensive for many smaller online businesses.
Currently, consumers who purchase online products are required in
many cases to report those purchases and pay sales tax on their
own. Of course, most do not. And the high rate of non-compliance
should raise questions about the entire sales tax regime as it
exists, especially
vis-à-vis the Internet, which has been a boon for
smaller businesses and consumers.
It is simply too administratively burdensome to require businesses to become agents for local and state tax collectors all across the country. Similarly, it is as ridiculous to expect consumers to monitor and report online purchases as it is to expect babysitters to report their income to the IRS.
If the government wants to impose a sales tax on consumers who purchase products online, there is a simple, fair, and efficient way of doing so: pass a federal FAIR Tax law that establishes a uniform consumption tax rate in place of the current income tax regime. Doing so would balance administrative feasibility with the need for government revenue, without destroying incentives to do business.
That, however, is not happening in the current political environment. They always say freedom isn't free. Lawmakers throughout the country are once again proving that adage accurate.
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billy mathews| 5.27.09 @ 6:32AM
Dr. Zaius: Have you forgotten your scripture, the thirteenth scroll? "And Proteus brought the upright beast into the garden and chained him to a tree and the children did make sport of him."
DAVID, that's enough. Mommy says you have to come to the bathroom RIGHT NOW and take your meds and enema. And stop worrying about the internet tax!
Melvin| 5.27.09 @ 6:53AM
David Mathews, did you forget to take your Ritalin this morning?
Darin| 5.27.09 @ 7:39AM
The law of unintended consequences warns that this could be like killing the goose that laid the golden eggs.
Would companies be motivated to move all operations (including distribution centers) overseas (not sure if these would be subject to taxation if the company is completely foreign owned and based)? Would having items shipped to a Post Office Box (which by definition can be a non-permanent address) be tax exempt? What about shipments to APO and FPO boxes (used for military stationed or deployed overseas)? I'm sure there are other questions/concerns as well.
Robert Rosencrans| 5.27.09 @ 7:56AM
Don't forget that the internet is one of the greatest exchanges of ideas and political commentary. All the more reason for governments worldwide to crush it.
ds80| 5.27.09 @ 9:08AM
I see that David Matthews is masturbating again.
Old Texican| 5.27.09 @ 9:37AM
OK Guys: QUIT WHACKING THE PINA'TA!
(Grin)
Its all about government controlling everything and everyone, guys.
Oh...and taxing hell out of it/us along the way.
Scott Peterson| 5.27.09 @ 10:07AM
I am the Executive Director of the Streamlined Sales Tax Governing Board. Our primary goal is to determine how to make sales tax adminstration less of a burden for the businesses that have to collect the tax. We asked businesses what makes sales tax administration complicated and we have created solutions for those complexities. This article makes it sound like the Internet created this issue. That isn't true. This has been an issue since the sales tax was created in the 1930's. Every person who shops downtown and pays sales tax supports their state and local government. Every person who shops by catalog or on the Internet, isn't charged sales tax, and doesn't self report their use tax, takes advantage of their law abiding neighbors. If the Fair Tax were created Congress would have to create a brand new agency to administer the tax, keep the IRS, or ask states to collect the tax. It seems obvious that using the already state system is the smart solution.
Matt Morehouse| 5.27.09 @ 10:25AM
I own a small publishing Company. We sell a lot of books and other products on the webnet. We collect sales tax on California sales where we are located. To force us to collect for every other Armpit location in the nation would severely limit our business. I can see why the big retailers are all for it, but I hope for the good of most that this idea does not pass.
Geoff| 5.27.09 @ 10:36AM
A note to Mr. Matthew’s, I have read your post for quite some time and I have a challenge. How about adding something to the discussion, maybe something compelling instead of the consistent liberal lack of content comments and insults you are so noted for. If you want to show your parties correctness make an argument that changes our minds or at least makes us consider our positions.
Alice Moore| 5.27.09 @ 10:38AM
I think it is only a matter of WHEN not IF an Internet sales tax is made law. I think it's wrong; of course. Many sites such as WalMart.com already charge state sales taxes.
Sales on the internet actually helps to improve the qualityn of bricks and mortar business establishments.
A national sales tax in place of the income tax? Bite your tongue. Knowing the gov't they will do the former but keep the latter in place. The sales tax, which is regressive, would collect revenues from the 40% that pay no federal taxes. It's a political winner since the tax is collected at the point of sale. The business is resented and not the government.
Pingback| 5.27.09 @ 11:26AM
Here Comes the Internet Tax | links to this page. Here’s an excerpt:
Lu| 5.27.09 @ 11:26AM
Big business together with Goverment likes sales taxes via the internet. Revenue for Goverment and getting rid of small business's that are competitionfor the lager companies. That is why most large companies support the Dems. They are into more regulations and taxes that hurt small and start up companies. Time for revolution.
Keith| 5.27.09 @ 11:45AM
States should enforce existing Use Tax law before writing new law to overwrite failed policy. The solution is simple. details here: http://dumbdog.freeyellow.com/blog/?p=62
The burden of use tax collection should be on the consumer, not the merchant. Of course, Legislators do not wish to have additional wrath from consumers. They, after all, do want to be re-elected.
The SST proposal is complicated and does not address all of the concerns of small business. It too, is bad law.
Oh, and Retailers complain about online sales? There is nothing in the rule book that prevents them from selling online as well. They, like me, would continue to collect Sales Tax for in-state sales. Sales from Out-of State? Not my problem. Tell those States to enforce existing Use Tax law.
------
FAIR Tax -- no one has addressed FICA taxes, that is not in the proposal, so IRS will continue to stay and be prosperous.
Gill O'Teen| 5.27.09 @ 12:46PM
Since Al Gore invented the internet, does anyone know whether or not he has spoken on this issue? Shouldn't we let its creator decide?
Joe| 5.27.09 @ 12:52PM
The press is reporting 3400 Overstock affiliates but the real number is only less than 200 people are effected. see below
http://blog.affiliatetip.com/archives/geekcast-19-tough-love-for-overstockcom/
On May 26 @ 12:52 pm Patrick M. Byrne said
Hey Folks
I heard your podcast. At the risk of being cheesy: Thanks for taking them time to comment. But you make some assumptions that skew your analysis.
1) Yes, we formally have 3,400 New York-based affiliates. Less than 200 of them are active.
2) As far as our commitment to affiliates goes: Years ago we adopted a “war of the fleas against the elephants” strategy, and it has worked. We are fanatic about our affiliates. We have won various awards from LinkShare's affiliate network for being the best merchant, best program, etc. When Amazon dramatically tightened the terms of their affiliate deals a year ago, we hung in there with ours. Affiliates often tell me that we are the best merchant they deal with, and squeeze the most value for t hem out of their traffic stream, etc.
3) You make a big deal about us being publicly traded. That has nothing to do with anything. None of our decisions are based on what Wall Street is going to say. It does not enter the calculations.
4) The math is pretty simple.* Suppose (hypothetically only) that we expect doing about $60 million in sales to New York residents this year. If we have to start collecting New York taxes, that is about $5 million we'd have to collect (put differently, it is $5 million in additional costs we'd have to bear or pass on to consumers). Our New York affiliates will generate considerably under $10 million in revenue, and $300,000 - $500,000 of net benefit (gross profit minus the fees we pay to affiliates). Should we in one hand absorb $5 million in additional costs in order to rescue in the other hand $300,000 - $500,000 of benefit?
You may view that as just a cold-blooded corporate decision, but come on. The New York legislature passed a law that (besides being unconstitutional) made it highly uneconomical for us to keep alive our affiliate program in New York. They imposed an additional $5 million cost on us (or our customers) that we would have to absorb in order to save a business providing a few hundred thousand dollars of benefit. Of course we feel badly about it. The affiliate world has been good to us. But legislatures cannot go around imposing costs and not expect people to respond by changing their behavior.
Respectfully,
Patrick
* This math was explained for illustrative purposes only. No actual prediction of Overstock's results are intended. Please see our most recent press release for all the lawyers' disclaimers.
Nonnie Mouse| 5.27.09 @ 12:59PM
Dave Matthews,
Your deformed personality and ugly negativism is such a bore. Why not retire to your corner like a good toddler until you drown in your own bile? There must be a website somewhere that will make you feel more comfortable. You sure don't add anything to this one.
Tim| 5.27.09 @ 2:31PM
Soon the only people left in New York will be laid off people and rich Politicians.
Phil Stevens| 5.27.09 @ 4:24PM
You definitely will have a sales tax, VAT tax - call it what you will. The government is addicted to our money and they want their share of all those Roth IRA's and tax exempt bond interest that the boomers are and will be starting to collect.
Stan redmond| 5.27.09 @ 7:04PM
I recommend moving your business over seas. I love India.
Pingback| 5.27.09 @ 7:30PM
Who’s ready for the internet tax?! | MT Pundit links to this page. Here’s an excerpt:
Pingback| 5.27.09 @ 8:43PM
Here comes the Internet Tax - schachterrific! links to this page. Here’s an excerpt:
TS| 5.27.09 @ 10:30PM
I agree.. Move overseas... That is the only way we will ever wake up these morons who run our government now. I would love to watch them squirm as they try to figure out how to keep hardworking taxpayers from leaving this country. They obviously couldn't pass a law fast enough to stop it. It takes a year for them to decide to use the restroom in committee.. Total stupidity.. We have the inmates now running the asylum and I will be in the first group to leave.. Screw 'em... I'm over it....
Pingback| 5.27.09 @ 10:36PM
The Internet Tax links to this page. Here’s an excerpt:
Webmaster Ultra| 5.27.09 @ 11:13PM
Lord, I hope this tax never gets enacted at the federal level. Even if just a small percentage tax was passed initially, you just know it would grow over time. Another nice way to burder taxpayers and kill some businesses...
Big J| 5.27.09 @ 11:20PM
Keith,
Yes, the Fair Tax does address FICA: it abolishes it!
While sales tax administration is somewhat of a burden, try administering FICA, Social Security, Medicare, Self Employment and corporate taxes while dealing with sales tax. It ain't so easy, bro.
The Fair Tax does away with ALL of the above, and actually increases revenue. How? All cash businesses like drug dealing, the service industry and the like actually pay for a change, not just the honest guys that report. Yes, there will still have to be an agency to collect and monitor, and yes, businesses will still bear the burden of collecting, reporting and remitting. Being self employed, I would love to just deal with one agency, one report, one remittance, and no match. Employing people comes with a price under the current system, and don't forget: the consumer pays the taxes in the end, anyway.
It shouldn't be surprising that the federal government, along with many state governments are looking under any mattress they can find for revenue to feed their insatiable appetite for OPM (other people's money). The bill is coming due, and a lot of people aren't paying up.
At least they haven't showed up with the iron pipes yet (yet).
Pingback| 5.28.09 @ 8:32AM
No Runny Eggs » Blog Archive » If it moves, tax it, e-commerce edition links to this page. Here’s an excerpt:
Pingback| 5.28.09 @ 1:43PM
Twitted by AvalaraSalesTax links to this page. Here’s an excerpt:
David Campbell| 5.29.09 @ 7:01PM
FAIR or VAT taxes are not the issue to discuss here - Sales Taxes are. The very foundation of our country relies on taxation WITH representation. The Federal Government does not (and constitutionally cannot) decide how much money we need in my precinct for police, fire, schools, or other local projects - we do, at each election.
When YOU vote to increase funding for local projects, YOU are voting to increase YOUR local sales taxes to pay for those projects. When YOU buy something from an online retailer that is NOT collecting and remitting local sales tax (as they would if you were at the your local store), then you *should* report and remit the equivalent use tax for that item - most people don't. Instead of expecting consumers to take this extra step for every online purchase, internet sellers should simply charge and remit those sales taxes, just as regular local businesses do. Several options are currently available to enable internet sellers to rely upon automated tax rate lookups. At Fed-Tax.net we are in the process of preparing just such a system as well - with some major enhancements which we cannot divulge publicly...yet.
Remember, these are YOUR taxes that YOU voted for to support YOUR local police, schools, and other local projects. It is simply time to do the right thing, and ask your online stores to collect the taxes you know are needed in your community.
Lucifer| 5.30.09 @ 12:25PM
Joshpe you are a jackass. You just split hairs and talk shit. Lawyers are for any financial burden upon the populace because that means they can consfiscate your property when you"default" . Lawyers are traitorous scumbags and when the mob wakes up, they will eat you for lunch, even tho you are all swine; not kosher. You lying unAmerican commie marxist piece of shit.
People dont listen to this fuckhead he IS part of the problem and NOT the solution.
Ray| 5.31.09 @ 11:14AM
"Every person who shops by catalog or on the Internet, isn't charged sales tax, and doesn't self report their use tax, takes advantage of their law abiding neighbors." What neighbors are you referring to? You seem to have forgotten that the local sales taxes are used to provide the funds necessary for a city to provide the infrastructure a local business requires to operate. This means physical property, roads, utilities, and right-of-ways for the business that is physically located in that city. The online retailers, on the other hand, have no such local infrastructure requirements as they are not physically located in every city where they sell their products. Sop, where's the justification for charging sales taxes to a product who's retailer isn't even located in the city where I bought the product? You sure can't use the "unfair' argument, unless you think it's unfair for a retailer to sell products to a customer who's not located in the city where the products are physically located.
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