[IP] Internet Sales Taxes

One of the many big problems about collecting sales taxes on Internet
purchases is the issue of "nexus". WHOSE sales taxes are to be
collected? How are they to be remitted?

It clearly is impractical to expect an online seller to register and
file a sales tax return in every jurisdiction to which they ship any
sold items.

It is ridiculous to even expect them to know which sales taxes are
appropriate to anyone, everywhere in the USA. Who, for example, is
subject to stadium taxes, mass transit taxes, and other local tax
surcharges? So how much tax is even DUE?

This problem is NOT new to the Internet... it has been an issue for mail
order purchases for a century or more. Nobody has ever been able to
come up with a practical and successful method for sales taxes to be
collected by businesses without a real physical business "presence" in
proximity to the customer where the sale was made.

The waters get even muddier when one starts to consider foreign sales...
both export sales by US companies, and foreign companies selling to US
customers.

The argument about local governments being somehow "cheated" out of
sales tax money to fund parks, schools, and other local services (which
they would have made if a local brick-and-mortar business had made the
sale) is ridiculous too. If I bought a product by mail order from a
company in New Jersey (and I live in Texas), what makes someone think
that it's fairer to collect the taxes in Texas than in New Jersey?

It gets stickier still... consider something like some E-bay or Yahoo
stores. Is the tax basis where the SERVER (and then WHICH server? The
one hosting the images, the one hosting the shopping cart, or what?)
resides? Where the Yahoo Stores service company is based? Maybe where
the web hosting company is based? Where the "seller" (company, or
individual) lives? How about for sales by a foreign company which
drop-ships merchandise to US purchasers from a US warehouse or shipment
center?

At least once upon a time, the sales tax in Illinois used to be called a
"Retailers Occupation Tax" and it was at least supposedly INTENDED to be
a tax on the seller, not on the buyer. Retailers, perhaps predictably,
just added it as a line-item surcharge on their sales receipts... making
it painfully obvious to the buyer where the money they paid was going.

Anyhow, in a global economy and where it is nearly impossible to simply
state where an online transaction was "done"... this issue of "nexus" is
at least incredibly difficult, if not impossible, to resolve.

David Farber wrote:

Begin forwarded message:

*From:* Robert Atkinson <rca53@columbia.edu <mailto:rca53@columbia.edu>>

*Date:* May 21, 2008 10:07:38 AM EDT

*To:* David Farber <dave@farber.net <mailto:dave@farber.net>>

*Subject:* *For IP: Internet Sales Taxes*

Dave,

A call in Wall St. Journal for imposing sales taxes on internet commerce:

<http://online.wsj.com/article/portals.html>http://online.wsj.com/article/portals.html

Excerpts:

*Real World Needs 'Net' Taxes

**/May 21, 2008; Page B9

/

*Do you think that billionaire Internet moguls should continue to

benefit from a tax loophole that hurts parks and schools, and makes it

harder for your neighborhood bookstore to keep open for business?

I didn't think you did.

***

For starters, by giving online businesses a permanent advantage over

their bricks-and-mortar competitors, it helps those who need it least

-- huge, profitable e-commerce companies -- at the expense of

often-struggling local retailers.

In addition, the tax policy is regressive. It disproportionately

benefits the upscale citizens most likely to shop online. Worst of

all, as commerce increasingly moves online, state and local

governments are being deprived of the sales-tax revenues they rely on

to run schools, build roads, pay police and firefighters, and do all

the other things they're supposed to do.

A dozen years ago, one might have been able to make the case that a

holiday on collecting sales tax would help the fledgling Internet get

off the ground. I don't think that was particularly true even in 1996;

it certainly isn't now.

***

Opponents of the tax collection are fond of the effective but

dishonest slogan that collecting a sales tax would amount to a new

"tax on the Internet." But making Amazon collect sales tax on books is

no more "taxing the Internet" than requiring stores to collect taxes

on Valentine's Day chocolates amounts to "taxing falling in love."

--

Gordon Peterson II
http://personal.terabites.com
1977-2007: Thirty year anniversary of local area networking

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