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The End of Tax-Free Internet Shopping? 784

Mordok-DestroyerOfWo writes "If a little-known but influential alliance of state politicians, large retailers, and tax collectors have their way, the days of tax-free Internet shopping may be nearly over. A bill expected to be introduced in the US Congress as early as Monday would rewrite the ground rules for mail order and Internet sales by eliminating what its supporters view as a 'loophole' that, in many cases, allows Americans to shop over the Internet without paying sales taxes."
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The End of Tax-Free Internet Shopping?

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  • which state(s)? (Score:5, Interesting)

    by pak9rabid ( 1011935 ) on Thursday April 16, 2009 @12:57PM (#27600153)
    Ok...so which state will the taxes be going to? The state in which the business operates out of, or the state in which the purchase was made in, or both?
    • Re:which state(s)? (Score:5, Informative)

      by aoteoroa ( 596031 ) on Thursday April 16, 2009 @01:05PM (#27600245)
      Here in Canada we have always had to pay sales tax on internet purchases. The tax is based on the purchaser's province.
      • Re: (Score:3, Interesting)

        You don't have 50 provinces with the potential for additional local taxes, do you? If you combine the state + local taxes, you can easily get above 1000 different tax situations, with changes daily.
    • Re: (Score:3, Interesting)

      Ok...so which state will the taxes be going to? The state in which the business operates out of, or the state in which the purchase was made in, or both?

      That's a good question. If it's the state of the purchaser, then I suspect that Delaware could end up becoming a popular place to live, or at least claim residence. Oregon would be a more interesting question since the sales tax is set on a local level rather than by the state. If it's the state of the seller, then there could be incentive to set up call centers to receive orders in either of those states, or perhaps even Montana as it probably has the lowest sales tax of states that have it.

      • Re: (Score:3, Interesting)

        by flitty ( 981864 )
        I have a sneaking feeling that Shipping costs are going to drop approximately 7% of the entire cost on a lot of purchases. We all know that those shipping costs have built in wiggle room, now we'll start seeing retailers reduce them as to not cause sticker shock.
        • Re:which state(s)? (Score:5, Interesting)

          by EtherMonkey ( 705611 ) on Thursday April 16, 2009 @02:03PM (#27601309)

          I think you're incredibly naive.

          While there's plenty of examples of retailers overcharging on shipping, when you understand the overall pricing model you'll realize that the most popular retailers seldom net more than 15% and often as little as 8%, except for specialty/collector/restricted products. And this isn't considering their overhead and business expenses.

          For example, I resell computers and the spread between my distributor cost and HP's own website is 8 - 12% before considering my overhead. If I advertise my prices above HP's, nobody's going to buy from me. But if I meet my distributor's minimum order and pay immediately I get free shipping. So, to attract customers I advertise just above my cost (to not get charged with dumping or gray-marketing) and make up my overhead and profit by charging S&H. It's the only way I can stay in business.

          Anyway, if you think there's some extra 7% of profit margin hiding in today's Internet-powered, dog-eat-dog marketplace, you are about to be very disappointed. The environment is way too competitive for that. Shit, half the time I buy my components from NewEgg because its cheaper than the big distributors. Just look out for those free shipping deals.

    • by Samschnooks ( 1415697 ) on Thursday April 16, 2009 @01:08PM (#27600299)

      Ok...so which state will the taxes be going to? The state in which the business operates out of, or the state in which the purchase was made in, or both?

      What?!? You expect a simple solution from the politicians?!

      It'll probably be a complex formula that depends on: the card holder's state of residence, where the items were shipped, where the company does business, whether or not the person makes over $250,000 per year, which states the item passes through when it goes from the retailer to the purchaser, and I'm sure some lobbyist will make some other horse shit that I'd never think of in a million years.

    • Re:which state(s)? (Score:5, Informative)

      by NeverVotedBush ( 1041088 ) on Thursday April 16, 2009 @01:15PM (#27600399)
      And it's not just state taxes. There are city/local taxes as well. And since these vary widely, either some database will have to be compiled and maintained or the tax levies will have to be made uniform. Or state taxes will be made uniform and there won't be local taxes. Or it will end up being governed by the state the business operates in - but then imagine states wheeling and dealing with tax rates to get certain businesses to locate in them. Or, you could make the buyer responsible for local taxes - maybe through reporting all mail order / internet sales to the government along with descriptions of what is bought since some locales don't tax food or prescription items.

      Or, maybe they could do like what the RIAA and MPAA do and get some kind of royalty built into every item sold that then gets divvied up later however the states decide to divide the spoils.

      Yep, the possibilities are endless!
    • Re:which state(s)? (Score:5, Insightful)

      by grotgrot ( 451123 ) on Thursday April 16, 2009 @01:56PM (#27601191)

      Also the purchase may travel through several other states. And what happens when I am physically in Alabama (while travelling), order an item to be sent to Montana, use a company credit card based in Delaware and have a home address in California with the item shipped from Colorado manufactured by a company in Ohio, via a website located in Washington.

      I'd much rather see sales taxes abolished since they complicate retail and hurt the poorest people the most (they have to spend most of their income to live and hence proportionally pay way more sales tax).

  • by netruner ( 588721 ) on Thursday April 16, 2009 @12:59PM (#27600169)
    How will this mesh with the Sears decision by SCOTUS? My understanding (I'm not a lawyer) is that taxing interstate commerce is prohibited by the constitution (the root of all US law).

    Any law geeks out there want to pick this one up?
    • by Buelldozer ( 713671 ) on Thursday April 16, 2009 @01:06PM (#27600263)

      I may be confused but I thought the regulation of INTERstate trade was one of the powers specifically enumerated as belonging to the Federal Government?

    • by k1e0x ( 1040314 )

      At some point you would think it would be irreverent for people to keep brining up the constitution. Our government hasn't followed it since the ink was dry.. Remember old Honest Abe Lincoln wiped his ass with it. I don't know why you think we start following it now.

      I kinda wish Obama would burn it so people stop referring to it like it has any kind of meaning. You have rights because your human, not because some dead guys signed a piece of paper.

  • Use tax (Score:4, Informative)

    by DoofusOfDeath ( 636671 ) on Thursday April 16, 2009 @12:59PM (#27600179)

    Here in Rhode Island we have a "use tax", which basically says if you buy something from out-of-state you need to pay a tax on it which, concidentally, is the same rate as our state sales tax.

    I pay it, but one thing bothers me. I thought only the federal government is allowed to tax interstate commerce. Isn't a state "use tax" like the one in Rhode Island doing that very thing, even though they claim they're not? Has this kind of "use tax" been challenged in court on Constitutional grounds?

    • Re:Use tax (Score:4, Informative)

      by idontgno ( 624372 ) on Thursday April 16, 2009 @01:16PM (#27600429) Journal

      But it's not a tax on commerce. It's a tax on use. "Use" and "Commerce" look nothing alike. They aren't pronounced the same at all. "Use" taxation is on the basis that you use that thing you brought across state lines. And how do we valuate that property that you're using? Hmm... maybe, what it sells for. A percentage of the sales price in the state you brought it in from. And since you bought it there, you even have the receipt that tells you what the basis of taxation will be!

      Yes, the reasoning is specious, fatuous, and bogus. But the shallowest of rationalizations seem to work out just fine in matters of taxation, as long as the government is the one doing the rationalizing.

      I wonder what happens if you buy a thing in one state and never use it in your state of residence. Will they charge non-use tax?

      • Re: (Score:3, Insightful)

        by plague3106 ( 71849 )

        Yes, that's the argument... but isn't it odd you don't need to pay to use things you buy in state? Hmm... I really hate the judges that buy these garbage arguments. Use tax should never have flown.

      • Re:Use tax (Score:4, Insightful)

        by causality ( 777677 ) on Thursday April 16, 2009 @02:05PM (#27601353)

        But it's not a tax on commerce. It's a tax on use. "Use" and "Commerce" look nothing alike. They aren't pronounced the same at all. "Use" taxation is on the basis that you use that thing you brought across state lines. And how do we valuate that property that you're using? Hmm... maybe, what it sells for. A percentage of the sales price in the state you brought it in from. And since you bought it there, you even have the receipt that tells you what the basis of taxation will be!

        Yes, the reasoning is specious, fatuous, and bogus. But the shallowest of rationalizations seem to work out just fine in matters of taxation, as long as the government is the one doing the rationalizing.

        I wonder what happens if you buy a thing in one state and never use it in your state of residence. Will they charge non-use tax?

        I think the decision-making went something like this:

        "We want a sales tax that we can impose on interstate commerce."
        "But you can't do that, the Constitution forbids it!"
        "Well then, we will call it a 'use tax' instead of calling it a 'sales tax' and that will make it okay! It's the exact same thing called by a different name, but it's somehow completely different and not illegal or illegitimate in the slightest! By the way, I don't understand why the people don't respect us?"

        It's just a blatant attempt to circumvent the Constitution, only the average person is too stupid or too apathetic to recognize the threat that this represents if it remains unchecked. If you can ignore or get around one part of the Constitution with impunity, you can do the same with the rest of it.

  • Oh thank goodness (Score:5, Interesting)

    by Deosyne ( 92713 ) on Thursday April 16, 2009 @01:01PM (#27600203)

    I was beginning to worry that I might actually be able to spend the remainder of the money that that the government lets me keep each payday without having them take more from me. I'm so glad that they're working hard to prevent that from happening.

  • by stei7766 ( 1359091 ) on Thursday April 16, 2009 @01:02PM (#27600207)

    9 times out of 10, shopping online will STILL be cheaper than retail.

    If big box retailers think this will save their ass, they're in for a nasty suprise.

    And I agree with the FP, sounds like this is going to be a mass of red tape. Think of the fights over who gets the sales tax from amazon...

    Sounds DOA to me.

  • by janeuner ( 815461 ) on Thursday April 16, 2009 @01:02PM (#27600211)

    The difference?
    Price Tag: $2.99
    Total: $3.15

    - versus -

    Price Tag: $3.15
    Total: $3.15

  • by Yvan256 ( 722131 ) on Thursday April 16, 2009 @01:05PM (#27600237) Homepage Journal

    If someone from Canada buys something, does he pay the state taxes? That would be stupid.

    And if a company in Canada sells something to someone in the USA, does he have to collect the state taxes? Good luck with that.

    The only sane way to do this is charge taxes based on the shipping address, from sales within the USA only.

  • by avandesande ( 143899 ) on Thursday April 16, 2009 @01:05PM (#27600239) Journal

    This 'loop hole' has been in existence since the beginning of the mail order business.

    • What is the justification for sales tax on an internet purchase?
      Did the state or county provide some service or infrastructure that supported the internet sale?
      Did the state or county or city bring anything to the table?

      No?

      Why then they should bug off!

      • Re: (Score:3, Insightful)

        by YrWrstNtmr ( 564987 )

        What is the justification for sales tax on an internet purchase?

        "We want more money (because what we take from you already is being misused)".

  • Not a problem (Score:5, Insightful)

    by clang_jangle ( 975789 ) on Thursday April 16, 2009 @01:07PM (#27600283) Journal
    I really don't have a problem with paying sales tax, or taxes in general. Of course, I may not be thrilled with how my tax money is spent, but that's another matter. Taxes still play a major role in implementing civilization. And I ,for one, prefer civilization to the freedom-only-for-the-rich promoted by libertarians.
    • Re:Not a problem (Score:4, Insightful)

      by Gospodin ( 547743 ) on Thursday April 16, 2009 @01:41PM (#27600873)

      Hmmmm... yes, I'd say that's a completely fair dichotomy. Clearly, anyone who says their taxes are too high must be arguing for a zero-tax anarchy state. Thanks for opening my eyes!

    • Re:Not a problem (Score:5, Informative)

      by MarkRose ( 820682 ) on Thursday April 16, 2009 @02:33PM (#27601809) Homepage
      Libertarians don't promote "freedom-only-for-the-rich". Libertarians support the freedom for everyone to become rich. Taxes like the income tax ensure those working for a living will have a difficult time getting ahead. It's the current regime of excessive taxation on the little guy that keeps the little guy down. Libertarians want to keep no one down.
      • Re: (Score:3, Interesting)

        Libertarians don't promote "freedom-only-for-the-rich".

        In practice, the absence of regulations promoted by Libertarians will inevitably lead to "freedom only for the rich", 'cause that's what monopolies are all about, and their appearance is inevitable in a completely unregulated free market.

  • by mackil ( 668039 ) <movie@moviesoundc l i p s .net> on Thursday April 16, 2009 @01:08PM (#27600297) Homepage Journal
    From the FA:
    "California residents, for instance, are now burdened with a sales and use tax of at least 8.25 percent. State law is strict: if Californians travel to a state with a 5 percent tax and shop there, the law requires them to cough up the 3.25 percent difference when they return. Online purchases are taxed as well."

    This kind of thing really bothers me. It's as if all our money, wherever we spend it, belongs to our home state. I'm sure not many people actually "cough up" the difference, but just the principle of it really burns me up.
  • by ArcherB ( 796902 ) on Thursday April 16, 2009 @01:09PM (#27600317) Journal

      "I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes."

    "You will not see any of your taxes increase one single dime."
    -- Barack Obama

    • Re: (Score:3, Insightful)

      by MozeeToby ( 1163751 )

      First, taken in context it's pretty clear that he was talking about taxes coming out of your paycheck. Even politifact agrees with that sentiment (http://www.politifact.com/truth-o-meter/promises/promise/515/no-family-making-less-250000-will-see-any-form-tax/ [politifact.com])

      Second, this isn't really a tax increase at all since you're supposed to be paying taxes on online purchase as it is. It's called a Use Tax and just because you haven't been paying it doesn't mean it doesn't exist. Besides, there is no reason why pu

  • It's All Greed (Score:5, Interesting)

    by Nom du Keyboard ( 633989 ) on Thursday April 16, 2009 @01:10PM (#27600323)
    It's all about greed. The internet company operating outside the state (if they're in the state they're already paying taxes) isn't using any of the infrastructure that the taxes pay for. If anything, they should be paying taxes in the state where they do the business, but then you have customers in other states paying out-of-state sales taxes which don't benefit them and aren't fair either.

    The current system has worked well for many years. What hasn't worked well over that time is politicians controlling their spending of other people's money in their attempts to buy their way into continued future paychecks. Now they're out trying to steal even more from you.

    If we threw out these politicians trying to vote this in as just yet more Big Taxers and Spenders then this stupid and unfair idea might actually go away for a while.

    And it goes without mentioning the problems any Internet company would face in computing the proper state, county, city, and even borough taxes properly and paying them to all the proper taxing authorities. This is MANY TIMES the burden any local business faces. Talk about an attempt to kill internet companies - you couldn't have come up with a better scheme.

    And think of the companies (FedEx, UPS...) which depend of them for a large chunk of their business. Raise prices, kill off companies, are you really trying to make this recession worse!
  • State law is strict: if Californians travel to a state with a 5 percent tax and shop there, the law requires them to cough up the 3.25 percent difference when they return. Online purchases are taxed as well.

    But compliance is spotty at best. California's Board of Equalization estimates the state lost $1.34 billion in 2003 because residents aren't paying use taxes--and attributes $208 million of that to online purchases.

    This reminds me of the RIAA's definition of "lost revenue". The state didn't lose anything... with a law as badly thought out as this, any money they did collect should be treated as a windfall. When you create a law where the only possibility of any compliance at all is people's innate honesty, just be glad that so many people are basically honest and bank what you can.

  • by mackil ( 668039 ) <movie@moviesoundc l i p s .net> on Thursday April 16, 2009 @01:20PM (#27600479) Homepage Journal
    I work for an online retailer here in the state of Washington. Recently, our state passed a law forcing all state business to collect sales tax based off local jurisdiction, instead of our home jurisdiction. They then allowed only two companies to actually handle all that info, with whom you are required to deal with in order to collect the proper amounts. Needless to say, the complexity involved was not fun. Not to mention the thousands of dollars it costs to deal with the "government approved" sales tax info vendors.

    Having this kind of thing go nationwide makes me quake with fear.
    • Re: (Score:3, Insightful)

      by mckyj57 ( 116386 )

      +1 on that. Especially when you run into mob-connected bureaucratic nightmares like New York State, who literally don't give a crap about the problems they cause for others. Pay up, baby. Our way. We don't care about how complex it is -- comply with thousands of state and local tax regulations even if you are a small business.

      The software route is no good because nothing is universal enough.

      I could get behind a tax initiative if the states adopted a flat online sales tax rate for all items in all localities

  • by Asmor ( 775910 ) on Thursday April 16, 2009 @01:33PM (#27600737) Homepage

    I don't mind paying taxes, but I wish the US did something like VAT in Europe.

    Basically, the prices you see advertised already include the tax in them. No trying to figure out 8% of some number, no more $2.99 item being just a hair over $3 and filling your pockets with loose change.

  • by CopaceticOpus ( 965603 ) on Thursday April 16, 2009 @01:34PM (#27600753)

    Gee, this is terrible! People are using their (post-income-tax) money to purchase things, and the government isn't being inserted into the transaction at all. Anarchy is soon to follow.

  • by jtownatpunk.net ( 245670 ) on Thursday April 16, 2009 @01:39PM (#27600833)

    They get taxes from the fuel used to transport the goods. They get money from the vehicle registrations. They get money from the vehicle purchases. They get taxes from the goods purchased to maintain the transportation vehicles. They get taxes from the corporations that sell the goods and the ones that transport the goods. They get taxes from the employees of both of those groups. THE GOVERNMENTS (local, state, and federal) GET PLENTY OF FUCKING MONEY OUT OF INTERSTATE COMMERCE!!!

  • by unfortunateson ( 527551 ) on Thursday April 16, 2009 @01:41PM (#27600885) Journal

    A company such as BestBuy, Borders, and so on already collects sales tax for the states where they have a presence.
    A company such as Amazon does enough volume of commerce that they can afford the accounting to figure whose tax is owed to whom.

    But a small company may have only a few cents to collect for a given state over a day, week, month or even year. Counting the beans costs more than the beans are worth.
    Most likely, "Sales Tax Clearinghouse" companies will crop up, which will offer to file your forms with each state and distribute... for another fee.

    When we ran an online store (selling Children's Books), most of our customers were out of state, but we did collect for our home state... which amounted to less than $50 per year most years, especially as many in-state customers were schools and churches (which do not pay sales tax). Multiply that by, what, 48 states that collect sales tax? The paperwork is horrendous.

  • by TheABomb ( 180342 ) on Thursday April 16, 2009 @01:46PM (#27600973)

    "Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes." - Barack Obama, Dover, N.H. campaign stop, 12 September 2008.

  • by kaszeta ( 322161 ) <rich@kaszeta.org> on Thursday April 16, 2009 @01:51PM (#27601071) Homepage
    Several things both me about these proposals that occasionally get floated around:

    1. They make the implicit assumption that everyone has a sales or use tax, and that people are avoiding it. That may be true in many cases, but not mine, since my state has neither. I don't

    2. Similarly, it's unfair for businesses operating here. For a business located purely in my state, it's not a fair burden for them to have to calculate and collect use tax for any of the hundred (cities, counties, states, and various other revenue districts) that someone might be in when they click their mouse to order. I don't mind the "nexus" argument for sales tax (hey, the company chose to set up shop in a state? Then you can learn the tax rules and when to collect them), but extending it to use tax isn't fair. If a state really feels they need a use tax, it should be their responsibility to figure out how to collect it, and not involve companies that don't even have nexus in their state.

    3. They talk about simplifying it, but there's already enough cases that I can this not working correctly (person in state A buys a gift from vendor in state B for shipment (from state C) to the recipient in State D).

    I say get rid of the sales tax. They aren't necessary, we've got several states (including my own) that get along just fine without them.

  • by jedidiah ( 1196 ) on Thursday April 16, 2009 @03:47PM (#27603121) Homepage

    Idiots! We are in what is being described as the biggest economic calamity
    since the Great Depression and these idiots want to discourage people from
    engaging in consumer spending.

    Brilliant.

  • by jcrousedotcom ( 999175 ) on Thursday April 16, 2009 @04:02PM (#27603415) Homepage
    There is already taxes collected on *anything* that ships.

    Unless it is a download only item (software for example) taxes or other fees are paid on *at least* all of the following:
    - Sales and excise tax on fuel for the truck moving the product
    - IFTA fees
    - Apportioned vehicle resigistration fees
    - Property taxes paid by warehouse facilities of shipping company
    - Income taxes paid by shipping company

    This is what came to mind off the top of my head. These are specifically taxes associated with *shipping* the product. You're now paying on top of that as well if they enact interstate sales taxes. I realize that any product purchased in a retail location paid many of these same taxes (via shipping costs) as well, but the point still stands - folks are already paying on this.

    Plus the single most important part of all this - everyone who lives in a sales tax state pays Use Taxes [myflorida.com] (FL), right? :)
  • by MaWeiTao ( 908546 ) on Thursday April 16, 2009 @04:09PM (#27603527)

    If was I assured that the government was using my tax money efficiently and productively, I wouldn't have an issue paying them. However, the government uses our money neither wisely nor efficiently.

    Here's a small example of how wasteful my city is. My city has a budged deficit like virtually ever level of our inept government all over the country. During a radio interview during the winter he said we were one snowfall away from declaring bankruptcy. It's the same song and dance year after year. Somehow they never set aside enough money to cover snow removal.

    But here's the good bit, after he made that statement we had a fairly minor snow storm, amounting to maybe a couple of inches. And yet I distinctly recall plows running up and down the streets of my neighborhood to clear the small bit of snow lying at the edges of the street. The street itself was mostly clear of snow. This nonsense went on for two days.

    In addition to that these idiots in the snowplows did their plows into the pavement. Every time one of the trucks goes by the rumbling is intense from these plows and sparks are flying. So what's the end result? Sometime this summer crews will start patching all the potholes. And the stretches where the streets are really torn up they'll end up repaving everything, and some of these streets have been paved within the last 10 years.

    But then they complain that they have no money. And they can't cut spending even if they wanted because every last department and union refuses to make cuts. The head of the board of education, who earns nearly $200,000 a year for not doing much of anything refused to forgo a raise because she needed it to cover cost of living increases.

    And god forbid anyone propose cutting taxes in certain areas, like education. Nevermind that my city spends, on average, significantly more per child than any other country on Earth and I'd say that the quality of education is crap in comparison to what I've seen overseas. There are some good people out there, but money is squandered carelessly and apparently a lot of this money goes to the fat cats running the system.

    So what's the solution? Like a bad welfare case or a drug addict the government resorts to squeezing a little more money out of people. Property tax is already ridiculously high in my city and we're looking at it going even higher this summer.

    With utilities or any company I have the ability to dispute charges. I can moderate usage, or if I'm unhappy with a provider I can cut service. What the hell can I do with the government. Nothing. The buck stops there. I don't pay and I go to jail. And good luck trying to dispute anything.

    What's really bothering me is this blind faith I see in the government nowadays. Like anyone who questions the government is doing something wrong; just look at the media's response to those tax rallies yesterday. And then there's the frustrating nonsense about how we need to punish the wealthy. More like punishing success.

    And I love how tax rebates are portrayed as gifts from the government. It's my money, first of all. And secondly, this is simply a nice way to guarantee that these "tax cuts" are temporary. And third, this way they can give handouts to people who haven't even had to pay taxes, but do already enjoy the benefits of our welfare system. I'm all for putting money towards educating people out of poverty and ignorance, but I am completely opposed to handouts. Time and time again it's proven to be a failure, remember those FEMA debit cards?

    And the problem isn't only the obvious taxation on income. It's all the other fees the government slips in there to screw us out of our hard-earned money. Like this damn internet taxation. It's a nice way of spreading out our tax burden so that we don't notice how bad it actually is. Sometimes I wonder if what we pay to the government doesn't already rival what Europeans pay.

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