Internet Tax: The New OPEC for Politicians

[Seeker]

LInk

Internet Tax: The New OPEC for Politicians

By Veronique de Rugy

Fearful that they might be missing a chance to collect more taxes, bureaucrats from 31 states recently met in Chicago to create a new system for taxing Internet purchases. They claim they are trying to simplify their respective sales taxes. But state governments actually are banding together to create a tax cartel that would not only lead to higher taxes but also would be a flagrant violation of the Constitution.

Thanks to a Supreme Court decision (Quill vs. North Dakota), states can collect sales tax on purchases made over the Internet only if the retailer has a physical presence in that state. If the vendor lacks such a "nexus," which is typically the case for Internet stores, a book purchase from a local retailer, for example, ends up being subjected to the applicable state and local sales tax, while the same purchase made by a resident in Virginia through the Internet to a Washington-based company is effectively exempt.

Many state governments technically oblige consumers to remit a "use" tax on out-of-state purchases, but these levies are so unpopular that they are seldom enforced.

There also is a federal moratorium that prevents states from coming up with new special and discriminatory taxes for e-commerce, but it will expire at the end of 2003. State tax officials are offering to homogenize their tax jurisdictions to gain permission from Congress to tax all purchases made over the Internet, and in particular to collect taxes from sales from companies located in other states.

The state politicians call this proposal the Streamlined Sales Tax Project. It should be called the "OPEC for politicians." Amazingly, some of the politicians claim that taxpayers would be better off after the cartel is created. Utah Gov. Mike Leavitt, a key leader in the states' effort, says, "It will dramatically improve the morass that currently exists."

It is a fact that America's sales-and-use tax system, with 7,500 state and local taxing jurisdictions across the nation, is complex and cumbersome to businesses. But what really bothers state officials is that the arrangement makes it difficult for "remote" retailers, such as mail order companies and e-commerce companies, to calculate, collect, and remit sales taxes to different states and local government.

And this is where the Streamlined Sales Tax skim becomes clear. Leavitt's relentless criticism of the unfairness of the existing sales-tax regime is just a veil to mask government's endless craving for more taxes. This project is really about creating more sources of revenue for the states by allowing them to start taxing income earned outside of the borders of their state.

If Leavitt's pro-tax forces have it their way, going back to our previous example, Virginia would be able to collect taxes from the Washington-based book retailer. Never mind, of course, that the company that is being taxed has no voice in the tax-and-spending decision made by Virginia and that the company never benefits the public services Virginia provides with those tax dollars.

Make no mistake: Under the cover of the SSTP, states and local governments are asking Congress to lift the restriction that forbids them to tax extraterritorial income earned by remote sellers. The extension of sales-and-use taxes to out-of-state sales, no matter how simplified and harmonized, represents a huge threat to taxpayers and economic prosperity.

The states involved want to create a tax cartel to allow them to impose taxes on firms that do not have a physical presence in the state, which means those companies would pay taxes to that state but would not consume public services. And that equals taxation without representation. Further, some states, such as California, would have the power to tax consumers who reside in other states, thus infringing on state sovereignty. Taxpayers would be the big losers because the new lack of competition between states would mean the end of any constraint to increase taxes.

It should go without saying that states, as sovereign entities, should have control over their tax policy. Tax harmonization and tax cartel are not the answer to the Internet tax debate. Taxpayers would be the big losers of this sordid game and freedom and economic growth would be permanently damaged. For the sake of American taxpayers the Streamlined Sales Tax Project should be defeated and tax competition should be protected.

(Veronique de Rugy is a fiscal policy analyst with the Cato Institute.)

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[Dennis]

Perhaps the Pentagon will take care of discovering and tracking e-sales and e-purchases. Apparently the Bush regime already is giving them the power to do so.

All that is left is to have the Treasury Dept enforce whatever the ATF enforcers (in lieu of Congress) believe might be advisable "for the People."

ATFT? (Alcohol, Tobacco, Firearms, Taxes?)

Hey, it's only another tax! No need for another Tea Party over a 2 or 3 % tax! Oh, wait. That was then! We pay 6-12% these days....

No problem! It all goes to support the Party!

[Workers of the world, Unite! (and obey!) )

[Justin]

How, exactly, would one go about throwing tea off of an internet computer server?

[Malone LaVeigh]

Well, if any kind of commerce is going to be taxed, I'm in favor of taxing internet, and for that matter mail order, business. Putting aside the argument of how much we should be taxed in general, sales taxes are a way most states finance a lot of their operations. I would say they have some advantages over the state income tax. So, why should internet and mail order businesses get a free ride? I know, some ou you will say all taxes are evil. But assuming we have to have some, why discriminate?

[Dennis]

Thank you, Caliban! That's the funniest take on taxation I've heard in years!

[trying to be serious]

The point I (apparently poorly) was trying to make was that we are taxed somewhere between 50-75% of what we earn. Even the poorest of us must pay the hidden taxes in so-called "tax free" food. Such hidden taxes include reimbursing the farmer for the taxes he pays on his home, farm, equipment, etc. as well as the sales taxes he pays on taxable items, his income tax, etc.

I groan when people advocate taxing corporations instead of families. Who buys the corporations' goods and services? The families! The corporations still must maintain profits (for the owners, stockholders, etc.) so the corporations simply increase the price of their goods and services. Renters must pay the tax paid by the residence owners, etc.

The tax system in America is a bureaucratic mess and horribly expensive. That's why I believe we should abolish the I.R.S. and replace our current system of taxation with a simple sales tax. The taxation bureaucracy would be greatly simplified and much less expensive for the taxpayers.

The greatest benefit to Americans would be learning exactly what we pay for the services of our government. If a $20,000 (+ $5,000 tax) car suddenly carried a $16,000 price tag and a sales tax of $9,000 I believe the system would be more honest, cheaper, and just maybe Americans would hold our self-serving representatives a bit more responsible for their actions. "Pork" would become a scary accusation in Washington and throughout government.

Realize two points:
1) My numbers (above) are only simple examples of the system I advocate. They are not accurate representations of what the numbers would be in real life. Why is that?
2) Even the government can only make a rough guess about what the tax burden is on Americans. For one thing, some taxes are called "fees" or expensive "licenses," etc.

So just evaluate the concept of making taxation clear, fair, understandable (ie accurately quantifiable) and making our government more cost effective.

The question is, "How would we do this?" The answer, of course, would be to vote out the current, self-serving oligarchy and hold our government representatives as responsible for their actions as they hold us for our actions.

But, in my opinion, Americans have had that concept bred out of them since the artificial Great Depression, the government-worshipping lemming thought process required during World War II, and the establishment of the grand royal family who has ruled us since King FDR.

Therefore, I feel no hope for improved clarity, responsibility, and accountability from our government. But I'll keep fighting for it.

Your question was, "How, exactly, would one go about throwing tea off of an internet computer server?" My answer is, "Vote the money-grubbers out of office." That seems to be the best "Tea Party" available. And, hey! We don't even have to wear war paint or feathered headdresses!

[Double Naught Spy]

Do the words "urban internet myth" mean anything to anybody?

How about words such as paranoid, conspiracy theory, etc.?

Then again, Chicago is taxation conspiracy root of all evil, right?

[Preacherman]

Dennis, you da MAN!!! Hear, hear!!!

[Seeker]

What caught my eye was this part:

going back to our previous example, Virginia would be able to collect taxes from the Washington-based book retailer. Never mind, of course, that the company that is being taxed has no voice in the tax-and-spending decision made by Virginia and that the company never benefits the public services Virginia provides with those tax dollars.

Do the words "urban internet myth" mean anything to anybody?

That the USPS was going to start requirng postage on email, was probably a myth. Taxing the internet has been a very real topic of discussion among those that like to raise taxes. Also this article came from the Cato Institute who tend to be fairly reliable concerning facts (even if you don't agree with their politcs.

[bastiat]

It's not an urban internet myth. There really is an effort under way to get internet taxes passed.

What's wrong with Internet Taxes collected on out of state purchases?

1. It's incredible difficult to comply with. Different tax rates for different states. Even different tax rates for counties within certain states. Keeping up to date would be a nightmare, with dire legal consequences if you slipped up.
Result: Higher prices on the things you buy.
Upside: More programmers needed to keep up with the hassle.

2. Distributing payments to each state would take up time and money. 50 checks to cut each month (or every three months if you're lucky). Cost of cutting checks, cost of mailing, cost of worker to do mailing.
Result: Higher prices on the things you buy.
Upside: More accountants needed to keep up with the hassle.

3. Small size internet operations could be pushed to the point where it just isn't worth it to deal with all the hassle. Government puts the choke hold on budding entrepeneurship once again.
Result: Fewer small players, cut out not by competition but by government fiat.
Upside: Local merchants who don't want to go on the Internet can go back to charging high prices because they have less competition.

4. Local governments collect a tax while doing absolutely nothing to earn it. Usuallly you can justify taxes on a local merchant because he is benefitting somewhat from local government services. How does a merchant in Montana benefit by paying taxes to california? Answer: He doesn't. California didn't do a damn thing, they just want 'their' tax money.
Result: Money confiscated from a foreign state because they believe they have a right to it.
Upside: Your state can tax a business in another state just because they believe they have a right to it. Woohoo! It's like printing money!

5. Deliveries go down. People who work in the delivery business handling goods bought online start to lose their jobs. States start to lose income tax revenue because those people are put out of work. Fewer people working, less economic activity in the state.
Result: Economy grows at a slower pace. Less prosperity in the name of paying Homage to the mighty tax gods.
Upside: States will have some confiscated money from businesses in other states to put towards unemployment benefits.

[bastiat]

Malone, name this tune in 8 words or less:

For imposing Taxes on us without our Consent:

It's from a little document called the Declaration of Independence. Over 225 years ago a lot of people got upset that they were being taxed by a foreign body that they had no control over. The same could be said today. I can't vote for the representatives who control the tax rate of 49 other states. I can only vote for one. I should only be taxed by one.

Why should they have the authority to tax me? On what basis do they have authority to tax a business that is conducted solely in one state? If an Internet company ships an item, it goes through a common carrier. The merchant's business activity ceases (for tax purposes) once the package is delivered to the carrier. Everything that he does takes place in one state. Why is another state entitled to a piece of the action? Why does he have to comply with their tax laws when he has chosen not to live in that state? Why should he pay taxes to another state that he doesn't have a business operation in?

"No Taxation Without Representation"... (unless we can get a piece of the pie, that is).

[spark@onestopknifeshop.com]

The smartest way to handle this morass is that anything sold over the internet in one state, has sales tax computed for that state, and sent to that state's center. Instead of writing 50 checks, you are writing one.

Of course, that would mean a huge move to states with low sales tax rates. But it'd be a lot easier to administrate. I mean, how the hell do you enforce something like this? Someone knocks on my door saying that they are auditors from the NY board of taxation, I'm laughing in their face and telling them to pound sand.

Kevin

[hammer4nc]

Dennis has correctly stated that the present income tax system is corrupt, unfair, and insidious in that most folks aren't noticing the tremendous drain on the fruits of their labor. However, when I look at the proposals for "simple" sales tax systems (to replace the IRS, or on the state level), I just don't see the advantage. Lets assume the tax collectors agree to homogenize state tax rates, and convince Congress to permit internet sales tax collections. Or, assume Congress scraps fed income taxes, in favor of a national sales tax...

Simple? OK, on day one all the established e-tailers (amazon, LL bean, etc.) have the appropriate tax collection software cranked into their shopping cart pages. No sweat (except for increased prices on products).

Now, on day two, ebay, gunbroker, and other "auction" sites will start collecting taxes on internet transactions? I see problems cropping up. Look at all the junk auctions on these sites. People are already using these sites for cheap/free advertising, many sales are made under the table as it is, just to avoid the auction fees.

On day three, we see napster-like, peer-to-peer trading posts suddenly surging in popularity (i.e., TFL buy-sell-trade forums). Theoretically, every single person-to-person sale or barter would be subject to a sales tax. Governments start whining about all the lost revenues from these illegal, contraband markets. Is TFL going to have to collect sales taxes, in exchange for the "privelege" of posting a trading post? Class? Bueller?

On day four, all the agents who were laid off when the IRS was dissolved are now rehired by the newly created sales tax police, to monitor sites, set up sting operations, arrest violators, etc. One of every five people at country flea markets is actually an undercover agent or informant.

In the first year, the body of laws covering sales taxes hits 30,000 pages, well on its way to surpassing the IRS code. Special interests have lobbied for "exemptions" (charities, philanthropies, etc.; who would argue against THAT?)

Now I understand the arguments that removal of the income tax will more than offset the amount paid in new sales taxes. That sales taxes are preferable because they're "voluntary" (i.e., you can avoid taxes by not buying ANYTHING...hehe, where have I heard THAT before!)

Yet, nobody (in govt), is facing up to the key point that unless government gets significantly smaller, its still extorting the same (or larger) amount of dollars form the same pool of people.

The sales tax will create an "underground" economy, in much the same way the present income tax system does. And create a whole new class of "criminals", in the Orwellian sense.

Sales tax more simple? What am I missing?

[Seeker]

The smartest way to handle this morass is that anything sold over the internet in one state, has sales tax computed for that state, and sent to that state's center. Instead of writing 50 checks, you are writing one.

Of course, that would mean a huge move to states with low sales tax rates.

Works for Oregon!

For those that don't know Oregon doesn't have a sales tax - yet but our new Demican Gov'nor hopes to implement one

[Malone LaVeigh]

Malone, name this tune in 8 words or less: (etc.)

For imposing Taxes on us without our Consent:

That could be said for any sales tax. If I travel to another state and buy something, I pay a tax to which I didn't consent. What's the difference between that and ordering it over the internet or phone? That would be a nice trick, if I never had to pay a tax anywhere but my local jurisdiction. Part of the sales tax goes to the county. Can I ignore that when I drive into Sacramento to buy something? Since everyone around here says fees are taxes, can I camp in a state campground in the next state without paying the fee?

Note I'm not making a statement about which if any of these taxes are just. I'm just saying SOME kinds of taxes are going to be charged, and why should the internet get a free ride?

[Dennis]

Hammer,

Sales taxes seem to be much more workable than income taxes. Simply tax an item once—when it's first sold. If the original buyer wants to sell it, surely he is wise enough to include what he paid in sales tax in his original investment. Therefore, no sales tax on second-hand items. The original cost of the item (sales tax included) will be recovered (at least partially) upon selling the item.

Voila! No black market.
At least no more than there is right now.

[bastiat]

The internet isn't getting a free ride. It's the same for mail order or orders over the phone. No taxes on out of state purchases UNLESS you have material operations in that state. Same standard applies - weren't you aware of that? Or are you implying that Internet sales should be taxed while mail order or phone sales are not taxed???

Sears & roebuck did catalog sales hundreds of years ago, and wouldn't have been taxed unless they had actual operations in that state. But now states see this gold mine out there, and they want a piece of it. They don't realize the internet grew precisely because it was free of taxes and regulation. They want to kill the goose to get the golden egg.

As far as going elsewhere to avoid extra tax, that's fine. Courts have ruled that your are under no obligation to pay as much tax as you 'should' according to state laws. Leaving your current location in order to decrease your tax burden *legally* isn't against the law.

As far as traveling out of state, that's a poor argument. By being in that state, it can be claimed you are using that state's services to some extent, therefore a tax is justifiable for residents and non-residents. If you didn't have taxes for both residents and non-residents you'd have disincentive for people to live there.

You are also subject to their traffic laws as well. You don't have a magic bubble of 'Home rule' around you if you leave your own state. Also, you are 'consenting' by the very fact that you have chosen to be in that state. You consent to abide by their traffic laws, their municipal codes, AND their tax structure. There's no way you can relate being in a state to selling a legal product to someone in another state. They're just not the same.

[Jeff White]

Dennis,

How are you going to distribute the proceeds from your sales tax? If you've only gpt one tax, collected by one agency, how much does your city, county, state and federal government get?

The only way to fix this mess, is to get the governement back into it's bottle. The government is supposed to allow us to do those things collectively, that we can't efficiently do by ourselves.

Defend the country, build and maintain the transportation systems, roads, airports and seaports, public safety (police, fire, EMS), courts....that's about the only legitimate government functions. Get them out of the retirement business, welfare, medicare and medicaid, research, education and the millions of other things they do that they have no constituional authority for, and you could cut our taxes by 80% and have the finest public services in the world, nation-wide. I am sickened everytime I see a fire department raising money to buy a new fire engine, a police department trying to raise money to replace old body armor, ambulance districts having bake sales to buy new equipment or people dying in tornados because we cut out doppler radars for NOAA. If we did that, it wouldn't matter how we collected the money, we'd only need a fraction of what we pay now.

Jeff

[TaxPhd]

As bastiat correctly pointed out, there is no diference between internet businesses and mail-order businesses as far as the sales tax regulations are concerned.

The only issue here is whether to allow states to require the withholding and remission of sales taxes by vendors who don't have nexus. This will apply equally to internet and mail-order alike.

Every state that has both a sales tax and a state income tax has a "use tax" for purchases that were made out of state and no sales tax was collected. You are required to self assess this tax and remit it with your state tax reurn. No one does it, but it is the law.

I don't like sales tax any more than I like income tax (although replacing the current income tax system with a national retail sales tax makes a lot of sense), but it is understandable that the states would undertake steps to increase tax compliance and decrease what is essentially tax evasion.

[NotQuiteSane]

I belive the new agency will be staffed by IT (Internet Taxation) professional

NQS

[Dennis]

Jeff,

"How are you going to distribute the proceeds from your sales tax? If you've only got one tax, collected by one agency, how much do your city, county, state and federal government get?"

The state would collect the total tax and forward the feds' share to them. That would reduce the "tax bureaucracy" to a minute portion of its current size.

- - - -
"The only way to fix this mess, is to get the government back into its bottle."

Jeez, Jeff! And folks call me a dreamer because I don't like the current oligarchy!

In fact, the reason I want a sales tax is that the level of federal, state, and local taxation then becomes identifiable and quantifiable. This will astound and offend taxpayers enough to force them to become informed and to perform their watchdog obligation over our federal, state and local governments. It's time we learn just what our governments cost us and what we get for our money!

With the exception of our (necessarily) covert and secret appropriations, the government budget (including detailed pro forma statements) should be public information. After all, it is NOT the government's money that is spent. It's OUR money!

[Jeets]

First, Admins and Moderators, there should be more posts such as this rather than the .45 vs the 9mm debate! Thanks to Seeker for opening this discussion!

I hesitated to reply because I know the feds read this stuff but I was so angered by some of the comments people made. Lets face it the last thing I want is to be denied on my next gun purchase !

Enough already! I work 40 hours, they pay me for 10. The other 30 hours the feds, state, local, social security, and all the other fees, licenses, and let us not forget FINES, fight over! And now they want a cut of my 10. ***! Admins, can I say that?

[Jeff White]

Dennis,

Very smart idea, having the states collect the tax. Revenue sharing and letting the Feds collect taxes for the states was one of the bigger power grabs by the federal government. Done under a Republican administration no less...

It just might work. But it's one of those ideas that would upset a lot of peoples apple carts, so it's chances barring a major change with a lot of hardship involved are probably zero.

Jeff

[Dennis]

Uh huh. About the same as our government truly representing the people and (to make it more unlikely) abiding by the Constitution.