Skip to comments.Republicans Join Democrats Supporting Colossal Tax Increase
Posted on 03/15/2012 4:16:34 PM PDT by Iam1ru1-2
Lamar Alexander and Dick Durbin, the Tax Tag Team
"Invention is continually exercised, to furnish new pretenses for revenues and taxation. It watches prosperity as its prey and permits none to escape without tribute." --Thomas Paine (Rights of Man, 1791)
Under cover of the Republican Presidential Primary debates about how to defeat Barack Hussein Obama's socialist agenda and his plan to fund the final chapter of that agenda with enormous tax increases, Sen. Lamar Alexander (R-TN, no relation!) and Sen. Dick Durbin (D-IL) have teamed up to promote one of the largest tax increases in U.S. history -- a heavy levy on all Internet sales.
The so-called "Marketplace Fairness Act" S. 1832 was first proposed in November 2011 by Sen. Michael Enzi (R-WY), and now awaits action in the Committee on Finance. (And you thought all that "fairness" rhetoric was limited to leftists promoting Democratic Socialism.)
Some otherwise erudite conservative senators, such as my friend Bob Corker, have joined Alexander in this errant folly. They are backing the Republican version of the legislation because it is allegedly better than the Democrat version. For the record, I do not consider that to be a legitimate selling point.
Before explaining this enormous tax increase, allow me to provide some insights demonstrating how detached Lamar is from marketplace reality and how he became so disoriented.
I once admired Lamar, an affable and intelligent fellow whose successful 1979 gubernatorial campaign trademark was his folksy grassroots plaid shirt. After a couple of terms as governor, he accepted an appointment as Secretary of Education from George H.W. Bush in 1991. In that role, he unfortunately supervised the expansion of that department rather than its contraction as proposed by Bush's former boss, Ronald Reagan.
Predictably, after Lamar's move to Washington, he progressively lost touch with his grassroots base and began a slide into the mediocrity of Republican moderation -- which often renders its adherents ideologically indistinguishable from their Democrat opponents. I diagnose this condition as Chronic Potomac Fever, which infects too many well-meaning Republicans after they take up residence inside the Washington Beltway.
By 2002, Lamar had become a card carrying "establishment Republican." After his well-funded but narrow primary defeat of a strong conservative, Rep. Ed Bryant, Lamar went on to win the Senate seat vacated by Fred Thompson. To the detriment of conservatives and our Constitution, Lamar was elevated to Conference Chairman of the Republican Party from 2007 until 2012. However, given the influx of conservatives into the House and Senate ranks in 2010, Lamar announced his resignation, noting he was "stepping down from leadership to regain my independence."
The day after Lamar announced his support for the Internet tax, he sent me this explanation -- which aptly demonstrates just how disconnected he has become.
"This bill is about states' rights; closing tax loopholes that basically subsidize out-of-state businesses at the expense of Tennessee businesses... Today, if you buy boots from a store in Nashville, by law the store collects the sales tax you owe and sends it to the state to pay for our roads, schools and other services we ask the state to provide. But if you buy the same boots online from a company outside Tennessee, that company doesn't collect the sales tax you owe the state. ... That's not right. If businesses are going to fail or succeed, it should be based on the services they provide and the price of their products -- not on whether a company can successfully avoid collecting sales taxes that their Tennessee competitors can't get around collecting."
Memo to Lamar, et al.
I replied to his contorted and disconnected marketplace reasoning with a reality check, noting first that under our present Constitution, if I purchase a product from another state, it is NOT subject to state taxes in my state of residence unless that vendor has a retail presence in my state. That has been the standard for interstate commerce for generations, whether placing orders by mail, by phone or by Internet (Quill v. North Dakota regarding the latter).
Thus, suggesting that I "owe the state" sales tax when I purchase a product from another state is patently false. (Of course, some states endeavor to circumvent the sales tax exclusion by implementing "use taxes" -- without much success due to the ludicrous complexity requiring that citizens track and report every purchase when filing state tax returns.)
Further, it is absurd to suggest that the "boot purchase" example -- avoiding sales tax -- is the force that drives online sales. In some cases, people will go into a retail outlet, find a product they like, and then search online for a better price. I believe that is morally wrong. (And in regard to Sen. Alexander's laudable desire to support local businesses, those boots were probably made in China or India.)
The vast majority of Internet sales are driven by product, price comparison and convenience -- old-fashioned free enterprise competition -- not by short-circuiting a local vendor's sale to avoid sales tax. In fact, many items purchased on the Internet may not be available in a local market.
As for Alexander's assertion, "If businesses are going to fail or succeed, it should ... not be on whether a company can successfully avoid collecting sales taxes that their Tennessee competitors can't get around collecting," again, this is a false premise. The shipping cost on a pair of boots purchased on the Internet is likely to be as much or more than the sales tax on the same pair of boots, if purchased locally.
Moreover, given the high price of fuel and the fact that a critical percentage of the fuel we use is imported from the Middle East, not only do Internet orders conserve fuel and preserve our environment, they promote national security.
For example, if 1,000 people in a single ZIP code place 1,000 Internet orders, the majority of those orders will be delivered by a common carrier in that ZIP code. In other words, a couple of FedEx or UPS trucks making multiple deliveries in one ZIP code is far more energy efficient than 1,000 consumers driving to multiple locations endeavoring to make those purchases.
The fact is, the Marketplace Fairness Act is really about generating billions of dollars in windfall taxes for state governments, many of which are as bloated and inefficient as the federal government and therefore just as bankrupt. If Lamar wants to implement an enormous tax increase and stifle free enterprise, then he should call it what it is, rather than obfuscate his motivation by claiming lofty rationales such as "states' rights."
The bottom line is, conservatives should opposed any tax increase, opting instead to cut federal and state government spending, most of which is not supported by the constitutions of either. Moreover, any tax increase that is not revenue neutral should be flatly rejected by even the most dullard of establishment Republicans.
In other words, if Sen. Alexander is going to support an Internet sales tax on Tennesseans in order to "level the playing field," he should also support an equal reduction in the overall rate of sales taxation to offset his tax increase.
PS: If you are curious as to why online behemoth Amazon.com supports the Internet sales tax measure, it is because Amazon already has locations in many states, meaning Amazon sales in those states are already subject to sales tax. But Amazon's support is more sinister. Determining, collecting and delivering state and local sales taxes on every purchase massively increases transactional overhead for small businesses that compete with Amazon. But Amazon is positioning itself to "rescue" those poor little businesses by processing all their transactions -- in return for substantial surcharges on the taxes collected, of course. Caveat emptor!
Deus et Constitutione Libertas aut Mortis! Semper Vigilo, Fortis, Paratus et Fidelis!
Mark Alexander Publisher, The Patriot Post
A purchase that did not occur in the state is not taxable. Do I have to pay a tax to bring my property across the state line? The answer is NO.
You and your ignorant fairness need to go away. You are no conservative.
It’s a sales tax. The state doesn’t ever do anything to “produce” “revenue”. They TAX people, in order to fund programs that are instituted by elected representatives of the people.
The state is a necessary evil. There are legitimate functions of government which must be performed at the state level, and the state must collect taxes to pay to implement the laws passed by the legislature.
I’m pretty sure that you aren’t opposed to the idea of a government. And I am equally sure that you don’t oppose the idea of government collecting taxes to pay for legitimate services.
One tax that state governments use to collect the funds necessary is the “sales tax”. Contrary to popular belief, a sales tax is NOT a tax on a business that sells things to people, it is a tax on residents who BUY things. I’m not going to argue whether the sales tax is a good or bad way to raise money. If you want to argue that, contact your representatives in state government and ask them to change the law, one way or another, per your state.
Since the sales tax is actually a purchase tax, it has nothing to do with services the government might provide to companies who do business in the state — that is another misconception. In fact, businesses pay various taxes for those services, from corporate tax to property tax to licensing fees to nuisance taxes on phones, internet, etc.
The sale tax is a way residents fund the government services they get, like police, roads, fire departments, public schools, parks, the inspectors who issue permits. You may not like some or all of what government does, and think they should take less money — that again isn’t the issue here, and again you should take that up with your elected legislators.
The state has a constitutional right to collect taxes from it’s residents. The sales tax was convenient for the state, because they can require businesses in the state to collect the taxes for them. The purchasers PAY the taxes, but the business collects it and remits it to the government.
This actually is a convenience to the purchasers, who don’t have to track their purchases and fill out paperwork to pay their taxes, like they do for the income tax. Nobody LIKES to pay taxes, but as taxes go, the sales tax is “convenient”.
However, there has always been the possibility that a resident might purchase something outside the state. Every state with a sales tax makes no distinction as to where the item was purchased — the purchase tax is due. But since a state can’t currently make a company outside the state do their collection, the state has a “use tax” which is a companion to the sales tax, it is identical in value (a requirement of the federal constitution that no state put a “duty” on cross-state purchases).
Every state has their own rules about how you pay the “use tax”. In Virginia, it is part of the Income Tax form. When you sign the income tax form, you are swearing under the penalty of felony perjury that you have accurately reported all purchases on your income tax form.
Note that most states have “agreed” that if sales tax is collected in another state, the resident only has to pay the “difference”, so if I buy something in Maryland at 6%, since Virginia is 5%, they don’t require me to pay.
Virginia has an agreement with North Carolina furniture outlets to report purchases, and will write taxpayers to remind them to pay their use tax.
But with the internet, an increasing number of residents are purchasing without paying the proper tax. This means that other residents are paying MORE in taxes to make up for those who are cheating. This is clearly unfair. Again, it’s not a new tax, and if you think the sales tax is too high, you should get it changed for all residents, not argue that SOME residents should get to cheat on their taxes at the expense of others.
For the law-abiding citizen, having major internet companies collect sales tax would be a BENEFIT. Without collection, the resident must keep track of purchases, and file a form periodically or with their income tax each year. If the internet company collects the tax, it removes that burden.
If you think it is wrong for the state to have business collect the sales tax, again that’s not the argument here — you should lobby your government to STOP collecting sales tax from brick-and-mortar stores, so that ALL residents have an equal “opportunity” to cheat on their taxes.
It is patently unfair for some residents to be able to easily cheat on their taxes, while others cannot cheat because businesses took the money from them at the point of purchase.
Last point. If you really think that paying sales tax is somehow “immoral” or “unethical”, or that the state has no right, then there are more actions you can take. Every state allows religious institutions to make “tax-free” purchases. All you need is a religious exemption certificate.
So, you could forge a religious exemption certificate, and use it to get purchases from local stores free from sales tax.
Of course, this is illegal, but so is not paying the use tax. It’s slightly harder than skipping the tax on your internet purchases, but it is the same degree of “illegal”.
Do I have to pay a tax to bring my property across the state line? The answer is NO.
Actually, most likely the answer is yes. If you told me what state you were in, I'd give you links to the actual laws of your state that require you to pay tax when you bring property into your residence that you purchased out of state and for which you did not pay sufficient sales tax.
This is a matter of state law, and has nothing to do with the federal government. If you do not like the laws of your state, you should by all means lobby your state representatives to change the law. However, you will find that most people won't like the idea of you getting to buy things without paying sales tax, while they have to pay sales tax on identical items.
Taxes are most fair if all people who engage in similar activity pay the same amounts.
Imagine if government decided that you'd pay 5% sales tax for french fries, but got apple chips without sales tax because government thought they were better for you.
In the same way that increasing the amount of witholding on your paycheck isn't a "tax increase". It is just another way for the government to collect taxes already due.
If is fair in the objective sense that it makes it easier for the state to ensure that all residents pay the tax that is due, rather than letting some residents get away with breaking the law.
An analogy would be if you found out that the police ticketed all people with republican bumper stickers for going 1mph over the speed limit, but let people who had democratic bumper stickers go 11 miles over the limit before giving them a ticket. You would rightly say that was not fair, that all people should live under the same laws.
Oh please..!! ROFLOL!!
You can kid yourself...all day and Sunday too.
You need to be a politician....cause you already talk like one! HA!!
That wasn’t a debate response, that was an admission that you have no argument.
Facts are facts. Your personal desire for the facts to be different unfortunately are not of any value, since you do not appear to have magical powers.
government is getting much much more money than they need at all levels and are not in need of more. Government at all levels needs to cut vast amounts of what they are doing now they they should not be doing, and doing a much better job with the money they already collect before it can possibly be justified to confiscate more.
Not sure how anyone on free republic is excited about funneling more money into broken and inefficient government.
Then after the states can collect the taxes owed from ALL the people who owe them, the residents can lobby their representatives to lower the tax rate for everybody.
Or should we “lower the total revenue” for the government by allowing some people to cheat on their taxes?
You rarely if ever admit you're wrong....I know that...and I think others here do too.
I am not wrong that often. And yet, I believe I probably have admitted I’m wrong more than most people here, because I feel compelled to correct errors. For example, just yesterday I got some delegate counts wrong, and went back and posted the correction with apologies.
Since in this thread, nobody has responded to me with any facts whatsoever, there’s really no reason why I’d even have to consider being wrong.
Plus, this is an issue I have been studying and writing about for years. I’ve lobbied my legislators over this subject. I have read dozens of articles, picked through legal filings, and followed the various state responses carefully.
I have personally researched the tax laws of over a dozen states, and posted them in detail for various freepers who simply did not know they owed a tax or how to pay it.
If you told me what state you were living in, I would give you links to code requirements if your state requires sales and use tax payments.
There already is a fee that levels the field between brick and mortar and eCommerce. It’s called shipping and handling.
I would not argue with you as to whether or not use taxes are mandatory, because I know that they are.
I used to run into the issue when I worked at Dell in the Employee Purchase Program division. The EPP program had account executives in every state, so when an affiliate company employee called in to purchase using their employee discount, they always wondered why they had to pay tax if they lived outside of Texas, but at the same time they could call Dell Home Services (the consumer division which is a separate business entity) and buy the same computer with no tax. We were responsible for explaining to the customer that they likely were responsible for use taxes anyways to the state they lived in, although we did lose revenue to DHS for this reason.
However, there are two points where I think you're wrong.
The first is that you yourself said that this is a state's rights issue. If so, then why is a federal law needed? This Durbin/Alexander law is very likely to be found unconstitutional if it passes because some states have already tried this and been defeated. Colorado tried to force out of state retailers with a total of $100K in sales to provide documentation on Colorado consumers who purchased from them so they could be reminded to pay the use tax. It was struck down as violating the Commerce Clause because it puts discriminatory provisions on out of state retailers that don't apply to in-state retailers, such as keeping track of and sending out annual reminders to every Colorado customer who purchased from them reminding them of their use tax responsibilities. Like you said, a state sales tax and a use tax are taxes on the purchaser, so putting the accounting and regulatory burden on the seller is harmful to businesses, and very well may be unconstitutional according to the Federal Courts.
The second point where you're wrong is where you expressed support for the measure because "taxes to be fair should be broadly based and distort the market as little as possible." The Commerce Clause was included in the Constitution in order to keep states from placing tariffs and duties on each other, but I've never seen any evidence that the Commerce Clause allows the FedGov to force businesses to be tax collectors for states which they have no business presence. If the state wants to be tough about collecting use taxes, they need to take that up with the consumers that live in their state.
Taxation is not fair or broadly based across the several states (one reason I live in Texas and not California), nor should it be up to the FedGov to make it so. It's why incorporation laws are different in Nevada and Delaware, some states have no sales tax, and some states have no income tax. Every state and locality should see fit to apply whatever taxation to its residents as it sees fit, and I don't want the FedGov coming in and telling states that they need to make their taxation more "fair" and "broadly based", because we all know where that will lead (most likely they'll tell states to be more like California and less like Texas). I like federalism, so let's nix that thought collectively out of our heads so as to not give the taxman politicians any ideas.
And lastly on your "fair" and "broadly based" point, specifically with respect to "market distortion", we've seen market distortion in exactly the other direction with these types of laws. After Colorado enacted their state version of this, Amazon responded by shutting down all of their Colorado based affiliates, which meant that if you'd built an Amazon cart based business in Colorado, you were basically screwed. So the market distortion by trying to level the playing field went in the negative direction.
Another example of government creating more problems by trying to fix one that really didn't need fixing.
The use tax for out of state commerce coming into a state is simply an unenforceable law, both constitutionally in the case of burdening the merchant to be responsible for the tax, and logistically in the case of making the consumer pay. The accounting and regulatory mess that would be created by a system of consumer auditing and monitoring would offset any financial benefit for the state government, and would very likely run afoul of the Fourth Amendment (hopefully). This is equivalent to a state starting overnight writing speeding tickets for people going 1-3 mph over the speed limit (outside of school zones, where they actually can hit you for that), simply because the state's coffers were light. It's a matter of desperate revenue generation, not enforcing the law. Let's please not start calling everyone who has ever bought a $10 paperback from Amazon and didn't mail in their .83 cents a "tax cheat".
A couple of last points. Every state has large eCommerce retailers that benefit from the incentives of selling online. These companies brings tons of revenue into the state, employ people, build warehouses and call centers, and are a huge benefit to their local economies. A reciprocity law on all out of state taxable transactions would be a wash in many ways, because each of these eCommerce merchants would suffer and bring in less revenue for their state, fewer jobs, etc. We've already seen the unintended consequences of the "Durbin Tax", which was a byproduct of the government trying to regulate interchange rates and the payments industry. Unless you're intent on opening a huge can of worms with respect to regulation, I can't see anyone sanely supporting such federal intrusion on the merchant. Many smaller online merchants, and even some medium large ones, avoid international sales simply because of the logistics of taxation abroad. Different countries charge different tax and duty rates and have different filing requirements; it's a clerical mess that's just not worth the bother for a lot of people. We don't want the same for the US online economy, where merchants pick and choose which states to open their business to because of the regulatory burdens.
Also, with the huge increase in digital goods, eWallets, and alternative payment methods, this is a nightmare in the making. Let's say I buy a digital good (such as an iPhone game) in a New York airport, and start "using" it right then and there, and then hop on a plane to Miami for a vacation. However, I live in California, and I paid for it with a business credit card with a billing address in Illinois, or with an eWallet payment type that I transferred funds to months ago, that uses an acquiring bank in Nebraska. Which state's tax rate am I paying?
Is the next step to require IP/GEO and Device ID fixes on all mobile devices so that the merchants can track where I am so I can pay the appropriate tax based on my location?
As technology gets more advanced and the payments and eCom industries grab a bigger piece of the market share, the state isn't going to be able to keep up with everything. Right now, I see a parallel with these state governments and the RIAA during the digital music fiasco. Instead of cashing in on new technology and an entire new way to sell music to consumers, the RIAA started suing 12 year olds for downloading a Metallica song on their grandparents' computer. They probably lost a decade of digital music sales just because they pissed everyone off.
The state has a huge new revenue stream to benefit from in online transactions, and they think that requiring merchants to send a tax bill is the way to capitalize on it when times are tough. They're going to have to think of something more creative, because like it or not, that's not going to work.
Well, here's the problem with that argument;
The Durbin/Alexander bill specifically exempts web merchants who report less than $500K annually the previous year from collecting the tax, so by your definition, this very bill does allow some people to "cheat on their taxes."
There are huge constitutional problems with this bill, but this one may run afoul of equal protection concerns.
Would you support allowing brick and mortar point of sale merchants to avoid collecting taxation, as long as they grossed less than $500K annually?
The $500,000 requirement for collecting use tax is extremely arbitrary, and is reminiscent of the $100,000 requirement contained in the Colorado state law that was declared unconstitutional.
I am not aware of the colorado law you reference, I’ll have to do some research on that — was it declared unconstitutional because of a $100,000 limit, or was it declared unconstitutional because of the underlying issue that a state can’t force a company in another state to do anything?
Yes, the $500,000 limit allows a small group of people to have an easier time breaking the law. But assuming a 5% sales tax, we are talking about tax cheating on the order of $25,000 a year for each of these extremely small businesses.
You could do that better if you provided a small fixed fee for service, but you’d have to pay all companies, not just the ones out-of-state, in order to be fair. I’d also institute rules the states had to follow to participate to simplify how small companies would determine the percent and provide remittance. Remember, the purpose of the exemption is to not overly burden companies for the JOB of collecting taxes for the government.
$500k is a pretty small figure; the point is to protect the small e-bay sellers from losing all their profits to the job of collecting taxes for the states. (remember this is revenue, not profit).
There are likely not constitutional problems with the bill. The federal government has a clear right to regulate interstate commerce, which would include setting up a system for states to collect sales taxes on items shipped across state lines.
Also, the bill does not exempt people who BUY items from smaller companies from paying their state taxes, just the company from being a collection agency. GIven that right now Amazon by law doesn’t collect, while Barnes and Noble and Walmart do, if “equal protection” was a valid argument, we’d already have some form of constitutional issue.
Any number in a law is arbitrary. 16 to get a driver’s license, 21 to drink, 18 to vote, 17 to marry, 25mph speed limit, 0.08 alchohol level. You know that on your income taxes, you don’t have to report interest earned from an institution if it is less than $10?
Anyway, thanks for the information about the colorado law, I’ll check into it.
I am not actually defending the specifics of the bill being proposed, because it’s not the best way to handle the issue. I’m arguing that allowing collection across state lines is NOT a “new tax”, is “fairer” than the current plan, and will be helpful to those who follow tha law.
For example, I follow the law, and that means that when I make online purchases, I track each purchase that doesn’t collect sales tax. Since I do a lot of Amazon purchases, that’s a lot of things to track. Amazon does keep track for me, but doesn’t provide me the information in an easy way, I have to step into each order to see if it collected sales tax (some do).
And my state is easy, I just add up the numbers and write it on a line on my income tax, and calculate the tax due by multiplying by a number. Other states are much harder, with quarterly filings, or other rules.
So if the money was collected for me, my life would be a little easier, and I’d know I wasn’t being a sap for paying my legally owed taxes while almost every other person wasn’t — kind of like driving the speed limit while every single car passes you, including the off-duty police officers. Or waiting patiently in a line, while you see dozens of people cutting in the lines and nobody is stopping them.
Or wanting to immigrate legally into this country, but not being able to get in because you watch millions sneak over hte boarder and take all the jobs. It is annoying to those who obey the law to watch others get away with breaking the law with impunity. If people are speeding through your neighborhood, you ask police to set up speed traps. If people are driving drunk, you ask for road blocks. If illegals are sneaking in, you ask for e-verify, for border fencing, you require companies to check immigration status.
And if people are cheating on their taxes, you ask for better enforcement of the tax law.
The Federal Court granted a preliminatry injunction against enforcing the bill last year because it violated the Commerce Clause. The reason wasn't the arbitrary $100,000 limit, but that the filing and accounting requirements placed on out of state merchants who did not have a business presence in the state amounted to a de-facto tariff for shipping goods into Colorado, or in their words an "undue burden" upon retailers.
You can read the decision for yourself here:
But the main in point in citing the $100K and $500K limits in the two bills is that while they absolutely were an attempt to protect smaller sellers from the burden of the filing requirements, small affiliate sellers are likely to find themselves in the same situation as Amazon affiliates in Colorado after the Colorado law passed until the injuction; they were shut down by Amazon. Those arbitrary limits aren't going to help anyone, and I have proof that this is the case because it's happened:
Keep in mind that this Colorado law didn't even require out of state retailers to collect sales tax; just to send notices to their customers that owed use taxes. It amounted to turning Colorado into a foreign country because of a de facto tariff (the costs of compliance to out of state merchants that were not required of in state merchants), and a national standard isn't going to help anything because not all states would choose to have the same filing requirements. Some states might just ask that a retailer shipping into their state post some legal verbiage on their site with information on how to file a use tax, whereas other states would choose to have substantial filing and collection requirements, which would turn the US into a patchwork of dozens of different standards for different states just to simply ship a good into another state. We're a federal republic, not a collection of 50 different countries, and opening up your goods and services to the national marketplace should NOT be as complicated as selling into a different continent. Also these laws are likely unconstitutional considering the Colorado ruling. So on the on the contrary, yes, there ARE likely many constitutional problems with the bill.
I'm not quite sure why you've adopted this particular issue as a cause celebre considering all of the numerous problems that we have, but my point is that it doesn't help your argument to try and equate people who don't pay taxes on purchases from out of state to illegals and speeders, because it is wholly different. Immigration and speed laws can be and are enforced. Use tax violations for out of state merchants are not and CANNOT be effectively enforced for the reasons I've outlined:
1. Requiring merchants, who ship into a state but don't have a business presence there, to track and/or file that state's sales/use taxes has already been found unconstitutional by a federal court (see DMA v. Huber).
2. Tracking, auditing, and enforcement of the in state consumers not paying the tax is simply unworkable and logistically impossible.
3. The hit to the entire eCommerce sector will hurt online merchants and hurt the states in the long run who benefit off of companies that engage in online sales with business revenue, jobs, and corporate taxes.
An unenforceable law is as worthless as the paper it's printed on. To call an overtaxed nation a nation of "tax cheats" is simply obnoxious high-horsing. The states have NEVER made any sort of effective effort to collect or enforce these taxes, so seeing bankrupt state governments scrounging for revenue by milking the taxpayer and merchant further with this type of "new" regulation (yes, they are new regulations since the merchants haven't been required to file this stuff before) and by trying to capitalize on a long dormant method of taxation is just going to attract derision and hurt online commerce in the long run.
In addition to my digital goods example, there are alternative payment methods right now that you haven't even heard of, and the tax laws haven't even begun to catch up with it.
Government is going to need to take a page from the private sector and actually innovate in this case if they want a piece of this revenue, because you can't up and start regulating what you've allowed to basically become an underground economy for the past 20 years and expect no blowback.
The ‘99%ers’ who want to get from government without paying vigorously support tax-free internet purchases...
It’s time to stop subsidizing internet commerce and the ‘99%ers’. Let them pay their ‘fair share’ LOL!
Your post deserves more time than I have at the moment. I appreciate your response, and will try to get back to this tonight.
I will say on the 1st point, you don’t hit a constitutionality problem that states do, because the state problem is that the constitution puts all regulation of interstate commerce in the hands of the federal government. The Durbin bill is a federal law — the feds have the right to do what the individual states cannot in this case.
I haven’t seen an argument made under equal protection; my opinion is that equal protection is overused as a right, but in this case the courts have seen no indication that taxing authority falls under that rubric. They allow the feds both to tax specific items while leaving others untaxed, and to provide tax credits for people doing some things but not others. Still, I’m not a lawyer, so if a case gets argued on that point I’ll watch to see how the real ones handle it.
I will also say that “use tax violations” are not “for” “out-of-state merchants”, they are for residents of the state who make purchases for which no tax withholding has taken place. Much like you have federal income tax withholding, but also have to include on your w-2 misc. income from various sources for which no tax was withheld.
So in effect, it seems to me that the Durbin/Alexander bill is trying to gives the states the right to violate the Commerce Clause that was decided in DMA/Huber decision.
None of it makes any sense unless the Circuit Court or Supremes overturn the Federal Court injunction altogether, which is certainly a possibility.
But beyond the Constitutional questions (which will take many years to finally decide), let's tackle the other two problems.
There's just no way that if the merchant avenue doesn't work out, states will he able to somehow make people start paying these use taxes for eCom purchases on any meaningful scale. Whether or not you want to have a moral discussion about whether or not you should mail in your .59 cents of tax to the government because you bought a $7 AC adapter online, be my guest. It so irrelevant in the scheme of things that I'll lose about as much sleep over the fact that some people sometimes go 36 mph in a 35 zone. The fact is that if you don't communicate or enforce a statute, people are not going to go through the hassle of filling out paperwork, tracking every receipt, and sending a check to government on their own. If it gives you a boost of civic pride to know that you've filed a tax form for every online purchase that you've ever made right down to the very last $2.99 power cord, then good for you. It doesn't exactly turn the rest of the eCom purchasing consumer base into Charles Manson, simply because they don't know about use taxes or because they don't pay them because they're a pain in the ass and there's no enforcement.
I'm legitimately interested in finding a solution, and the only thing I know is who is NOT at fault, and that is the merchants. They've had no legal or moral responsibility to collect or communicate any of the use tax laws. They're being penalized and turned into surrogate tax collectors for entities that they're not even accountable to, and its going to do nothing except make it harder to do business.
These are companies that already work off of razor thin margins, and who deal with an online payments infrastructure that is enormously complex, fraud problems that are statistically 12 times more prevalent than brick and mortar, and price competition that is brutal. Do you really want to make them have to spend more time jumping through regulatory hoops and hiring more finance and accounting staff just because regulators and bureaucrats dropped the ball?
I'm adamantly against that, and I blame the state governments. They've had over 20 years since the popularity of eCommerce to get their act together; over 50 years if you consider the rise in mail order.
Now, surprise, surprise! The state governments are broke and looking for more cash (and they ain't broke because of a lack of use taxes, we all know they would've spent that too had they had it).
I say tough toenails taxman. You've waited so long that by the time you can even collect something on, for instance, book sales, people won't even be buying physical books anymore.
How about this? I open up an eBook hosting site in Oregon, which has no sales tax, and I sell consumers a subscription service where they can view books through the web that reside on servers in Oregon. I've just placed the entire book industry out of the realm of sales tax.
Regulators are going to have to keep up with the times, and you'll forgive me if I'm quite glad that they constantly drop the ball.
Why is that different for online merchants, than for brick-and-mortar merchants? Your issue here seems to apply to all businesses. My local grocery store is being penalized because it has to collect and remit the tax.
But your point shows the unfairness. You mention that the online merchants are on razor-thin margins. But so are the brick-and-mortar business, and internet businesses are actually cheaper to operate, so they already have an advantage.
Not collecting sales tax for purchases from online retailers is essentially giving them a competitive advantage. Not a real one, like giving them a 5% tax credit for each sale, but the equivalent of doing so. I say not "real", because their actual "competitive advantage" is being able to help residents cheat on their taxes.
Worse, it's not a difference between brick-and-mortar vs online. If I buy something from Walmart.com, I have to pay 5% more than if I buy from Amazon.com. That gives Amazon a 5% competitive price advantage. It punishes Walmart through the tax code for choosing to operate real stores in my state.
Your argument about irrelevance is not persuasive. People regularly say that they shop online because they can save the 5% sales tax. People here at FR regularly argue that they have a right to break their tax laws, and that they would suffer greatly if they had to pay the tax. You can't say that, and then argue that the tax is irrelevant. It clearly is driving people away from shopping at stores that employ people in the state, and pushing that money out of state to online retailers.
I don't want to get hung up on a speed limit discussion, because the speed limit is an example of a "victimless crime". Cheating on taxes is not. If you presume that the government requires and is entitled to SOME amount of money, then to the degree that one person doesn't pay 1 penny of their tax, some other person must pay an extra 1 penny to make up for it.
Would you steal a pencil from a local store, because it's so small a thing as to be irrelevant? How about a stick of chewing gum? Would you let your son take a toy from the next-door neighbor's house? Would you let your daughter take the bell off another child's bicycle, since it only costs a couple of bucks?
When you don't pay a tax you owe, your neighbor suffers. You aren't stealing from the government, you are stealing from every other taxpayer. I certainly don't fault people for not knowing their obligations, and I find it rediculous that the state HAS a "use tax" and refuses to actively advertise it. But that doesn't mean I can ignore it.
In fact, that is one of my lobbying efforts -- to get the state to either come up with a better enforcement mechanism, or else repeal the law. It is rediculous that 260 of us (that is how many of us paid one year in Virginia) pay our tax, and everybody else doesn't. If you aren't going to enforce a law, you should repeal it.
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