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James P. de Bree Jr.: Use tax is hard to enforce

Posted: August 21, 2014 2:00 a.m.
Updated: August 21, 2014 2:00 a.m.
 

The Aug. 15, 2015, edition of The Signal contained an op-ed piece by Phil Kerpen entitled “A big new tax coming.”

The gist of Mr. Kerpen’s position was that Congress is going to add a new tax on Internet commerce by allowing the Internet Tax Freedom Act to expire.

The positions espoused in that piece are confusing as Kerpen intermingles the concept of taxing Internet access with the ability of states to subject online transactions to sales tax. It appears that he is against both.

However, the ability to collect sales tax on Internet sales is not as black and white as Mr. Kerpen suggests. The current situation effectively uses foregone tax dollars to subsidize the online retailers.

Under current law, states are precluded from charging sales tax on online purchases. However, states are not precluded from imposing a use tax on such purchases.

Use tax is a tax charged on the user, rather than the seller, equal to the sales tax that would have been paid for products consumed or used in the state.

Most states, including California, impose a use tax if they have a sales tax.

The problem with a use tax is that it is hard to enforce. Taxpayers have to voluntarily report their purchases either by filing a use tax return or by paying the use tax with their income tax returns.

Obviously, most consumers do not pay use tax, either because they are unaware of its existence or because they choose to ignore it.

The problems with this situation are multiple. Clearly, the online retailer has a competitive advantage because online sales are not subject to sales tax. Consequently, the traditional brick-and-mortar retailer is at a competitive disadvantage.

Finally, the shifting of commerce to a venue for which sales tax is not collected results in a decline in tax revenue, requiring state and local governments to either cut services or to raise other taxes or impose user fees.
The tax policy should not favor one delivery platform over another. All retailers should be in the same position from a tax standpoint.

As Mr. Kerpen correctly suggests, taxing online purchases will reduce the demand for such purchases. So where would those purchases go?

In large part, they would go to the traditional brick-and-mortar retailers in local shopping centers.

The mom and pop Internet-based retailers claim that it would be too difficult to collect and remit sales taxes to multiple jurisdictions.

This is a red herring. Software vendors have created database software that would determine the appropriate level of tax to collect based on the address to which the merchandise is shipped.

The funds collected would be deposited in a central clearing account until sales tax returns are filed and the funds are remitted to the appropriate tax authority.

The vendors could e-file sales tax returns using the same software that collects the tax in an automated process.

The administrative burden on Internet retailers would be no greater than those currently placed upon brick-and-mortar retailers.

The idea of facilitating sales taxes on Internet-based transactions may not be the most popular idea, but it certainly levels the playing field for all retailers, restores lost taxes that are no longer collected and will help the economy in the long term.

James P. de Bree Jr. is a Valencia resident.

Comments

Kerpen: Posted: August 21, 2014 8:48 a.m.

The entire point of my column was that the issue of Internet ACCESS taxes (the ban on which is bipartisan and uncontroversial) should not be conflated with or held hostage by this contentious issue.


tech: Posted: August 21, 2014 9:31 a.m.

Correct, Mr. Kerpen. But without such conflation Mr. de Bree wouldn't have a column to write about his topic of choice.


BrianBaker: Posted: August 21, 2014 10:09 a.m.

This guy's entire premise is based on a huge falsehood:

"Clearly, the online retailer has a competitive advantage because online sales are not subject to sales tax. Consequently, the traditional brick-and-mortar retailer is at a competitive disadvantage."

Clearly, that's utter nonsense.

Someone has to pay the cost of transporting that on-line purchase to the buyer, and one way or another, that's the buyer. In fact, by adding the sales tax (under whatever guise) to the cost of product transport (shipping, mailing, UPS, whatever), it's actually the on-line seller who's at a disadvantage (not to mention the buyer, of course).


chefgirl358: Posted: August 21, 2014 10:31 a.m.

Brian, I disagree with you on this one.

I always look first in a store, then online for something I want. If I can get something for a lower overall price on Ebay with free shipping and no tax...of course that's the option I will choose.

Sometimes though, it's not always so. The other day I was at Target, saw a package of really nice artist type fine tip marking pens. A package of 10 was like $12 or something close to that. I took a picture, went home and looked online. The lowest price I found on ebay was over $20 for the exact same thing. So usually, ebay is better, but not always. I virtually NEVER buy books, cd's or DVD's anywhere but ebay anymore, you'd be crazy to. You can get a brand new hardcover best selling book for $5 or less with free shipping and no tax. (I hate reading books on e-readers).


BrianBaker: Posted: August 21, 2014 11:03 a.m.

Chef, there's no such thing as "free shipping".

The seller may not be charging the buyer for it, but he's also not then selling his product for the lowest price he could, either. As I wrote, SOMEONE'S paying for that shipping, and one way or the other it's the buyer.

As to your book example, you're not getting a "brand new" book. It may have been only read once, and in "like new" condition, but it's definitely not "new". Therefore it's actually "used". Used stuff never sells for "new" prices. Unless it's not a new release. If it's an "overstock" item, which is also very possible, yes; it will be greatly discounted. But again, it's not a "current" product.

You can get a lot of products, throughout the range from books to TVs to refrigerators, that are "new" (never sold) but unsold, at very low prices. Old inventory being cleared to make way for new inventory. I just bought some major appliances at Best Buy, and they were literally brand spanking new. Unsold inventory, floor models, full warranty, at less than half the regular price.

Go to Barnes & Noble and look at their clearance shelves. All "brand new" best seller hardcover books at $4.99 and under...... but not "current".


lars1: Posted: August 21, 2014 12:06 p.m.

The markup at standard "brick and mortar" retailers is over 100%. Online that is a more reasonable 25%. If you continue with the California State mantra of more taxes, the business will continue to leave.

There are vendors "outside-California", and now "outside-America" who do not and should not charge sales tax.


BrianBaker: Posted: August 21, 2014 12:21 p.m.

Good point, Lars.

There's no way that any retailer outside the country can be compelled to collect taxes.


AlwaysRight: Posted: August 21, 2014 12:52 p.m.

Actually, markup is dependent upon the item and the industry. Margins on food items are generally low (2-3%) while luxury items can be enormous (500%+).

From a simplistic point of view, online retailers have been free of taxes but had the disadvantage of paying for shipment. BB is right- someone always pays shipping even though it says "free shipping" shen you buy it.

Conversely, storefront retailers are free of shipping but must contend with taxes.

Brick and Mortar retailers are trying to gain an unfair advantage over internet retailers. this does not seem fair or equitable.

The old paradigm of "storefronts" may be something that needs to fade as we move into the future.


BrianBaker: Posted: August 21, 2014 1:13 p.m.

I'm not sure they will fade, AR, as there are aspects to the storefront operation not available through the on-line sellers.

For example, especially with a major purchase, actually SEEING your item's quality and (especially for things like TVs or cameras) operation in action are invaluable. You can't do that on-line.

The major appliances I bought last week from Best Buy had "free delivery" and installation. You just can't get installation with a fridge you buy from Amazon (for example).

Also, if there's a warranty issue, it's one helluva a lot easier to deal with it when your seller's right down the street, as opposed to somewhere on-line.

Who'd want to repackage a refrigerator and lug it to a UPS center to return it if it doesn't work when you hook it up?


AlwaysRight: Posted: August 21, 2014 1:24 p.m.

Yes, I agree BB. Note I said fade, not disappear. I still go to hardware and nursery stores where experienced people work. I pay a premium but I get knowledge and guidance.

Sometimes, that is big $$$ during a project.

The warranty stuff is also a big plus and something I had not thought of.


tech: Posted: August 21, 2014 2:11 p.m.

On the columnist's topic, i.e. unrelated to Mr. Kerpen's:

"The mom and pop Internet-based retailers claim that it would be too difficult to collect and remit sales taxes to multiple jurisdictions.

This is a red herring. Software vendors have created database software that would determine the appropriate level of tax to collect based on the address to which the merchandise is shipped.

The funds collected would be deposited in a central clearing account until sales tax returns are filed and the funds are remitted to the appropriate tax authority.

The vendors could e-file sales tax returns using the same software that collects the tax in an automated process.

The administrative burden on Internet retailers would be no greater than those currently placed upon brick-and-mortar retailers."

Mr. de Bree appears to be unfamiliar with Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992). Online sellers with no physical presence in a taxing authorities jurisdiction aren't required to collect sales taxes.

http://www.law.cornell.edu/supct/html/91-0194.ZO.html

Positing that an U.S. based eBay seller retailing new merchandise doesn't face a tax collection burden is misguided for a few obvious reasons that come to mind.

• Physical presence in one state/territory, precluding sales tax collection beyond state lines (see Quill)
• A brick & mortar retailer with a single location doesn't contend with multi-jurisdictional taxing authorities either
• Purchase of sales tax software, filing sales tax returns and accounting associated with clearing/remitting/auditing funds to myriad taxing authorities constitutes overhead. Hardly a "red herring", eh?

Preempting a mention of Amazon, that firm relented to collecting sales taxes because they're aggressively building distribution center infrastructure to enable same day delivery. That requires physical corporate presence in a taxing authority jurisdiction.

They're other caveats that I can think of but Mr. de Bree made blanket assertions that aren't accurate.


Indy: Posted: August 21, 2014 8:05 p.m.

James wrote: The idea of facilitating sales taxes on Internet-based transactions may not be the most popular idea, but it certainly levels the playing field for all retailers, restores lost taxes that are no longer collected and will help the economy in the long term.

Indy: I couldn’t agree more.

The sales taxes support the state infrastructure used to support businesses so the companies doing internet sales are putting the ‘brick and mortar’ companies at a disadvantage.

And it’s easy to track the sales tax through computers since everything is already automated and the ‘address’ of the delivery is known.


Indy: Posted: August 21, 2014 8:10 p.m.

BrianBaker wrote: Someone has to pay the cost of transporting that on-line purchase to the buyer, and one way or another, that's the buyer. In fact, by adding the sales tax (under whatever guise) to the cost of product transport (shipping, mailing, UPS, whatever), it's actually the on-line seller who's at a disadvantage (not to mention the buyer, of course).

Indy: It’s always helpful to understand the ‘conservative ideology anti-tax’ mindset as we see here.

But even upon casual observation, you can see the deficiencies in this poster’s post.

People buy online for many reasons including ‘AVOIDING’ the sales tax. These folks who say want their kids education in CA are more than willing to let others put up the money. What’s fair about that?

They also buy online for the convenience in that they are willing to pay for delivery to avoid spending their time and money picking up the product themselves.

In any event, sales taxes are just that . . . wherever the transaction occurs. I’m surprised this poster can’t grasp such a simple concept.


Indy: Posted: August 21, 2014 8:14 p.m.

lars1 wrote: The markup at standard "brick and mortar" retailers is over 100%. Online that is a more reasonable 25%. If you continue with the California State mantra of more taxes, the business will continue to leave.

Indy: Here we have yet another ‘anti-tax’ ‘anti-government’ conservative that wants us to believe that the ‘mark ups’ are either too high or low based on what he perceives versus the market.

The online companies can lower their mark ups if they don’t have to pay sales taxes.

You don’t have to be a ‘master of business’ to grasp that.

Likewise, the competition between companies determines the mark ups they have.

lars1 wrote: There are vendors "outside-California", and now "outside-America" who do not and should not charge sales tax.

Indy: Yes, conservatives that benefit from off shoring jobs and have investments in multinational corporations through the stock market love not having to pay for the infrastructure in the markets they wish to sell to here in the US.

We as citizens can say ‘no’ . . . if you want to sell here, you’ll pay the sales taxes or you can go elsewhere.


Indy: Posted: August 21, 2014 8:28 p.m.

chefgirl358 wrote: I always look first in a store, then online for something I want. If I can get something for a lower overall price on Ebay with free shipping and no tax...of course that's the option I will choose.

Indy: Yes, if you save money, why pay more?

But likewise, our taxes internally within this state are ‘higher’ since those selling out of state are asking us to pay for the infrastructure ‘they use’ to make their money.

Sadly, companies that have to pay to ‘display’ products can’t do that for free . . . so it’s a bit disingenuous for you to ‘take’ from them the cost of display only to buy online.

The sales tax does help ‘level the playing field’ since at least the online companies can’t defraud us that live here by avoiding same.

And if the movement of globalization is continuing as it has, then you’ll be sending your sons and daughters to work in the nation’s doing the manufacturing and selling and living in the nation’s economies these off shore companies exist in.

Check out this article from the LA Times: http://www.latimes.com/business/la-fi-american-apparel-made-in-usa-20140810-story.html#page=1

They put forth ‘average’ monthly wages for apparel workers. Here’s the comparison:

US - $2,366
China - $300
Indonesia = $199
India - $158
Vietnam - $128 . . .

If you feel that you want to live at the standards of these nations, they your buying of products from there is giving the businesses the ‘go signal’ to pay folks the wages noted.

Or, if the out of state sales are from out of state companies, you can send your kids to work in those states but not here.

There’s no free lunch . . . that’s one statement I totally agree with economist Milton Friedman even if he advocated conservative libertarian market fundamentalism. His only problem is that he doesn’t under basic ‘business’ which is different from basic ‘economics’.

Americans need to start getting a grip on international business and how it all works . . .

Then I'd suggest getting hip to the issue of 'sustainability' that addresses the connection between population and resources . . .


Indy: Posted: August 21, 2014 8:34 p.m.

AlwaysRight wrote: Actually, markup is dependent upon the item and the industry. Margins on food items are generally low (2-3%) while luxury items can be enormous (500%+).

Indy: Well, so far so good . . .

AlwaysRight wrote: From a simplistic point of view, online retailers have been free of taxes but had the disadvantage of paying for shipment. BB is right- someone always pays shipping even though it says "free shipping" shen you buy it. Conversely, storefront retailers are free of shipping but must contend with taxes. Brick and Mortar retailers are trying to gain an unfair advantage over internet retailers. this does not seem fair or equitable.

Indy: As I noted, buying locally still has the ‘costs’ of your ‘time’ and your ‘transportation’.

Buying online saves both . . . but ‘brick and mortar’ companies here in this state lose to the onliners since they are given a ‘subsidy’ by ‘we the people’ . . . who have to make up the lost sales taxes for the state’s infrastructure these online companies use.

I always find it saddening that conservatives that keep telling us about their ‘expertise’ in business related things still can’t see the ‘big picture’.

Here, your inability to ‘see’ all the costs involved weakens and destroys your comments.


BrianBaker: Posted: August 21, 2014 10:31 p.m.

Oh, good grief, Indy, with your endless blabbering of the standard socialist talking points.

To quote your inanity:

"BrianBaker wrote: Someone has to pay the cost of transporting that on-line purchase to the buyer, and one way or another, that's the buyer. In fact, by adding the sales tax (under whatever guise) to the cost of product transport (shipping, mailing, UPS, whatever), it's actually the on-line seller who's at a disadvantage (not to mention the buyer, of course).

"Indy: It’s always helpful to understand the ‘conservative ideology anti-tax’ mindset as we see here.

"But even upon casual observation, you can see the deficiencies in this poster’s post."

And then the rest of your completely irrelevant "response" had absolutely NOTHING AT ALL to do with what I wrote there. Simply more of your mindless copy-and-paste gibberish.


Exactly WHOM do you think you're impressing here?

I didn't even bother reading any of the other bullpuckey "reponses" to other commenters. Life's WAY too short to waste on your mindless dogma.


BrianBaker: Posted: August 21, 2014 10:40 p.m.

Oh... and just like I said the other day; YES, you are a socialist.

If it walks like a duck and quacks like a duck, it's a damned duck.

You're a socialist duck.


tech: Posted: August 21, 2014 10:45 p.m.

Indy: I always find it saddening that conservatives that keep telling us about their ‘expertise’ in business related things still can’t see the ‘big picture’.

Aww… Indy has a sad. :-(

It's hilarious how you profess expertise while breezily stating that sales tax compliance is "easy".


chefgirl358: Posted: August 21, 2014 11:02 p.m.

Indy,

It's no different than buying a few things at a garage sale, I'm not totally undermining the American marketplace for Pete's sakes just because I buy a used DVD on eBay!

Brian, I buy AND sell (a handful of small items) on ebay so I know what you mean about shipping. But still, you can price compare and still end up getting a better overall deal online sometimes, free shipping or not. Most of the items I get are books that have been read once or twice, but are "like new", but occasionally I do find a brand spanking new item for cheap, but it probably is overstock. Either way, I'm good. I buy books from the bargain bin at Barnes & Noble once in a blue moon and I'll resell them on ebay as like new after I've read it so it's all good. And if I know I want a book to read just once, I'll buy a worn book if it's cheap. Like I said before, it's no different than buying or selling a few items at a garage sale. eBay has simply put garage sales online and taken the hassle out of getting up at dawn and actually driving to one and dealing with the nasty gypsies that steal stuff at those things.


BrianBaker: Posted: August 22, 2014 1:20 a.m.

Oh, yeah, Chefgirl. I understand and agree. I was simply clarifying.

For the "low information voters". Like Indy.

LOL!


ricketzz: Posted: August 22, 2014 9:02 a.m.

Buy an appliance from Home Depot and General Electric delivers it from a warehouse. If it breaks and you take it back to Home Depot they will laugh you out of the store. Give me a break. You can't test drive something in 15 minutes and learn much beyond first impressions. You'd do better reading other peoples' reviews and comparing specs. Retail businesses are for impulse buyers.

Virtually everything I buy from ebay has state tax on it.


Indy: Posted: August 22, 2014 7:40 p.m.

chefgirl358: WROTE: Indy, It's no different than buying a few things at a garage sale, I'm not totally undermining the American marketplace for Pete's sakes just because I buy a used DVD on eBay!

Indy: You wrote: “I always look first in a store, then online for something I want. If I can get something for a lower overall price on Ebay with free shipping and no tax...of course that's the option I will choose.”

I’m not sure from the context of your statement but do you get the idea that retailers who spending more to ‘display’ things can’t do that for free?

And if you use that retailer’s store to view your future purchases, you’re not compensating that retailer for the ‘service to display’ when buying on line?


ricketzz: Posted: August 23, 2014 10:58 a.m.

The state can easily find end users who buy mail order and pay no tax if they have access to shipper data.


tech: Posted: August 23, 2014 11:56 a.m.

More fascist goon squads to regulate every activity, ricketzz? The NSA can data mine that information now. Do you support them doing so?

The more onerous the taxation regime, the lower the compliance rate. See: Laffer Curve.

Statists always assert that more government control is the solution and when that inevitably fails, they cite the need for more control. It's an endless loop of failure.


tech: Posted: August 23, 2014 4:07 p.m.

From cupcakes to the police, fed up with government

Washington’s response to the menace of school bake sales illustrates progressivism’s ratchet: The federal government subsidizes school lunches, so it must control the lunches’ contents, which validates regulation of what it calls “competitive foods,” such as vending machine snacks. Hence the need to close the bake sale loophole, through which sugary cupcakes might sneak: Foods sold at fundraising bake sales must, with some exceptions, conform to federal standards.

Contempt for government cannot be hermetically sealed; it seeps into everything . Which is why cupcake regulations have foreign policy consequences. Americans, inundated with evidence that government is becoming dumber and more presumptuous, think it cannot be trusted to decipher foreign problems and apply force intelligently.

The collapse of confidence in government is not primarily because many conspicuous leaders are conspicuously dimwitted, although when Joe Biden refers to “the nation of Africa,” or Harry Reid disparages the Supreme Court’s Hobby Lobby decision as rendered by “five white men” (who included Clarence Thomas), Americans understand that their increasingly ludicrous government lacks adult supervision. What they might not understand is that Reids and Bidens come with government so bereft of restraint and so disoriented by delusions of grandeur that it gives fighting knives to police and grief to purveyors of noncompliant cupcakes.

http://www.washingtonpost.com/opinions/george-f-will-from-cupcakes-to-the-police-fed-up-with-government/2014/08/20/8f5997e4-27c9-11e4-958c-268a320a60ce_story.html


jdebree: Posted: August 23, 2014 7:35 p.m.

"Mr. de Bree appears to be unfamiliar with Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992). Online sellers with no physical presence in a taxing authorities jurisdiction aren't required to collect sales taxes"

You missed my entire point. I am familiar with the case. I know that online sellers are presently exempted from collecting tax to customers outside thier jurisdiction. My point is that this exemption is subsidizing on-line retailers and the rules should be changed to put everyone on an equal footing.

I wanted the article to be called we need to stop subsidizing on-line sales, but the editor chose the title.

Furthermore, even though the seller is not responsible for collecting sales tax, the consumer is technically responsible for paying use tax, which of course, nobody does. --edited.


jdebree: Posted: August 23, 2014 7:51 p.m.

Brian--are you serious?
You make my point when you say the following:

"This guy's entire premise is based on a huge falsehood:

"Clearly, the online retailer has a competitive advantage because online sales are not subject to sales tax. Consequently, the traditional brick-and-mortar retailer is at a competitive disadvantage."

Clearly, that's utter nonsense.

Someone has to pay the cost of transporting that on-line purchase to the buyer, and one way or another, that's the buyer. In fact, by adding the sales tax (under whatever guise) to the cost of product transport (shipping, mailing, UPS, whatever), it's actually the on-line seller who's at a disadvantage (not to mention the buyer, of course)."

The on-line and traditional sellers both have to pay for shipping from the manufacturer. disctirubtor, etc. to his business. Then the on-line retailer, as you note, has to incur shipping to the customer. If the customer buys from a bricks and mortar business the customer drives to the business and effectively pays for the cost of transporting the goods to the place of consumption. That is off the books of the retailer, but is still a cost born by the consumer. According to the IRS, it costs fifty-six cents a mile to operate a car. So if a consumer drives around town shopping, he is going to pay his own shipping costs that likely approximate the shipping costs charged by the on-line retailer. What makes it more competitive for the on-line retailer is that he does not charge sales tax. Why is that good tax policy? Where is the falsehood in my premise?

Sales taxes in CA have declined almost every year in the last decade. The only time they have not declined is when the rate of tax was increased.


jdebree: Posted: August 23, 2014 8:05 p.m.

Mr. Kerpen, you brought up the sales tax issue in your original piece. I figured that was an opening for a discussion of the more contentious issue. Based on the responses contained here, this clearly is a contentious issue.

However, I must admit that your article was the impetus for me writing something that I intended to write about in the coming weeks.

Getting back to your point, the on-line business is a whole new world. I agree with the premise that internet access should not be taxed, as long as other communications taxes are repealed as well. My view is that the government should put all businesses on an equal footing from a tax perspective and let the marketplace decide who the winners and losers are.


tech: Posted: August 23, 2014 8:50 p.m.

"You missed my entire point. I am familiar with the case. I know that online sellers are presently exempted from collecting tax to customers outside thier jurisdiction. My point is that this exemption is subsidizing on-line retailers and the rules should be changed to put everyone on an equal footing."

No, I didn't miss your point at all, Mr. de Bree. You wish online retailers of whatever size to collect sales taxes for all jurisdictions whether exempt or not, insisting it's easy. The context of my entire rebuttal, which you did not address, confirms my comprehension.

Care to address the "red herring" portion?


tech: Posted: August 23, 2014 9:07 p.m.

"In large part, they would go to the traditional brick-and-mortar retailers in local shopping centers."

This assumption is based on… what? Are you asserting that a local retailers in aggregate provide anything approaching Amazon's inventory and logistical capabilities? Has Amazon's sales declined upon collection/remittal of sales taxes?

I patronize an online cigar retailer. Even if sales taxes were added in, local retailers aren't competitive in selection or price as they lack economies of scale. No doubt this is replicated across many commodity consumer products.

It doesn't appear you thought the entire process through prior to positing this non sequitur.


tech: Posted: August 23, 2014 9:17 p.m.

"Sales taxes in CA have declined almost every year in the last decade. The only time they have not declined is when the rate of tax was increased."

Are you implying this is solely due to online sales?

California named worst state for business in magazine survey
May 02, 2012| By Tiffany Hsu

So much for the idea of West is best. In an annual survey, executives ranked California as the worst place to do business for the eighth year in a row.

Chief Executive magazine has only been conducting its survey for eight years. Texas has been top-ranked every year.

The survey considered responses from 650 business leaders, who graded states on factors such as taxes, regulations, living environment and more.

Texas and second-ranked Florida have the highest migration rates in the nation for 2001 through 2009. California has lost 1.5 million people over the same period.

Also in the top 10: North Carolina, Tennessee, Indiana, Virginia, South Carolina, Georgia and Utah.

California narrowly edged out New York in what the survey called "the ninth circle of business hell," sharing the bottom five spots with Illinois, Massachusetts and Michigan.

http://articles.latimes.com/2012/may/02/business/la-fi-mo-california-worst-state-20120502


jdebree: Posted: August 23, 2014 9:31 p.m.

Tech--what blanket assertions did I make? You are right, I favor a level process wherein ALL retailers collect sales tax. Remember, under the current system, if a retailer does not collect sales tax, then the consumer is required to pay a use tax. Use tax is very inefficent to collect but is how the states try to get around the court cases you cited.

Now for the red herring part... The on-line retailers claim that to collect sales tax is an unreasonable burden that requires considerable overhead expense. Amazon used to claim the same thing. That is a red herring. My point is that there could easily be a clearing house in place that would minimize the burden of compliance. For example, it could be an add-on to QuickBooks, which is the most widely used accounting software. I believe that there are technological solutions to this that are in the process of being developed or have been developed. (Amazon is able to do it for all of their vendors.) The cost of this system to the on-line retailer, as I understand it, is that it would not cost much more than the cost of preparing a sales tax return by a bricks and mortar company. Most on-line retailers already collect sales tax on sales to customers in the jurisdiction that the retailer has nexus. Under the clearinghouse approach, everything is done using automated software. The sales tax charged is based on the shipping address. Whatever the tax rate for that zip code is would be automatically added to the purchase. The information for each retailer would be stored in a data base. At a specified period, the software vendor would remit the taxes to the appropriate jurisdiction and e-file whatever sales tax returns are needed. This is not too dissimilar from what is currently done with payroll taxes. The technological capabilitiy to do this exists and the process should be transparent to the vendor. I hope that this addresses your question about my reference to a red herring. If it doesn't, I would be happy to hear any additional questions that would clarify my point. This is a tough issue, but is one that will have to be addressed in the coming years.

Just out of curiosity, do you think that the paying field is already level? What is your solution to the significant loss of sales tax revenue? We could continue as we are and force the states to start enforcing use tax. That would be very expensive and intrusive. My clients who have undergone use tax audits by the state of California have found it to be time consuming and they usually ended up owing tax. So far the states have responded by raising the sales tax rate or increasing some other tax. Let's let the sales tax put everyone--retailers and consumers--on an equal footing and let the marketplace decide which is the most efficient way to conduct commerce.


jdebree: Posted: August 23, 2014 9:39 p.m.

Lars,

You stated:

"If you continue with the California State mantra of more taxes, the business will continue to leave.

There are vendors "outside-California", and now "outside-America" who do not and should not charge sales tax."

This is not really a tax increase, it is stopping a decrease of taxes. On line retailers who are located in California and sell to people in California have to collect sales tax on sales to California residents. On line retailers outside of California do not collect sales tax on sales to California residents. So the current situation, if anything, would favor an out of state vendor selling into California. How does putting an out of state vendor on an equal fotting with California based vendors drive business out of the state?



jdebree: Posted: August 23, 2014 9:52 p.m.

Tech asked:

"Are you implying this is solely due to online sales?"


There is absolutely not doubt that on-line sales in California and elsewhere have allowed people to avoid paying sales tax and that is a significant factor in the reduction of sales tax. Sales tax revenue started to decline as on-line retialing became more prevalent.

I agree with you that California is a lousy place to do business. That is because taxes are so damn high. For most of my career, the LA office of our firm was the second or third largest. Now it is the eighth largest. Our clients have left and the 13.3% income tax rate is driving indivisuals out of state faster than ever. Our gas taxes are outrageous and will be going up soon. What I propose would increase the tax base, which hopefully would allow for a reduction (or maybe not such a rapid increase) in sales tax rates.

My argument is not to increase taxes, it is to put all businesses on a level footing so that the market can determine the most efficient way to conduct business.


jdebree: Posted: August 23, 2014 9:58 p.m.

I don't believe that you were responding to my post, but when you say:

"This assumption is based on… what? Are you asserting that a local retailers in aggregate provide anything approaching Amazon's inventory and logistical capabilities? Has Amazon's sales declined upon collection/remittal of sales taxes?"

Amazon is an awesome retailer. I purchase many items from them and they are outperforming others. Your last question I think proves my point. The answer is an obvious "no." But it has put Amazon on equal footing with others who must collect sales tax.


tech: Posted: August 23, 2014 10:25 p.m.

Mr. de Bree, I reviewed your responses and CV and stipulate to your expertise on this topic. Your anecdote on the California business climate confirms your experience with tax competition as well.

If I understood you fully, you propose a clearing house service that in theory would reduce the regulatory burden of tracking/remitting sales taxes to thousands of jurisdictions. What's your opinion on the disparate impact of SG&A on Amazon and a small eBay seller if such a system was extant?


BrianBaker: Posted: August 23, 2014 11:27 p.m.

de Bree: "Brian--are you serious?"

Yeah, I'm dead serious. In fact, YOU seem to be the one ignorant of the dynamics of the marketplace. Let me educate you.

I buy a LOT of stuff from Amazon, as well as Best Buy, Walmart, and other retailers. All of them have to have their inventory shipped from the manufacturer to a warehouse or other distribution center.

This is how it works when you buy directly from them, meaning not some outside vendor selling THROUGH them, such as an "authorized seller".

When I buy something through Amazon, I'm charged a shipping cost as well as sales tax. When I buy from Best Buy or Walmart, there's no shipping cost, as I'm picking it up from their in-store inventory, so all I pay is the sales tax. Clearly, Best Buy and Walmart are going to be cheaper under those conditions.

"But...", you respond, "... Amazon's item price is cheaper, so at best it's a wash!"

Not so. Best Buy and Walmart are selling those items at the same price as Amazon, but because there's no shipping charges at those vendors, it's actually cheaper for me to buy from them.

Which brings us back to what I wrote: by forcing internet sellers to collect sales tax -- questionable at best under the law, and I was very disappointed in Amazon for backing away from the fight -- the internet sellers are put at a de facto disadvantage.

Trying to factor in obscure and basically irrelevant issues like the cost of gas to go the Best Buy is a failed Hail Mary at best. In fact, I can drop by Best Buy and Walmart any time I happen to be driving by doing other things, and it doesn't cost me one extra penny in car costs. Nice try, but no cee-gar. I can flip that around on you and point out the cost of driving to the UPS center or post office to sign the signature release form if I'm not home to receive the delivery, for that matter.








chefgirl358: Posted: August 24, 2014 12:47 a.m.

Brian,

Yes I have to agree with your last post, well put.


ricketzz: Posted: August 24, 2014 9:37 a.m.

Brian; how much does it cost to drive to WalMart and BestBuy? I shop mail order because of the price of gasoline.

Art Laffer is exiled to Tennessee for a reason.

https://duckduckgo.com/?t=lm&q=laffer+curve+debunked


BrianBaker: Posted: August 24, 2014 10:37 a.m.

Thanks, chefgirl.


Ricketzz, I addressed your question in the last paragraph of my comment. Take a look again.

Maybe I'm not being as clear as I thought I was. In no way am I against on-line shopping. Hell, I do the vast majority of my shopping (with the exception of groceries) on-line. I buy most of my stuff from Amazon, and even when I buy from Best Buy or Walmart or Home Depot, I actually do the shopping and buying on-line, and just go to the pick-up counter in-store to get my stuff.

My ONLY point here was that de Bree's contention that forcing on-line sellers to collect taxes doesn't puts them at a competitive disadvantage was wrong.


tech: Posted: August 24, 2014 11:42 a.m.

Here's a valid response to your last post, ricketzz:

http://lmgtfy.com/?q=A+search+string+in+duckduckgo+does+not+equate+to+a+valid+argument


ricketzz: Posted: August 25, 2014 10:05 a.m.

Like many Americans who espouse "Freedom of Choice", tech gets overwhelmed when actually afforded some.

I am not here to argue.

The Laffer Curve debunked; Part One | Jay Bookman
Debunking the Laffer Curve - Democratic Underground
Mike Norman Economics: The Laffer Curve debunked
The Laffer Curve Debunked,
Economist's View: Who's Laffering now?
Laffer Curve Debunked Again. - Sirius XM Satellite Radio Forums
Laffer curve has long been debunked as economic theory;


tech: Posted: August 25, 2014 8:52 p.m.

"I am not here to argue." - ricketzz

Obviously. Just puke search strings into a post and you're done, apparently.


jdebree: Posted: August 25, 2014 9:51 p.m.

First of all, I want to thank everyone for their comments. It was my goal to put out a thought provoking piece.

I am not against on-line shopping-- I do a ton of it. I also pay use tax with my tax return. I guess I am a sucker, but use tax audits are coming. How tough is it for the Franchise Tax Board or State Board of Equalization to send a letter asking for copies of a someone's credit card statements, review them for on-line purchases and send them a use tax bill? As we move into the world of artificial intelligence over the next decade, the biggest users will include tax authorities who will automate these types of audits.

I think everyone needs to be on an equal footing from a tax standpoint. My guess is that if Congress continues to allow the current regime to exist, then the states will find other ways to collect tax.

Brian Baker, the fact that you don't consider the cost of driving to and from a retailer, means that you have likely underestimated the cost of shopping there. I understand that you don't see it that way. There are several items that I purchase regularly and I have to go to the SFV to purchase them. A round trip of thrity miles costs me $15. Many of these items can be purchased on line and the shipping costs are usually less than $15. You may not see it that way, but unless all of your shopping trips involve driving to places that you would otherwise go to anyway, you are paying the equivalent of shipping costs when you go to a tradittional retailer.

Tech--I really enjoyed your commentary, I found it particularly thought provoking. As to your last question, I think that the impact on the SG&A expenses of on-line retailers would be nominal if it is properly implemented. It has not seemed to put a dent in the profitability of Amazon. If somebody in CA sells on e-Bay, they already are dealing with sales tax on those sales. I am not sure how e-Bay handles it. Given e-Bay's propensity to charge fees to sellers, they might turn the sales tax into a profit center and drive up selling costs for the retailer. That is why the central clearing house has to be created giving the mom and pop on-line retailer the chance to avoid artificial fees that could be charged by a middleman such as e-Bay.

Again, thanks to everyone for their comments.




jdebree: Posted: August 25, 2014 10:15 p.m.

Brian--
I just came across this real life example. My hobby is model railroading. There is a new model locomotive that has a list price of $269.98. I can get it on line for $189.00 plus $7.95 shipping. The total on-line cost is $196.95. The closest model train store that carries this locomotive is The Roundhouse Train Store in North Hollywood. I know the owner of the store very well as I have been shopping at that store since I was 8 years old. Since I am a good customer, he will match the on line price and will charge me $189.00, plus 9% sales tax of $17.01. That is a cost of $206.01. That is about $9 higher than the on-line price. Also, I have to drive to North Hollywood to pick up the locomotive. That is a round trip of 35 miles. The IRS tables say that it costs $.55/mile to operate the average vehicle. So that is another $19.25, bringing my total cost to a whopping $225.26. If the on-line retailer had to charge sales tax, then his cost would be $213.96, which is about $11 cheaper.

This illustrates the point I am trying to make. Obviously, if the retailer is a only few blocks form your house, the cost of getting the merchandise to your home may be less than that of the on-line retailer cost.

I hope this example makes my point clearer.


cj64: Posted: August 26, 2014 9:26 a.m.

I refuse to ay the nearly 10% tax on any large purchase. The last 5 cars were purchased on Oregon, a state with zero sales tax. On a $40,000 car that's nearly $4000. It is well worth the drive there.


ricketzz: Posted: August 26, 2014 9:57 a.m.

How do you get California tags? Do you lie on a form? Just asking out of pure curiosity. I wonder why everybody doesn't do this.



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