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Is the argument that there should be no sales tax, or that online businesses should be exempt from it? Alternatively, is there some specific compliance issue or

by doktrin 14y ago

Is the argument that there should be no sales tax, or that online businesses should be exempt from it? Alternatively, is there some specific compliance issue or formulation in the proposed legislation that is poorly thought out? I'm genuinely curious, as (in principle) the fact that online businesses have been exempt from sales tax largely strikes me as an anomaly and not some new standard.

nateabele 14y ago
Mail-order catalog businesses, which have existed for decades? You only pay tax in jurisdictions in which you're physically based (for an internet startup, this would be wherever you're incorporated). This axiom has held in US tax policy for about as long as there has been US tax policy. Kinda ties in with that whole 'no taxation without representation' thing. Edit: for clarity.
- weds 14y ago
  Sales tax is applied to the buyer, not the seller
  - chrismaeda 14y ago
    Right. Companies with a physical presence in a state are required to collect sales taxes from buyers for all sales in the state. Businesses are not required to collect sales taxes for states where they have no presence (aka nexus); this is based on the Quill v North Dakota interpretation of the Commerce Clause of the US Constitution. The problem with the proposed legislation is that counties, cities, and towns can each set their own tax rates. So the compliance costs are high because of the thousands of different rates. You cannot use something simple like state or zip code to determine tax rate; you have to use geolocation to get the exact jurisdiction. And governments typically levy penalties if you get your sales tax collection wrong. So who is responsible for paying the penalties if the third party tax collection service makes a mistake? The way this was supposed to go down is that states were supposed to simplify the number of different tax rates before requiring out-of-state businesses to collect their sales taxes. You shouldn't need to subscribe to a sales tax compliance service to do business in the United States.
    - jonpeda 14y ago
      > this is based on the Quill v North Dakota interpretation of the Commerce Clause of the US Constitution. Note that this is a very old reading, and any modern court would likely wash that out, as everything related to human existence is considered interstate commerce by the modern court.
      - chrismaeda 14y ago
        Maybe, but Quill is the law of the land today.
    - dragonwriter 14y ago
      > Companies with a physical presence in a state are required to collect sales taxes from buyers for all sales in the state. Businesses are not required to collect sales taxes for states where they have no presence (aka nexus); this is based on the Quill v North Dakota interpretation of the Commerce Clause of the US Constitution. Specifically, its based on a Dormant Commerce Clause interpretation, to-wit, that States cannot require such taxation of businesses without the kind of nexus specified in Quill without Congress taking specific action to permit the state to do so. What you see going on right now is Congress taking specific action to permit states, under certain conditions to apply the kind of taxes that they may not be permitted to apply without Congressional permission. > The problem with the proposed legislation is that counties, cities, and towns can each set their own tax rates. So the compliance costs are high because of the thousands of different rates. The proposed legislation sets conditions for the states if they want to have access to the privilege Congress is granting with regard to taxation, one of which is that they must provide free-of-cost software for internet retailers to handle the calculations for their states. > And governments typically levy penalties if you get your sales tax collection wrong. So who is responsible for paying the penalties if the third party tax collection service makes a mistake? If you are the responsible party for collecting the taxes under the law, you pay the government; if you've paid someone else to do it for you, presumably you've made sure the terms of that contract make them responsible to you for any errors they make, so that they pay both the penalties and any additional costs you face as a result of the error. > The way this was supposed to go down is that states were supposed to simplify the number of different tax rates before requiring out-of-state businesses to collect their sales taxes. "Supposed to" based on what? Or are you just puffing up your personal preference for government policy as the way things objectively ought to be?
- dragonwriter 14y ago
  > You only pay tax in jurisdictions in which you're physically based (for an internet startup, this would be wherever you're incorporated). This axiom has held in US tax policy for about as long as there has been US tax policy. No, it hasn't. You have to have a business nexus to be subject to taxation, but both physical operations and incorporation (which are often different states) form a nexus, as do certain other activities. Before, even with mail order, remote operations choosing to actively solicit business in a state without physical presence were never a large volume of retail; with the internet, that's changed, and it makes sales taxes create a perverse incentive to avoid locating in the states where most of the business originates.

by doktrin 14y ago

nateabele 14y ago

Mail-order catalog businesses, which have existed for decades? You only pay tax in jurisdictions in which you're physically based (for an internet startup, this would be wherever you're incorporated). This axiom has held in US tax policy for about as long as there has been US tax policy. Kinda ties in with that whole 'no taxation without representation' thing. Edit: for clarity.

weds 14y ago
Sales tax is applied to the buyer, not the seller
- chrismaeda 14y ago
  Right. Companies with a physical presence in a state are required to collect sales taxes from buyers for all sales in the state. Businesses are not required to collect sales taxes for states where they have no presence (aka nexus); this is based on the Quill v North Dakota interpretation of the Commerce Clause of the US Constitution. The problem with the proposed legislation is that counties, cities, and towns can each set their own tax rates. So the compliance costs are high because of the thousands of different rates. You cannot use something simple like state or zip code to determine tax rate; you have to use geolocation to get the exact jurisdiction. And governments typically levy penalties if you get your sales tax collection wrong. So who is responsible for paying the penalties if the third party tax collection service makes a mistake? The way this was supposed to go down is that states were supposed to simplify the number of different tax rates before requiring out-of-state businesses to collect their sales taxes. You shouldn't need to subscribe to a sales tax compliance service to do business in the United States.
  - jonpeda 14y ago
    > this is based on the Quill v North Dakota interpretation of the Commerce Clause of the US Constitution. Note that this is a very old reading, and any modern court would likely wash that out, as everything related to human existence is considered interstate commerce by the modern court.
    - chrismaeda 14y ago
      Maybe, but Quill is the law of the land today.
  - dragonwriter 14y ago
    > Companies with a physical presence in a state are required to collect sales taxes from buyers for all sales in the state. Businesses are not required to collect sales taxes for states where they have no presence (aka nexus); this is based on the Quill v North Dakota interpretation of the Commerce Clause of the US Constitution. Specifically, its based on a Dormant Commerce Clause interpretation, to-wit, that States cannot require such taxation of businesses without the kind of nexus specified in Quill without Congress taking specific action to permit the state to do so. What you see going on right now is Congress taking specific action to permit states, under certain conditions to apply the kind of taxes that they may not be permitted to apply without Congressional permission. > The problem with the proposed legislation is that counties, cities, and towns can each set their own tax rates. So the compliance costs are high because of the thousands of different rates. The proposed legislation sets conditions for the states if they want to have access to the privilege Congress is granting with regard to taxation, one of which is that they must provide free-of-cost software for internet retailers to handle the calculations for their states. > And governments typically levy penalties if you get your sales tax collection wrong. So who is responsible for paying the penalties if the third party tax collection service makes a mistake? If you are the responsible party for collecting the taxes under the law, you pay the government; if you've paid someone else to do it for you, presumably you've made sure the terms of that contract make them responsible to you for any errors they make, so that they pay both the penalties and any additional costs you face as a result of the error. > The way this was supposed to go down is that states were supposed to simplify the number of different tax rates before requiring out-of-state businesses to collect their sales taxes. "Supposed to" based on what? Or are you just puffing up your personal preference for government policy as the way things objectively ought to be?
dragonwriter 14y ago
> You only pay tax in jurisdictions in which you're physically based (for an internet startup, this would be wherever you're incorporated). This axiom has held in US tax policy for about as long as there has been US tax policy. No, it hasn't. You have to have a business nexus to be subject to taxation, but both physical operations and incorporation (which are often different states) form a nexus, as do certain other activities. Before, even with mail order, remote operations choosing to actively solicit business in a state without physical presence were never a large volume of retail; with the internet, that's changed, and it makes sales taxes create a perverse incentive to avoid locating in the states where most of the business originates.