Archive for Monday, April 29, 2013

Editorial: Tax fairness

Charging local sales tax on Internet purchases is only fair.

April 29, 2013


Local retailers – the lifeblood of local communities – may be on their way to getting a deserved break from the federal government.

The U.S. Senate advanced legislation last week that would impose local sales taxes on purchases made over the Internet. A final Senate vote on the measure is scheduled for May 6. If approved by the Senate and the U.S. House and signed into law, the action would put local retailers on an equal footing with giant Internet retailers who have no “brick-and-mortar” presence in the communities where their customers live.

Under current law, states can only require online retailers to collect sales taxes if the merchant has a physical facility, such as a store or warehouse, in the state. So Kansans, for example, pay sales taxes on their Amazon purchases because the retailer has a huge warehouse in Coffeyville, but residents of other states may not. Many online sales are tax-free, to the dismay of competing merchants who maintain physical stores, and have all the expenses that go with them, including charging and collecting sales taxes! The same dismay has been expressed by governors, both Republican and Democrat, who have pressed their case to Congress for years, trying to get authority to collect sales tax on online purchases.

Proponents of the legislation say it’s a matter of fairness. Plus, the revenue lost to local and state governments is significant. The Commerce Department estimates that Internet sales in the country totaled $226 billion last year, costing states an estimated $23 billion because they didn’t get any sales tax from those transactions. Supporters also argue that the measure simply gives states a way to enforce current laws and collect taxes they should be getting in the first place.

Those who oppose the bill (and they include Grover Norquist, the tax foe of all tax foes; the conservative Heritage Foundation; and politicians from states that have no sales tax) argue that it’s a tax increase that will hurt the economy and place more regulations on small retailers who are trying to gain sales via the Internet.

The measure still faces an iffy outcome in the House of Representatives, where the anti-tax cadre holds more sway.

This is a change whose time has come. Congress needs to get this monkey off the backs of struggling local retailers and do away with an unnecessary advantage that fosters e-commerce to the detriment of businesses that invest in local communities across the nation.


Steve Jacob 5 years ago

I love how people make up numbers. If it's not ebay, your most likely paying sales tax already on about everything you buy online.

I think what hurts small business the most is selection. Stores have less and less inventory, while the internet has everything.

Lawrence Morgan 5 years ago

This editorial, again, is right on!

Lawrence Morgan 5 years ago

As I commented earlier, this editorial is well-presented and factually correct.

You might also want to read the NY Times article on this subject, which just came out:

jafs 5 years ago

This seems odd to me.

If I order something from another state by calling an actual business there, I don't pay local sales tax on it, right?

Generally speaking, I pay shipping, but no sales tax, and if I did pay any sales tax, I'd expect to pay the sales tax rate of the area in which that business is located, not the Lawrence KS rate.

So, if we're going to pay sales tax on online purchases, it would make more sense to pay sales tax rates where the business is located, and have that money go to that local area, not here.

Also, this opens up the argument that it puts an unfair burden on online purchases, since customers will have to pay taxes plus shipping costs, making it much harder for online commerce to succeed.

Given that we generally pay shipping, I'd say it's a somewhat even playing field now.

jafs 5 years ago

Yes, there is that tax, and I pay it - I thought of that.

But, it's an odd one, and I disagree with it.

jhawkinsf 5 years ago

Vertigo - While listening to NPR about a week ago, they mentioned that 98.4% of taxes owed that should be claimed on the form you mentioned are not currently being paid by the taxpayer. The story even said the IRS was looking for a suitable case where someone didn't pay when they should have, someone like an accountant or a tax attorney, since it was the belief of the IRS that the reason that tax wasn't being paid was because people didn't know about it. They were looking to set an example with someone who clearly should know about the law, yet was failing to follow it.

Jafs - If you are indeed paying those taxes, you are in a very small minority.

Me - I hire an accountant to figure out what I owe and in all honesty, I've never looked to the form that closely. (My online purchases are small), so I just focus on the big ticket items.

jhawkinsf 5 years ago

If we pay taxes at the rate of where the business is located, then all businesses will simply move to the place with the lowest taxes. What is the sales taxes in places like China, India, Bangladesh? Or they'll move their corporate offices to some post office box in the Cayman Islands. Don't many, many companies now incorporate in the State of Delaware, because of a tax benefit? Encouraging companies to move even more their money out of the country, already a problem, doesn't seem like a wise policy to me.

jafs 5 years ago

Wow - lots of jumps and leaps in there.

Sales taxes are generally charged on purchases in a given area, and computed based on local rates, right? Different states and local areas have different sales tax rates.

Why should I pay Lawrence, KS sales tax rates on purchases made in other states?

You seem to think it's a problem that companies are taking money out of the country - any ideas on how to solve it?

jhawkinsf 5 years ago

Why should you pay Lawrence, Ks. sales taxes? That's a good question. Here's my answer. Taxing policies are made to encourage some behaviors and discourage others. We've had several discussions about this. You seem to object, but it's just a reality. That's why cigarettes and alcohol have different tax rates than, say, clothing or food (and, yes, I would favor the elimination of sales taxes on non-prepared food). Anyway, if you purchase any good online with the tax going to wherever the purchase was made, you will surely be encouraging that company to seek out the place with the lowest taxes, which would in turn make their product less expensive by that amount saved. A less expensive product will be more competitive in a free marketplace. So where will they locate to? China, India, Bangladesh?

Yes, I think companies taking money out of the country is a problem. Think of it this way. Look at Kansas City, both of them. Suppose they had two very different taxing systems. Sales taxes were very different, housing taxes, also. Income taxes different, corporate taxes different. All very different. You would essentially be encouraging people to live in one state and work in another. Shop in one state and build factories in another. Colleges might be on one side of the border while entertainment goes to the other.

Companies are not moving their money oversees in a vacuum. There is a reason they are doing it. And that reason is that our taxing policies in regards to profits are much higher than in the places where that money has landed. Our taxing policies have encouraged companies to move their money offshore and to keep it offshore. Or the taxing policies of other countries have encouraged the money to be brought there. Or a combination of the two. But behavior has be encouraged and/or discouraged.

Now the real world question you have to ask yourself is this. Can you somehow encourage other countries to bring their taxing policies more in line with those in the U.S. so as to not encourage companies from setting up their corporate headquarters in some post office box in the Cayman Islands? Or even better, can you encourage every country on the planet to do that? Unlikely, in my opinion. There will always be some country, some little municipality, some city state, somewhere, looking to get a small piece of the pie. Maybe even Vatican City will become that destination. But it will be somewhere. We've got to lower our tax rates to something close to their tax rates so companies aren't encouraged to move their profits offshore. As it is now, the Cayman Islands are getting 15% of huge amounts while we're getting 30% of nothing. (I made those percentages up, just to give an example).

jafs 5 years ago

Well, since I disagree with the idea of using tax policy to encourage or discourage behavior generally, your answer isn't satisfying to me.

If the justification for sales taxes is that there's a certain amount of infrastructure in place necessary to support the business, that would be the infrastructure in the state it's located, not here.

Your KS city example is a good one - the idea of our nation is that states have a lot of freedom and diversity, so having different tax rates, etc. is very much in line with that idea. If the outcome is that people choose to live in one state and work in another, that's fine with me.

I'm not at all sure I agree that tax rates are the major causal factor in why companies have moved away, and/or that I would agree we should lower our tax rates to try to encourage businesses to come back here.

jhawkinsf 5 years ago

You may not agree that behaviors should be encouraged or discouraged, but the Kansas City example shows how that happens anyway. And since "we" can't control "them", it's going to continue, no matter how we feel about it. ("We" might, in some instances be Lawrence, or Kansas, or the U.S. "Them" might be other cities, other states, other countries. It will keep shifting as we compete in a global marketplace).

And tax rates alone probably don't account for businesses going elsewhere. But it is a factor. Wages in factories will probably determine where the factory is built. But when it comes to those post office boxes in the Cayman Islands that become corporate headquarters, I'd think that taxes becomes the primary reason for relocating there.

jafs 5 years ago

Perhaps, but there's a distinct difference between the fact that tax policy may affect behavior and the idea that we should use it to do that.

I agree quite a bit more with your last paragraph, but not that it means we should lower taxes as a response.

jhawkinsf 5 years ago

You may not agree with trying to encourage/discourage behavior, but I don't see any other way of explaining things like sin taxes, high taxes on gasoline compared with say, clothing, etc.

How would you encourage businesses to move their money back into the U.S., assuming you believe that having it offshore is not a good thing? (Assuming that 15% of something is better than 30% of nothing.)

jafs 5 years ago

They certainly are being used that way - I just think it's a bad idea.

I'm reluctant to move our conversation to where it usually goes, in which I propose solutions and you criticize them, without providing any ideas of your own.

Can you really not think of any other ways to approach this problem?

jhawkinsf 5 years ago

Ah, but it was I that proposed a solution this time, one that you did not like. Now you want me to come up with another solution? Nope, your turn.

jafs 5 years ago

I think I've proposed way more than my share of solutions over the course of our various conversations.

And, I have little interest in continuing the pattern I mentioned.

jafs 5 years ago

But, I should say I'm glad to see you analyzing and proposing solutions to problems, even if I don't completely agree with your analysis.

chootspa 5 years ago

If we had the sales tax go to the place where the business was located, all the online businesses would move to states that didn't have sales tax.

jafs 5 years ago


It's up to individual states to decide their taxing policy, and local areas as well.

chootspa 5 years ago

How is this not deciding their state taxing policy?

jafs 5 years ago

I don't see how KS has the right to tax purchases made in other states. I was referring to each state deciding whether or not they charge sales tax, and how much.

Our system was designed to be a coalition of states with significant amounts of freedom to make such decisions, so if MO wants to eliminate sales tax, that's their business.

chootspa 5 years ago

The purchase wasn't made in another state. It was made in my living room. Nobody's flying to Seattle to buy from Amazon.

jafs 5 years ago

Well, that's an interesting twist.

If I call a retailer in California and buy something from them, am I buying something in KS or in CA?

The point remains that the infrastructure, etc. that supports the business I'm buying from is in CA, and KS hasn't done anything that would entitle them to sales tax on it, if the underlying justification is that communities provide infrastructure that helps make business possible.

chootspa 5 years ago

The infrastructure that supports an online business exists everywhere. So when I make an online purchase, did it happen where the customer is, or did it happen in Texas or Missouri where some of the servers are, did it happen from the warehouse, or did it happen in the state where the business exists on paper? Or did it happen in every single state that data touched on its journey from order to delivery?

jafs 5 years ago

Well, we could look at it in more detail.

I'd say that the vast majority of the infrastructure is in the physical location of the business, ie. where they keep the goods they sell, with some of it in the location of customer service, if there is any.

There's some involved in the electronic communication, and some in the transportation as well.

You do know that we're supposed to pay a "use tax", equal in percentage to our sales tax rate, on items we purchase from other states, so when I buy something by calling a business in CA, KS gets that tax.

Do you think that's reasonable?

Also, I'm not sure, but I think even if you happen to be on vacation and buy something, that tax applies, so you're not even sitting in KS making a phone call to buy it. But, I haven't been able to get through to KDOR for clarification.

notajayhawk 5 years ago

The product you buy has to physically exist somewhere before you purchase it. Whether it's from a wholesaler or a private second-hand seller or from the manufacturer, it exists SOMEWHERE. And that factory/warehouse/home has roads leading to it, water and sewer lines, police and fire protection, schools for the company employees' kids, etc - I believe that's the infrastructure jafs is talking about, and why the taxes (if any) should be paid to the seller's state/locality, not the buyer's.

chootspa 5 years ago

If you order it from Amazon (which I realize is a bad example, since they already charge taxes in this state, but we're going with it). Anyway, if you order it from Amazon, it will be sent from one or more warehouses in several different states. It will physically travel on roads in all the states between the ordering house and the final destination, and the driver expects to not be robbed along the way.

usesomesense 5 years ago

It's completely ridiculous that something hasn't been in place that actually works for over a decade - more like the last two decades. Unfortunately our state government jumped on the bandwagon with the 'Streamlined Sales Tax' program which complicated sales taxes immensely for small business that either deliver goods or provide on site services in an effort to uniformly tax. For larger cities that meant losing some sales tax revenue where goods and services were provided to smaller towns surrounding them. The state of Kansas does require 'Use' tax (although most people don't know it exists) which is intended to tax out of state purchases that are delivered in state. I'm really not sure what's so difficult here - assign a percentage and if is delivered to another state (or from another country) to the end consumer it should be taxed and the retailer keeps track of the destination state (or locality like local retailers). Local businesses carry a lot more overhead and pay a lot more in taxes (property and income) and deserve the advantage. Online retailers have the advantage of buying in larger quantities and lower overhead, and broader selection. This merely closes the gap a very small amount.
It's really quite simple - my business pays taxes, I pay taxes, my employees pay taxes and we all enjoy the benefits (at least at the present moment) of public education for our kids, roads to drive on, sewer and sanitation services, recreation facilities etc - and we're all helping pay for that. Online retailers may pay NONE of that. As far as it hurting small online businesses starting up - it's much like a guy that starts up a business and says 'If you pay me in cash I won't charge you sales tax' - and I'd expect even if there's a law in place mandating it there still won't be anywhere near the correct amount collected - or at least distributed back to the states accurately.

skinny 5 years ago

If this passes all the companies have to do is move outside the United States and again, they will not have to collect sales tax. Pretty simple. That is why I shop online. When I buy big ticket items I save big bucks!

We've run off all the big clothing and electronic factories from the United States, might as well run everything else outside the united states. At least we won't have to pay sales taxes!

usesomesense 5 years ago

And we'll all be unemployed in the long run. Big savings, isn't it? If we were manufacturing all of that stuff here still our unemployment would be a lot lower and China wouldn't have us by the balls.

jafs 5 years ago

Local businesses...deserve the advantage.

I can't agree with that. Though I try to shop locally, I've had many poor experiences with local businesses. If they want me to patronize their business, they need to provide quality goods/services at reasonable prices.

Last time I ordered something online, I paid a lot more in shipping costs than I would have in sales taxes, so there's no built in advantage for that business, and what I wanted wasn't available locally (it could have been, but the distributor for this area chose not to carry it).

The whole idea of sales taxes is that they're charged on purchases in a given area - it makes no sense to charge them for purchases made elsewhere.

tomatogrower 5 years ago

It makes sense for those small local retailers who have the item that you want, but then you go home and buy it from Amazon. The small retailer is out money, but so is our community. There are people who do this, because sometimes big places like Amazon can offer a smaller price. But, I agree, the shipping costs turn me off for a lot of online shopping. It may be cheaper, but after shipping it's higher or the same. I still think the tax should be sent to our community however.

jafs 5 years ago


Our local community didn't do anything to support the business in the other state I bought stuff in - why should they get tax revenue for it?

fu7il3 5 years ago

I love how these things always make it seem like internet businesses are nameless, faceless entities. Online businesses invest in their local communities just as much as physical businesses. Most major retailers online already collect sales tax. What this is going to hurt is small internet businesses, most likely those with one of two employees, who can't afford a physical location in the first place. They are going to have to deal with sales tax laws and filing in every place they sell anything. Can you imagine how complicated that is going to be? Tax attorneys will be the only one coming out ahead on this one. There will be no advantage to physical businesses or internet businesses. The consumer loses. It's a bad deal.

chootspa 5 years ago

I believe there's already a size exemption in the proposal. Ebay just wants to make the exemption bigger.

bevy 5 years ago

Last I heard, this wouldn't apply to businesses with less than one million in sales annually. So it shouldn't hurt the little guys.

tomatogrower 5 years ago

I alway feel bad when we buy something we can't find in Lawrence at Nebraska Furniture Mart, since I like my money going locally. But did you know that if you special order something there and they send it to your house, you pay Lawrence sales tax, instead of the high Legends sales tax?

Centerville 5 years ago

Has anyone explained to the small stores that they, too, will soon have to collect taxes based on a customer's residence? Nah. And, the sane response is to eliminate sales taxes altogether.

Currahee 5 years ago

The sales tax debate is funny because more often than not, you will pay shipping charges on items which can end up costing the consumer more than the sales tax. So honestly it can go both ways. I shop on amazon mainly because they will have something that wont be here for sale. And tax doesn't even matter for cost savings because amazon has a facility here. Online retailers have a major price advantage for not needing to hire sales staff. Should we add an internet markup to 'even up the odds' too?

fan4kufootball 5 years ago

Oh My - look at how many companies will have to file sales tax returns in all 50 states. This will cost business a lot of money in software, etc and guess who gets to pay for it - the consumer!

notajayhawk 5 years ago

Forget fifty states - how many thousands of localities as well?

Gareth Skarka 5 years ago

As somebody who runs an online business, this will be a huge burden for small businesses, who will now have to track hundreds of different sales tax rates across the country and reconcile with each and every municipality -- and unlike large corporations, we don't have a staff of tax accountants to do that for us.

This is yet another one of those "Brilliant" ideas put forth by people who have ZERO understanding of the complexity of the issue. The last thing we need are technological amateurs like our legislative idiots trying to pass laws governing the internet, which they don't understand and are too ignorant to educate themselves on.

chootspa 5 years ago

Does your company do more than a million dollars in sales a year? If not, you'd fall under the small business exception and wouldn't be required to do all that. Education is a good thing, yes?

fan4kufootball 5 years ago

One million dollars in gross revenues is not that hard to obtain. This type of legislation would affect more than you think.

chootspa 5 years ago

You have no guarantee that any law or loosening of a law isn't a slippery slope to the apocalypse.

Maggie Morrissey 5 years ago

I am a dedicated online shopper. I can't recall a time I DIDN'T pay sales tax and shipping if the purchase doesn't qualify for free shipping. (Which is rare because there are ALWAYS ways to void shipping costs.)

"Much Ado About Nothing"........time, research and cost of such once again wasted!

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