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Supreme Court Takes Up Internet Sales Tax Conundrum

78 points by _delirium 9y ago

Keverw 9y ago
I was looking into FBA and also print on demand before. Kinda crazy the whole Nexus thing. Plus with FBA, I don't believe they let you pick which warehouses and some areas do it on the county level instead of state registration level. I kinda wish the states would work together to make a one-stop shop for businesses kinda similar to how it works in Europe. or if the states don't get things together, even have the feds step in and create their own sales tax that preempts the state's taxes. Then the feds pay the states a portion based on population and take a cut for providing the service to the states. I also think if you have a nexus, doesn't states then expect you to do foreign business filings and income taxes - not just sales tax? Like in the printing example, the company has centers in about 2 or 3 states + then also filings for my state. So a single website that sells shirts and mugs on demand dropshipping now has 4 states to deal with, with multiples of different filings. Then some states have a gross receipts tax that goes after out of state businesses just for shipping an item even though they don't have a Nexus. They call it a tax for the privileges of doing business with residents in those states instead of a sales tax to get around the supreme court ruling. Stuff like this discourages small business. I wish you were just allowed to pick one single state to deal with and everything just magically happens. I think if the states worked together and lowered the barriers they'd make so much more money. Encourage more startups and less legal headaches for bootstrapped businesses. Kinda like how vat works in Europe for online businesses, you pay the taxes to your home corporation state and they figure out what is owed to the other states and pay them for you.
- gamblor956 9y ago
  All state-level taxes require nexus, even gross receipts taxes. I don't know who told you otherwise but they were misinformed. Gross receipts nexus is higher than sales taxes, because it claims know income. Having a Nexus for one type of tax does not make you liable for other taxes, i.e., sales tax Nexus doesn't necessarily subject you to income taxes in that state.
  - Keverw 9y ago
    Ohio went after out of state companies for example Newegg and Crutchfield. The Ohio supreme court ruled it was legal and didn't violate the federal supreme court ruling on sales tax in Quill Corp. v North Dakota. They call their gross receipts a "commercial activity tax". I think they are a bit biased since the state supreme court ruled in the state's favor. I rather the federal supreme court rule instead. I guess according to them if you sell $500,000 worth of products to residents in Ohio, you now have a nexus. Even without any warehouses, contractors, employees, etc in Ohio. https://www.pillsburylaw.com/en/news-and-insights/ohio-supreme-court-finds-quill-does-not-apply-to-the-commercial.html https://www.pillsburylaw.com/en/news-and-insights/ohio-supre... and http://www.courtnewsohio.gov/cases/2016/SCO/1117/150386.asp http://www.courtnewsohio.gov/cases/2016/SCO/1117/150386.asp
  - ryanwaggoner 9y ago
    Yes but the definition of “nexus” is changing. Increasingly states are switching to “economic nexus” based on where the “value” from the sale is derived. Aka, customer address. And they’re levying sales AND income taxes based on that. I’m curious about interstate enforcement and whether this will even hold up in court in the long run.
    - gamblor956 9y ago
      Levying a sales tax based on address may hold up in court. Levying income taxes based on sales to customers in a state will not absent physical nexus or sufficient in-state activity as to create a de facto nexus. This isn't just a principle of federal tax law, it's a basic principle of tax law everywhere.
      - ryanwaggoner 9y ago
        Not for lack of trying: http://www.bkd.com/articles/2014/new-york-enacts-major-corporate-income-tax-changes-for-out-of-state-businesses.htm http://www.bkd.com/articles/2014/new-york-enacts-major-corpo...
- throaway012018a 9y ago
  Are you suggesting that when a seller uses FBA (Fulfillment by Amazon), then purchases made in a state where Amazon has a presence/warehouse will then be subject to sales taxes ? Currently I fulfill my own orders and sales taxes only apply to CA, the state where my business is based, and WA. I can not disable WA which surprised me.
  - Keverw 9y ago
    Yeah, the states where you store inventory is enough for them to say you have a Nexus and have to collect sales tax in that state. Then some states also have a tangible personal property tax that applies to even inventory that usually the county collects and enforces, such as Arkansas, Kentucky, and some other states. Some states with TPP taxes apply only to goods your company uses(such as Office furniture, paintings on the wall, computers, etc stuff you aren't selling but using), but some even apply it to inventory for reselling. Which not sure if FBA opens you up to TPP taxes too as I haven't got that far into it, but I'm thinking there's a probably a chance counties will want that too if they knew you stored stuff in a warehouse within their county. I just think it is insane. I know we need taxes to pay for services, but so many different tax types and at different levels. Just wish they'd made things more consistent and easier to do. I really support just a single flat income tax at the fed level(where states, counties, and cities get a cut from based on some criteria but the taxpayer wouldn't have to personally worry about that. They'd only have 1 agency to deal with and pay.), and repeal all other taxes other than real estate property and the new flat income tax.
gist 9y ago
Hard to say what they will do but one thing is for sure. If this goes in the direction of states being allowed to tax without nexus then an entire level of intermediaries will exist (and charge) to service smaller companies that are subject to paying a sales tax. Not all goods are taxed the same way in all states and there is no way that a company even with software can keep up with remitting and rules that change for 50 states. There is also the issue of integrating it in the current workflow which is non-trivial in many situations. My feeling is that (hopefully) the court will rule against this and require the states to simply enforce use tax. The state has more resources (than any small or medium company) and also the ability to fine and penalize. The law says you have to pay use tax on out of state goods (in many cases) and simply saying 'it's to hard for us to do this and we are losing revenue' isn't a great argument.
- ghaff 9y ago
  Yeah, computing the sales tax is easy. I assume there's already a lookup table somewhere on the web where you enter a zip code and it will tell you the local sales tax. The problem is remitting to tax to all the taxing authorities, perhaps having to make other filings, being subject to audits and regulations, etc. Intermediaries can remove some of the burden but you can't really pass off responsibility to a third party. It seems hard to avoid enormous overheads for a small business outside of some uniform national system. ADDED: I imagine Amazon and other big Internet commerce companies with affiliate programs would love something like this. It would probably effectively force any small seller to work under the umbrella of a company with large scale.
  - MBCook 9y ago
    You can’t look up by zip code. Zip codes and tax boundaries aren’t linked so it’s not specific enough. Zip+4 isn’t specific enough either, you can still run into the same issue. Then you get into the fun stuff like special tax districts, different taxes on different kinds of goods, on the kind of person buying it (perhaps teachers don’t have to pay taxes on office supplies), etc. For a business it’d be a disaster if you had to tax based on the buyer’s address instead of the business’s address. For any business that isn’t huge enough to have lots of full time accountants/compliance petiole I imagine you’d basically HAVE to subscribe to some sort of tax service that would work it out for you.
hartator 9y ago
Reason is an awesome publication, I wish we can see more articles of them here.
- _delirium 9y ago
  This isn't really from Reason proper fwiw. The Volokh Conspiracy is a long-running law blog that's been hosted at various places, including independently (2002-2014), at the Washington Post (2014-2017), and at Reason (post-2017). Afaict they don't follow the Reason editorial line now, any more than they followed the WaPo editorial line previously, though they have always had a somewhat libertarian bent.
- tptacek 9y ago
  Would you also like to see more of Talking Points Memo and The National Review?
faster 9y ago
My understanding is that a state sales tax can't be less than about 3.5% because that is the cost of operating the sales tax collection bureaucracy. The article's suggestion that the federal gov collect a uniform tax and redistribute it makes me wonder what it would cost them to run the program. And what about the 5 states that currently have no sales tax? A federal sales tax would probably have to be close to 10% to be useful, and now everyone in those 5 states has that much less buying power. I don't think the solution proposed in the article is a good idea. It may be the least bad idea though.
- Bromskloss 9y ago
  > My understanding is that a state sales tax can't be less than about 3.5% because that is the cost of operating the sales tax collection bureaucracy. That sounds staggeringly costly. Are there things within the administration that has to be done and actually are difficult to do with less money, or is it as record-breakingly inefficient as it sounds?
  - lozenge 9y ago
    Perhaps they are including the cost to the businesses of marking up items, checking tax rates etc?
    - Bromskloss 9y ago
      Interesting thought. A low tax rate should result in a small markup, though, and I wouldn't think the extra administration laid upon businesses by sales tax would offset a 3.5% sales tax, would you?
  - anonymous5133 9y ago
    I work as a sales tax auditor and the original comment is flat out wrong if you think about it. I'm assuming he is talking about the department of revenue or similar agency responsible for enforcement of sales tax. If you think about a state that has a 7% sales tax rate, do you think that state is spending HALF of the sales tax revenue on the operating budget for the department of revenue?
anonymous5133 9y ago
I work as a sales tax auditor and I am always amused by these lawyers that love to talk in the courts. These guys aren't even aware of how badly the current nexus statues are being abused. The current trend I've seen is companies move abroad (usually to south america or the Caribbean) and then ship goods into the USA to all 50 states. All sales are routed through this entity and thus since it is a foreign entity they are not required to collect any sales tax at all. This actual entity is most likely just a letter box company as well. For the actual shipment of goods they have another company that acts as a drop shipper. Most states have exemption rules that make drop shipment transactions exempt from sales tax collection which gets abused since the duty to collect falls to the foreign entity but the foreign entity has no duty to collect either. Also due to these exemption rules, this structure is 100% defensible in court as well! If they need sales agents in the state then they use a network of "authorized distributors" to do the soliciting. If you audit one of these authorized distributors then all of them have the same defense: we do not own or ship the goods being sold. We simply act as a sales agent (and only collect a commission). If you want to do the audit you need to go to the company that owns the products which of course is the foreign entity which does not have nexus. See how elaborate this stuff gets? To make matters worse, the use tax is rarely paid by small consumers since it is way too complex to comply with and to be frank the odds of you getting personally audited for sales tax are pretty much 0% unless you are a high net worth person. It is no surprise that the companies that setup these elaborate schemes often sell the majority of their goods to small individual consumers rather than big companies. They know that consumers will "shop the sales tax" and look for sellers who don't charge it and thus the sales tax dodgers end up getting rewarded with more sales. Also for everyone else, you might not see this as an issue but what often happens is when revenue start to decline then the politicians either have to cut services or more likely what they do is raise rates for other taxes. The only people who benefit are those who buy from the companies and don't pay use tax.
- lotsofpulp 9y ago
  >the use tax is rarely paid by small consumers since it is way too complex to comply with How so? From my understanding, all you have to do is add up all your purchases that did not have sales tax charged and multiply by the sales tax percentage. If the government really wanted to fix it, all they have to do is slap a 50% penalty on unpaid use tax, and audit the crap out of everyone. Since it's all recorded on credit card statements, it's very easy to prove. At least it seems like that to me on the surface, but I'd love to know why that solution isn't possible.
smnrchrds 9y ago
How come there are 6000 sales tax jurisdictions? In Canada, there are 10. I know US bigger than Canada and everything is more complicated, but it's not 600 times bigger.
- secabeen 9y ago
  Individual cities can and do charge sales tax.
- specializeded 9y ago
  In Texas at least, cities, counties, transit systems and ‘special districts’ that mostly represent local public services can impose sales taxes. 6000+ nationwide is lower than I imagined honestly
- pkaye 9y ago
  In California for example, there is a state base tax rate to which the county adds an additional amount along with the city you reside in. So there are hundred of sales tax rates depending of which city you live in.
  - DrScump 9y ago
    Drilling down below state level is complicated by the fact that mailing address does not map directly to the proper taxation entity. Usually, yes, but the actual atomic entity is lot/parcel. I had to deal with this when cooking voter data; political districts likewise drill down to lot/parcel. I had hundreds of cases where Los Gatos and Saratoga addresses get crossed, and even the Santa Clara / Santa Cruz county border region he had mailing address mismatches with actual county of residence.
- spoonie 9y ago
  Try looking at your receipt next time you go grocery shopping. Some things will have HST and others won’t! Now go to PEI and buy some kids’ clothes and look at your receipt. Next, go to a coffee shop and buy a cup of coffee... HST, then turn around and buy a bag of roasted coffee beans... no HST!
jccooper 9y ago
http://www.streamlinedsalestax.org/ http://www.streamlinedsalestax.org/ is an effort by (some) states to address the "burdensome" issue by simplification of the tax code, maintaining a database of locations, and setting up a system of "Certified Service Providers" (i.e. middlemen to handle all the absurd requirements of calculation and reporting and insulate you from the flood of audits that would stem from being subject to so many jurisdictions.) They are even trying to convince residents of their member states to collect tax for all the rest. (I wonder how many there are?) But they don't really have enough states on board for their system to work, and haven't made much progress recently. They've filed an amicus brief for South Dakota. Their efforts are better than nothing, but in my opinion as an internet retailer still fall well short of "not burdensome". Any system that requires a whole new industry as a shim layer is pretty much broken. Even though as an internet retailer I mostly benefit from the lack of interstate sales tax I'm sympathetic to the "level playing field" argument. Frankly, I think it's stupid that local customers are at a disadvantage when buying from me. But a sane system would look like: (1) a single state-wide rate for out-of-state filers, (2) a single national definition of what is taxed, and (3) a single clearinghouse for filing and payment and auditing. This will allow mom-and-pop to still exist, and the states will get their money. It won't fill in all the special cases, and they'll have to figure out some distribution for localities, but that's a small price to pay, isn't it?
- gwenzek 9y ago
  I don't understand why the state isn't setting this up themselves. If they want people to pay their tax they should make it easy by creating a Web API that computes the tax rate for (zip code, product category, amount)
  - jccooper 9y ago
    I don't particularly want a new external service in my sales transaction, I certainly don't want it run by a monopoly, and I really really don't want it run by the government.
u801e 9y ago
I've always wondered why a business isn't required to collect the sales tax of the jurisdictions they're located in. For example, if I physically shop out of state, I'll end up paying whatever sales tax that state /locality sets. The only exceptions to that are high value items like cars which are subsequently titled and registered in the state you reside in.
tzs 9y ago
To illustrate how annoying it could be to have to collect out of state tax if you are fully exposed to that state's sales tax structure, here is an example of what you are supposed to do in Washington when charging Washington sales tax for an online purchase by a Washington customer. Imagine this x50, with possibly each of the 50 having their data formatted differently and distributed differently. The tax rate is the tax rate at the buyer's address. You can get a CSV file from the state for each Washington county that gives address information. Here are the first few lines of the file for King County (the county that contains Seattle): ADDR_LOW,ADDR_HIGH,ODD_EVEN,STREET,STATE,ZIP,PLUS4,PERIOD,CODE,RTA,PTBA_NAME,CEZ_NAME 301,399,O,10TH AVE N,WA,98001,6519,Q12018,1701,Y,King PTBA, 1500,1598,E,10TH CT NW,WA,98001,3868,Q12018,1702,Y,King PTBA, 1501,1599,O,10TH CT NW,WA,98001,3868,Q12018,1702,Y,King PTBA, 1,99,O,11TH AVE N,WA,98001,6518,Q12018,1701,Y,King PTBA, 200,298,E,11TH AVE N,WA,98001,6516,Q12018,1701,Y,King PTBA, 300,398,E,11TH AVE N,WA,98001,6514,Q12018,1701,Y,King PTBA, 301,399,O,11TH AVE N,WA,98001,6556,Q12018,1701,Y,King PTBA, The first entry, 301,399,O,10TH AVE N,WA,98001,6519,Q12018,1701,Y,King PTBA, tells you that it covers addresses from 301-399 on the odd side of 10th Ave N, in WA. These addresses all have zip code 98001-6519. The data is for Q1 2018. The location code for these addresses is 1701. The "Regional Sound Transit" indicator is 'Y' (this is a boolean). The "Public Transportation Benefit Area" is named "King PTBA". The name of the "Community Empowerment Zone" is blank. The location code is the most important part as far as sales tax goes, because it is the location code that you use to look up the tax. The most correct way, therefore, to figure out the tax is to get the customer street address, look it up in the address CSV for their county to get the location code and then look up the tax. That is very annoying. People often spell their streets in ways that will not match the database. Consider: 10000,10098,E,MARTIN LUTHER KING JR WAY S,WA,98178,2045,Q12018,1726,Y,King PTBA,Duwamish 10462,10498,E,MARTIN LUTHER KING JR WAY S,WA,98178,2046,Q12018,1726,Y,King PTBA,Duwamish 12801,12899,O,MARTIN LUTHER KING JR WAY S,WA,98178,3513,Q12018,1700,Y,King PTBA, 12901,12999,O,MARTIN LUTHER KING JR WAY S,WA,98178,4611,Q12018,1700,Y,King PTBA, Plenty of people are going to write that street as "MLK Way" instead of spelling it out. You need to deal with that. You could go through all the address files, and make a mapping of zip+4 to location codes. For the vast majority of zip+4 codes, I believe that all covered addresses would map to the same location code. The tax for each location code is in a CSV file from the state. Here is a sample: Name,Code,State,Local,RTA,Rate,Effective Date,Expiration Date KING COUNTY RTA,1700,0.065,0.035,0,0.1,20180101,20180331 ALGONA,1701,0.065,0.035,0,0.1,20180101,20180331 AUBURN/KING RTA,1702,0.065,0.035,0,0.1,20180101,20180331 The entry KING COUNTY RTA,1700,0.065,0.035,0,0.1,20180101,20180331 says that location 1701, named "KING COUNTY RTA", has a state sales tax rate of 0.065, a local sales tax rate of 0.035, an RTA rate of 0, and an overall effective rate if 0.1. This entry is valid starting on 2018-01-01 and is value through 2018-03-31. You can also get the rate data organized by zip. Here's a sample of that file: 98001,0000,1732,0.06500,0.03500,0.10000,20180101,20180331 98001,0001,1702,0.06500,0.03500,0.10000,20180101,20180331 98001,0006,1701,0.06500,0.03500,0.10000,20180101,20180331 The columns for that are 5 digit zip, 4 digit zip extension, location code, state tax rate, local tax rate, effective tax rate, and valid dates. There's also a short form version of that CSV available: 98001,0000,0000,1732,0.06500,0.03500,0.10000,20180101,20180331 98001,0001,0001,1702,0.06500,0.03500,0.10000,20180101,20180331 98001,0002,0005,2720,0.06500,0.03400,0.09900,20180101,20180331 It's essentially the same, except that instead of each line covering exactly one zip+4, each line covers a range, so the first 3 columns are 5 digit zip, low 4 digit zip extension, high 4 digit zip extension. It's important to note that locations have no inherent relationship with zip codes. There is no reason that a location could not include addresses in different zip codes, or that a given zip+4 could not include more than one location. Fortunately, it turns out that no zip+4 crosses a location boundary, so in practice you can forget all that address file crap and just work from the zip files. BUT THERE IS NO GUARANTEE THAT THIS WILL ALWAYS APPLY, as far as I can tell. Going with zip you still have the issue that many people don't know their full zip+4 offhand. If you require it you will induce some people to abandon the purchase. What we did is use the long form zip to location data, and we take as the tax the maximum tax from all rows that match the zip the customer provides. If they just provide a 5 digit zip, they get the max rate for that 5 digit zip. If they specify zip+4, they get the correct rate for their location. With the simplification of just going by zip this is not actually much of a pain to deal with. It does mean that every quarter I have to grab the updated rates for the next quarter and merge them into our tax rate database. But that's because it is only one state. If I had to do it for 50 states, that would be a problem. EDIT: Actually, there are zip+4's that cross location boundaries. Here is an example from the address file: 9100,9198,E,RENTON ISSAQUAH RD SE,WA,98027,5444,Q12018,4000,N,King PTBA, 9101,9199,O,RENTON ISSAQUAH RD SE,WA,98027,5444,Q12018,1700,Y,King PTBA, The odd site of the street is in 1700, and the even side is in 4000. These two locs have different tax rates. From the rate CSV: KING COUNTY RTA,1700,0.065,0.035,0,0.1,20180101,20180331 KING COUNTY NON-RTA,4000,0.065,0.021,0,0.086,20180101,20180331 So, if you just go by zip+4, you won't handle those people right.

78 points by _delirium 9y ago

I was looking into FBA and also print on demand before. Kinda crazy the whole Nexus thing. Plus with FBA, I don't believe they let you pick which warehouses and some areas do it on the county level instead of state registration level. I kinda wish the states would work together to make a one-stop shop for businesses kinda similar to how it works in Europe. or if the states don't get things together, even have the feds step in and create their own sales tax that preempts the state's taxes. Then the feds pay the states a portion based on population and take a cut for providing the service to the states. I also think if you have a nexus, doesn't states then expect you to do foreign business filings and income taxes - not just sales tax? Like in the printing example, the company has centers in about 2 or 3 states + then also filings for my state. So a single website that sells shirts and mugs on demand dropshipping now has 4 states to deal with, with multiples of different filings. Then some states have a gross receipts tax that goes after out of state businesses just for shipping an item even though they don't have a Nexus. They call it a tax for the privileges of doing business with residents in those states instead of a sales tax to get around the supreme court ruling. Stuff like this discourages small business. I wish you were just allowed to pick one single state to deal with and everything just magically happens. I think if the states worked together and lowered the barriers they'd make so much more money. Encourage more startups and less legal headaches for bootstrapped businesses. Kinda like how vat works in Europe for online businesses, you pay the taxes to your home corporation state and they figure out what is owed to the other states and pay them for you.

gamblor956 9y ago
All state-level taxes require nexus, even gross receipts taxes. I don't know who told you otherwise but they were misinformed. Gross receipts nexus is higher than sales taxes, because it claims know income. Having a Nexus for one type of tax does not make you liable for other taxes, i.e., sales tax Nexus doesn't necessarily subject you to income taxes in that state.
- Keverw 9y ago
  Ohio went after out of state companies for example Newegg and Crutchfield. The Ohio supreme court ruled it was legal and didn't violate the federal supreme court ruling on sales tax in Quill Corp. v North Dakota. They call their gross receipts a "commercial activity tax". I think they are a bit biased since the state supreme court ruled in the state's favor. I rather the federal supreme court rule instead. I guess according to them if you sell $500,000 worth of products to residents in Ohio, you now have a nexus. Even without any warehouses, contractors, employees, etc in Ohio. https://www.pillsburylaw.com/en/news-and-insights/ohio-supreme-court-finds-quill-does-not-apply-to-the-commercial.html https://www.pillsburylaw.com/en/news-and-insights/ohio-supre... and http://www.courtnewsohio.gov/cases/2016/SCO/1117/150386.asp http://www.courtnewsohio.gov/cases/2016/SCO/1117/150386.asp
- ryanwaggoner 9y ago
  Yes but the definition of “nexus” is changing. Increasingly states are switching to “economic nexus” based on where the “value” from the sale is derived. Aka, customer address. And they’re levying sales AND income taxes based on that. I’m curious about interstate enforcement and whether this will even hold up in court in the long run.
  - gamblor956 9y ago
    Levying a sales tax based on address may hold up in court. Levying income taxes based on sales to customers in a state will not absent physical nexus or sufficient in-state activity as to create a de facto nexus. This isn't just a principle of federal tax law, it's a basic principle of tax law everywhere.
    - ryanwaggoner 9y ago
      Not for lack of trying: http://www.bkd.com/articles/2014/new-york-enacts-major-corporate-income-tax-changes-for-out-of-state-businesses.htm http://www.bkd.com/articles/2014/new-york-enacts-major-corpo...
throaway012018a 9y ago
Are you suggesting that when a seller uses FBA (Fulfillment by Amazon), then purchases made in a state where Amazon has a presence/warehouse will then be subject to sales taxes ? Currently I fulfill my own orders and sales taxes only apply to CA, the state where my business is based, and WA. I can not disable WA which surprised me.
- Keverw 9y ago
  Yeah, the states where you store inventory is enough for them to say you have a Nexus and have to collect sales tax in that state. Then some states also have a tangible personal property tax that applies to even inventory that usually the county collects and enforces, such as Arkansas, Kentucky, and some other states. Some states with TPP taxes apply only to goods your company uses(such as Office furniture, paintings on the wall, computers, etc stuff you aren't selling but using), but some even apply it to inventory for reselling. Which not sure if FBA opens you up to TPP taxes too as I haven't got that far into it, but I'm thinking there's a probably a chance counties will want that too if they knew you stored stuff in a warehouse within their county. I just think it is insane. I know we need taxes to pay for services, but so many different tax types and at different levels. Just wish they'd made things more consistent and easier to do. I really support just a single flat income tax at the fed level(where states, counties, and cities get a cut from based on some criteria but the taxpayer wouldn't have to personally worry about that. They'd only have 1 agency to deal with and pay.), and repeal all other taxes other than real estate property and the new flat income tax.

gist 9y ago

Hard to say what they will do but one thing is for sure. If this goes in the direction of states being allowed to tax without nexus then an entire level of intermediaries will exist (and charge) to service smaller companies that are subject to paying a sales tax. Not all goods are taxed the same way in all states and there is no way that a company even with software can keep up with remitting and rules that change for 50 states. There is also the issue of integrating it in the current workflow which is non-trivial in many situations. My feeling is that (hopefully) the court will rule against this and require the states to simply enforce use tax. The state has more resources (than any small or medium company) and also the ability to fine and penalize. The law says you have to pay use tax on out of state goods (in many cases) and simply saying 'it's to hard for us to do this and we are losing revenue' isn't a great argument.

ghaff 9y ago
Yeah, computing the sales tax is easy. I assume there's already a lookup table somewhere on the web where you enter a zip code and it will tell you the local sales tax. The problem is remitting to tax to all the taxing authorities, perhaps having to make other filings, being subject to audits and regulations, etc. Intermediaries can remove some of the burden but you can't really pass off responsibility to a third party. It seems hard to avoid enormous overheads for a small business outside of some uniform national system. ADDED: I imagine Amazon and other big Internet commerce companies with affiliate programs would love something like this. It would probably effectively force any small seller to work under the umbrella of a company with large scale.
- MBCook 9y ago
  You can’t look up by zip code. Zip codes and tax boundaries aren’t linked so it’s not specific enough. Zip+4 isn’t specific enough either, you can still run into the same issue. Then you get into the fun stuff like special tax districts, different taxes on different kinds of goods, on the kind of person buying it (perhaps teachers don’t have to pay taxes on office supplies), etc. For a business it’d be a disaster if you had to tax based on the buyer’s address instead of the business’s address. For any business that isn’t huge enough to have lots of full time accountants/compliance petiole I imagine you’d basically HAVE to subscribe to some sort of tax service that would work it out for you.

hartator 9y ago

Reason is an awesome publication, I wish we can see more articles of them here.

_delirium 9y ago
This isn't really from Reason proper fwiw. The Volokh Conspiracy is a long-running law blog that's been hosted at various places, including independently (2002-2014), at the Washington Post (2014-2017), and at Reason (post-2017). Afaict they don't follow the Reason editorial line now, any more than they followed the WaPo editorial line previously, though they have always had a somewhat libertarian bent.
tptacek 9y ago
Would you also like to see more of Talking Points Memo and The National Review?

faster 9y ago

My understanding is that a state sales tax can't be less than about 3.5% because that is the cost of operating the sales tax collection bureaucracy. The article's suggestion that the federal gov collect a uniform tax and redistribute it makes me wonder what it would cost them to run the program. And what about the 5 states that currently have no sales tax? A federal sales tax would probably have to be close to 10% to be useful, and now everyone in those 5 states has that much less buying power. I don't think the solution proposed in the article is a good idea. It may be the least bad idea though.

Bromskloss 9y ago
> My understanding is that a state sales tax can't be less than about 3.5% because that is the cost of operating the sales tax collection bureaucracy. That sounds staggeringly costly. Are there things within the administration that has to be done and actually are difficult to do with less money, or is it as record-breakingly inefficient as it sounds?
- lozenge 9y ago
  Perhaps they are including the cost to the businesses of marking up items, checking tax rates etc?
  - Bromskloss 9y ago
    Interesting thought. A low tax rate should result in a small markup, though, and I wouldn't think the extra administration laid upon businesses by sales tax would offset a 3.5% sales tax, would you?
- anonymous5133 9y ago
  I work as a sales tax auditor and the original comment is flat out wrong if you think about it. I'm assuming he is talking about the department of revenue or similar agency responsible for enforcement of sales tax. If you think about a state that has a 7% sales tax rate, do you think that state is spending HALF of the sales tax revenue on the operating budget for the department of revenue?

anonymous5133 9y ago

I work as a sales tax auditor and I am always amused by these lawyers that love to talk in the courts. These guys aren't even aware of how badly the current nexus statues are being abused. The current trend I've seen is companies move abroad (usually to south america or the Caribbean) and then ship goods into the USA to all 50 states. All sales are routed through this entity and thus since it is a foreign entity they are not required to collect any sales tax at all. This actual entity is most likely just a letter box company as well. For the actual shipment of goods they have another company that acts as a drop shipper. Most states have exemption rules that make drop shipment transactions exempt from sales tax collection which gets abused since the duty to collect falls to the foreign entity but the foreign entity has no duty to collect either. Also due to these exemption rules, this structure is 100% defensible in court as well! If they need sales agents in the state then they use a network of "authorized distributors" to do the soliciting. If you audit one of these authorized distributors then all of them have the same defense: we do not own or ship the goods being sold. We simply act as a sales agent (and only collect a commission). If you want to do the audit you need to go to the company that owns the products which of course is the foreign entity which does not have nexus. See how elaborate this stuff gets? To make matters worse, the use tax is rarely paid by small consumers since it is way too complex to comply with and to be frank the odds of you getting personally audited for sales tax are pretty much 0% unless you are a high net worth person. It is no surprise that the companies that setup these elaborate schemes often sell the majority of their goods to small individual consumers rather than big companies. They know that consumers will "shop the sales tax" and look for sellers who don't charge it and thus the sales tax dodgers end up getting rewarded with more sales. Also for everyone else, you might not see this as an issue but what often happens is when revenue start to decline then the politicians either have to cut services or more likely what they do is raise rates for other taxes. The only people who benefit are those who buy from the companies and don't pay use tax.

lotsofpulp 9y ago
>the use tax is rarely paid by small consumers since it is way too complex to comply with How so? From my understanding, all you have to do is add up all your purchases that did not have sales tax charged and multiply by the sales tax percentage. If the government really wanted to fix it, all they have to do is slap a 50% penalty on unpaid use tax, and audit the crap out of everyone. Since it's all recorded on credit card statements, it's very easy to prove. At least it seems like that to me on the surface, but I'd love to know why that solution isn't possible.

smnrchrds 9y ago

How come there are 6000 sales tax jurisdictions? In Canada, there are 10. I know US bigger than Canada and everything is more complicated, but it's not 600 times bigger.

secabeen 9y ago
Individual cities can and do charge sales tax.
specializeded 9y ago
In Texas at least, cities, counties, transit systems and ‘special districts’ that mostly represent local public services can impose sales taxes. 6000+ nationwide is lower than I imagined honestly
pkaye 9y ago
In California for example, there is a state base tax rate to which the county adds an additional amount along with the city you reside in. So there are hundred of sales tax rates depending of which city you live in.
- DrScump 9y ago
  Drilling down below state level is complicated by the fact that mailing address does not map directly to the proper taxation entity. Usually, yes, but the actual atomic entity is lot/parcel. I had to deal with this when cooking voter data; political districts likewise drill down to lot/parcel. I had hundreds of cases where Los Gatos and Saratoga addresses get crossed, and even the Santa Clara / Santa Cruz county border region he had mailing address mismatches with actual county of residence.
spoonie 9y ago
Try looking at your receipt next time you go grocery shopping. Some things will have HST and others won’t! Now go to PEI and buy some kids’ clothes and look at your receipt. Next, go to a coffee shop and buy a cup of coffee... HST, then turn around and buy a bag of roasted coffee beans... no HST!

jccooper 9y ago

http://www.streamlinedsalestax.org/ http://www.streamlinedsalestax.org/ is an effort by (some) states to address the "burdensome" issue by simplification of the tax code, maintaining a database of locations, and setting up a system of "Certified Service Providers" (i.e. middlemen to handle all the absurd requirements of calculation and reporting and insulate you from the flood of audits that would stem from being subject to so many jurisdictions.) They are even trying to convince residents of their member states to collect tax for all the rest. (I wonder how many there are?) But they don't really have enough states on board for their system to work, and haven't made much progress recently. They've filed an amicus brief for South Dakota. Their efforts are better than nothing, but in my opinion as an internet retailer still fall well short of "not burdensome". Any system that requires a whole new industry as a shim layer is pretty much broken. Even though as an internet retailer I mostly benefit from the lack of interstate sales tax I'm sympathetic to the "level playing field" argument. Frankly, I think it's stupid that local customers are at a disadvantage when buying from me. But a sane system would look like: (1) a single state-wide rate for out-of-state filers, (2) a single national definition of what is taxed, and (3) a single clearinghouse for filing and payment and auditing. This will allow mom-and-pop to still exist, and the states will get their money. It won't fill in all the special cases, and they'll have to figure out some distribution for localities, but that's a small price to pay, isn't it?

gwenzek 9y ago
I don't understand why the state isn't setting this up themselves. If they want people to pay their tax they should make it easy by creating a Web API that computes the tax rate for (zip code, product category, amount)
- jccooper 9y ago
  I don't particularly want a new external service in my sales transaction, I certainly don't want it run by a monopoly, and I really really don't want it run by the government.

u801e 9y ago

I've always wondered why a business isn't required to collect the sales tax of the jurisdictions they're located in. For example, if I physically shop out of state, I'll end up paying whatever sales tax that state /locality sets. The only exceptions to that are high value items like cars which are subsequently titled and registered in the state you reside in.

tzs 9y ago

To illustrate how annoying it could be to have to collect out of state tax if you are fully exposed to that state's sales tax structure, here is an example of what you are supposed to do in Washington when charging Washington sales tax for an online purchase by a Washington customer. Imagine this x50, with possibly each of the 50 having their data formatted differently and distributed differently. The tax rate is the tax rate at the buyer's address. You can get a CSV file from the state for each Washington county that gives address information. Here are the first few lines of the file for King County (the county that contains Seattle): ADDR_LOW,ADDR_HIGH,ODD_EVEN,STREET,STATE,ZIP,PLUS4,PERIOD,CODE,RTA,PTBA_NAME,CEZ_NAME 301,399,O,10TH AVE N,WA,98001,6519,Q12018,1701,Y,King PTBA, 1500,1598,E,10TH CT NW,WA,98001,3868,Q12018,1702,Y,King PTBA, 1501,1599,O,10TH CT NW,WA,98001,3868,Q12018,1702,Y,King PTBA, 1,99,O,11TH AVE N,WA,98001,6518,Q12018,1701,Y,King PTBA, 200,298,E,11TH AVE N,WA,98001,6516,Q12018,1701,Y,King PTBA, 300,398,E,11TH AVE N,WA,98001,6514,Q12018,1701,Y,King PTBA, 301,399,O,11TH AVE N,WA,98001,6556,Q12018,1701,Y,King PTBA, The first entry, 301,399,O,10TH AVE N,WA,98001,6519,Q12018,1701,Y,King PTBA, tells you that it covers addresses from 301-399 on the odd side of 10th Ave N, in WA. These addresses all have zip code 98001-6519. The data is for Q1 2018. The location code for these addresses is 1701. The "Regional Sound Transit" indicator is 'Y' (this is a boolean). The "Public Transportation Benefit Area" is named "King PTBA". The name of the "Community Empowerment Zone" is blank. The location code is the most important part as far as sales tax goes, because it is the location code that you use to look up the tax. The most correct way, therefore, to figure out the tax is to get the customer street address, look it up in the address CSV for their county to get the location code and then look up the tax. That is very annoying. People often spell their streets in ways that will not match the database. Consider: 10000,10098,E,MARTIN LUTHER KING JR WAY S,WA,98178,2045,Q12018,1726,Y,King PTBA,Duwamish 10462,10498,E,MARTIN LUTHER KING JR WAY S,WA,98178,2046,Q12018,1726,Y,King PTBA,Duwamish 12801,12899,O,MARTIN LUTHER KING JR WAY S,WA,98178,3513,Q12018,1700,Y,King PTBA, 12901,12999,O,MARTIN LUTHER KING JR WAY S,WA,98178,4611,Q12018,1700,Y,King PTBA, Plenty of people are going to write that street as "MLK Way" instead of spelling it out. You need to deal with that. You could go through all the address files, and make a mapping of zip+4 to location codes. For the vast majority of zip+4 codes, I believe that all covered addresses would map to the same location code. The tax for each location code is in a CSV file from the state. Here is a sample: Name,Code,State,Local,RTA,Rate,Effective Date,Expiration Date KING COUNTY RTA,1700,0.065,0.035,0,0.1,20180101,20180331 ALGONA,1701,0.065,0.035,0,0.1,20180101,20180331 AUBURN/KING RTA,1702,0.065,0.035,0,0.1,20180101,20180331 The entry KING COUNTY RTA,1700,0.065,0.035,0,0.1,20180101,20180331 says that location 1701, named "KING COUNTY RTA", has a state sales tax rate of 0.065, a local sales tax rate of 0.035, an RTA rate of 0, and an overall effective rate if 0.1. This entry is valid starting on 2018-01-01 and is value through 2018-03-31. You can also get the rate data organized by zip. Here's a sample of that file: 98001,0000,1732,0.06500,0.03500,0.10000,20180101,20180331 98001,0001,1702,0.06500,0.03500,0.10000,20180101,20180331 98001,0006,1701,0.06500,0.03500,0.10000,20180101,20180331 The columns for that are 5 digit zip, 4 digit zip extension, location code, state tax rate, local tax rate, effective tax rate, and valid dates. There's also a short form version of that CSV available: 98001,0000,0000,1732,0.06500,0.03500,0.10000,20180101,20180331 98001,0001,0001,1702,0.06500,0.03500,0.10000,20180101,20180331 98001,0002,0005,2720,0.06500,0.03400,0.09900,20180101,20180331 It's essentially the same, except that instead of each line covering exactly one zip+4, each line covers a range, so the first 3 columns are 5 digit zip, low 4 digit zip extension, high 4 digit zip extension. It's important to note that locations have no inherent relationship with zip codes. There is no reason that a location could not include addresses in different zip codes, or that a given zip+4 could not include more than one location. Fortunately, it turns out that no zip+4 crosses a location boundary, so in practice you can forget all that address file crap and just work from the zip files. BUT THERE IS NO GUARANTEE THAT THIS WILL ALWAYS APPLY, as far as I can tell. Going with zip you still have the issue that many people don't know their full zip+4 offhand. If you require it you will induce some people to abandon the purchase. What we did is use the long form zip to location data, and we take as the tax the maximum tax from all rows that match the zip the customer provides. If they just provide a 5 digit zip, they get the max rate for that 5 digit zip. If they specify zip+4, they get the correct rate for their location. With the simplification of just going by zip this is not actually much of a pain to deal with. It does mean that every quarter I have to grab the updated rates for the next quarter and merge them into our tax rate database. But that's because it is only one state. If I had to do it for 50 states, that would be a problem. EDIT: Actually, there are zip+4's that cross location boundaries. Here is an example from the address file: 9100,9198,E,RENTON ISSAQUAH RD SE,WA,98027,5444,Q12018,4000,N,King PTBA, 9101,9199,O,RENTON ISSAQUAH RD SE,WA,98027,5444,Q12018,1700,Y,King PTBA, The odd site of the street is in 1700, and the even side is in 4000. These two locs have different tax rates. From the rate CSV: KING COUNTY RTA,1700,0.065,0.035,0,0.1,20180101,20180331 KING COUNTY NON-RTA,4000,0.065,0.021,0,0.086,20180101,20180331 So, if you just go by zip+4, you won't handle those people right.