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Old 05-08-2013, 12:16 PM   #1
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Default I don't understand how Use Tax works

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Supporters of this tax argue that this tax is not a new tax. Not only is it a new tax, it is a grotesque tax: a violation of the principle, "no taxation without representation."

Republicans in the Senate voted for this tax, all in the name of a fantasy: "It really is not a new tax." On the contrary, it really is a new tax. I hope Republicans in the House of Representatives will see this, and will vote against H.R. 684, the so-called Marketplace Fairness Act. This proposed tax is unfair in a way that few other taxes are.

Let us consider a real-world situation. I sell digital copies of my music, and have customers who live outside the United States. For all I know, they live in jurisdictions in which there are sales taxes. I deliver information to them in digital form. They presumably do not pay a sales tax on whatever they have paid to me to become subscribers. I see no way for a foreign government to impose a sales tax on a digital transaction that takes place between someone inside the government's jurisdiction and someone outside its jurisdiction.

GOONS FROM ABROAD

Let us assume that I am contacted by that foreign government. I am told by email that it is my responsibility to collect the sales tax from the resident of that nation. Therefore, I am informed, the government is requiring me to find out what the rate of taxation is in that nation, and to immediately remit that tax to the government. What should I tell the government?

I will not respond to the government. I will act as though I never heard from the government. How is that government going to prove that I ever got the message, that the message did not go into my junk file? Why create problems? I do not think the government can do anything to enforce the claim.

But what if it is a really serious government? What if the government is so serious that it wants to make me the poster child for businesses dealing with residents of that nation? What if that nation sends over a squad of goons, and the goons threaten to arrest me? What if the goons have the power to do this? Should I pay the tax? I think I would pay the tax. I do not want to be kidnapped by goons, hauled to a foreign country, tried for tax evasion, possibly sent to jail, and leave my subscribers and family without access to me or my information.

You may say that this is impossible. It is not impossible. It is simply expensive. The government could do this. There were times in the past when the Soviet Union did do this kind of thing, although not on issues of sales taxes. A government that wanted to enforce a sales tax on me could do so at some price. What protects me is the fact that the price is too high. Also, the United States government does not look favorably on foreign governments that send agents into the United States to kidnap tax evaders. It is a matter of turf. It is a matter of jurisdiction. It is a matter of the defense of the jurisdiction of the federal government against interlopers, not any big commitment to my freedom as an individual. The feds want to get tax money out of me. They does not want to share this revenue with foreign governments.

I receive no benefit from that foreign government. I have neither a judicial covenant nor an economic contract with that foreign government. If that foreign government wants to tax the individual who bought a subscription from me, that is between the buyer and that foreign government. It has nothing to do with me. I am not under its jurisdiction, and therefore I should not be used as an unpaid tax collector for that foreign government.

We are talking here about invisible lines called borders. They are judicially relevant lines. They establish the limits of the jurisdictions of civil governments. Civil governments defend their jurisdictions, which means they defend their citizens. If their citizens remain inside the borders of a particular government, the government feels required to defend its citizens from invasion by other governments, because such an invasion is ultimately an invasion of a particular government. It is a matter of turf. It is a matter of competing jurisdictions.

If this is logical so far, then I want to extend the same line of argumentation to invisible borders between states, meaning jurisdictions within the United States. If the logic that I presented so far applies accurately to borders between nations, then the same logic applies to borders between states.

STATE BOUNDARIES

If I commit a crime while I reside in my state, and the victim resides in another state, then the other state has the right to call for my extradition to be tried where the crime took place. Maybe I am a digital bank robber. I have robbed a bank in another state, but I never entered the jurisdiction of that state. Then it is a matter between states. It is a jurisdictional dispute.

If a foreign state wants to impose a penalty on me, because I have committed a crime, it can go through the procedure of extradition. That is an expensive procedure. The cost of that procedure protects me. But it also protects you.

What we are seeing in this Internet sales tax debate is the attempt by states to use the federal government to substitute some other kind of procedure for extradition. The federal government is expected to lower the cost of extradition, meaning lower the cost of imposing a penalty on me.

If this bill becomes law, I will not get my day in court. I will have been told that I have committed a crime by not collecting a sales tax on an unpaid basis that has been imposed on a client of mine in another state. I have received no benefits as a resident of that state, but I am expected to serve as an unpaid tax collector for an obligation that I do not owe to the state, but which is owed by the resident of that state.

This is a matter of rival jurisdictions. The higher the cost of extraditing somebody for a crime, the fewer the number of extraditions there will be. It would not be possible for states to demand the extradition of all criminals, if criminals are defined as people who do not collect taxes on unpaid basis for governments in other jurisdictions. The Internet sales tax bill is an attempt to reduce the cost of proving criminal behavior on the part of sellers who live outside the jurisdictions of 45 states.

Tax evasion is a crime. The refusal to collect sales taxes inside a state's jurisdiction is a crime. The refusal to pay this tax is a business crime. Governments attempt to lower the cost of proving a buyer's crime by assigning to in-state resident business owners the responsibility of collecting the taxes.

That is a cost of doing business inside a particular state. Business owners get walk-in business. Their locations help them sell goods. Why should someone who does not have a store in a community, and who does not get walk-in traffic, have to pay a sales tax on behalf of the resident of a foreign state? This is not "a level playing field." This is discrimination. This is not fairness. This is unfairness. This is placing a business outside a state on what is supposedly an equal basis with the business located inside that state, but without any of the benefits of being in that state. The state government gives no benefits whatsoever to a business located outside the state, but that business is supposed to act as an unpaid tax collector on behalf of a foreign government.

If we use the term "foreign government," we can better understand the nature of this tax. All discussion of fairness should be equally applicable to every civil government's jurisdiction on the face of the earth, meaning every jurisdiction on the face of the earth whose residents are now or might possibly be involved in Internet commerce. Why should a resident of a particular state in the United States be required by every tax jurisdiction on the face of the earth to monitor and collect tax information from each of those jurisdictions, and automatically remit the money to those tax jurisdictions? To ask the question is to answer it: there should be no such obligation.

Then why should there be any such obligation inside the United States? Why should a taxation principle which is obviously preposterous when applied to tax jurisdictions around the world be regarded as tax fairness when applied inside the jurisdictional limits of the United States government? We are talking about invisible lines that separate tax jurisdictions. If the sales tax principle is legitimately applicable between states inside the United States, then the principle ought to be equally applicable between states inside the United States and states outside the United States.

If the principle is preposterous when we cross national borders,then it should be equally preposterous when we cross state jurisdictions inside the United States. When I say "cross borders," I mean "do not cross borders." I mean a seller in one state sells a product to someone in another state, yet he is required to serve as an unpaid tax collector for a tax-collecting jurisdiction with which he has no contract. The sales contract is between the seller and the buyer. There is no sales contract between the seller and the taxing agency that has jurisdiction over the buyer.

The Internet sales tax bill is an attempt to establish a contractual basis where no such contract presently exists. It is therefore a tax increase. This bill is not about tax fairness; it is about increasing taxes for the benefits of 45 state jurisdictions. It is a subsidy from the federal government to state governments that have sales taxes.

My suggestion is to resist any such subsidy by the federal government. It is just one more tax.

For details on how to protest, go here:
Internet Sales Tax Passes the Senate, 69 to 27 : The Tea Party Economist.
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Old 05-08-2013, 12:42 PM   #2
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td;dr this is a way for states to more easily enforce their use taxes.
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Old 05-08-2013, 01:58 PM   #3
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If delivery is to a foreign country, there must be no sales tax, but only a tax on profits of the sale, and possibly a receiving tax collected by the purchasers country of residence. (VAT)
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Old 05-08-2013, 02:06 PM   #4
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That seemed a very unpersuasive essay.

Quote:
If I commit a crime while I reside in my state, and the victim resides in another state, then the other state has the right to call for my extradition to be tried where the crime took place. Maybe I am a digital bank robber. I have robbed a bank in another state, but I never entered the jurisdiction of that state. Then it is a matter between states. It is a jurisdictional dispute.

If a foreign state wants to impose a penalty on me, because I have committed a crime, it can go through the procedure of extradition. That is an expensive procedure. The cost of that procedure protects me. But it also protects you.

What we are seeing in this Internet sales tax debate is the attempt by states to use the federal government to substitute some other kind of procedure for extradition. The federal government is expected to lower the cost of extradition, meaning lower the cost of imposing a penalty on me.
His point boils down to, "this bill makes it easier for me to get in trouble for violating a rule or committing a crime?"
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Old 05-08-2013, 02:11 PM   #5
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pretty much. like i said, most states have use taxes.

for example, in VA we are supossed to fill out this form: http://www.tax.virginia.gov/taxforms...structions.pdf

whenever you file taxes to pay 5% sales states on items you bought outside VA and brought into the state where you didnt pay VA sales taxes.

Quote:
When you purchase goods, other than magazines or newspaper
subscriptions, from a business that does not add the Virginia sales and use
tax to your bill or you purchase goods tax-free while outside Virginia, you
may be liable for the tax and required to file Form CU-7 to report and pay
the tax. This tax is 5% of what you paid for the item (“cost price”) except
for food purchased for home consumption.

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Old 05-08-2013, 02:35 PM   #6
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It is not a new tax.

State laws have always required their residents to remit a "Use Tax" on all mail-order purchases which is equal to the state Sales Tax.

This vastly predates the internet. It's just never been a big deal until now, since people didn't mail-order nearly as much stuff. So they're finally starting to pay attention to it is all.
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Old 05-08-2013, 05:21 PM   #7
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As much as it sickens me to agree with the Tea Party, Libertarians, and Grover Norquist, this law is a terrible idea and I am thankful that the GOP will never let it out of the House.
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Old 05-08-2013, 06:37 PM   #8
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Quote:
Originally Posted by Savington View Post
As much as it sickens me to agree with the Tea Party, Libertarians, and Grover Norquist, this law is a terrible idea and I am thankful that the GOP will never let it out of the House.
Crony capitalism!
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Old 05-09-2013, 11:35 AM   #9
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Originally Posted by Scrappy Jack View Post
That seemed a very unpersuasive essay.
Because Statist?

Fundamentally you believe in the elitist view that society can be improved by engineering it and exercising top-down control.
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Old 05-09-2013, 11:40 AM   #10
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Originally Posted by Joe Perez View Post
It is not a new tax.
In a practical sense, it is. And the cost of compliance, to small biz (as a group, the biggest employers in the nation), will be huge.

I keep thinking that the only truly "fair" tax is a simple fixed sales tax. And a gov't that costs only a total of 15% of GDP. If people saw how much the gov't cost them with every purchase, they'd be way more active in limiting its size and scope. Instead, the byzantine tax code allows special interest groups to have their cut of the spoils, and the paycheck withholding tax somewhat de-sensitizes people from the cost of gov't.
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Old 05-09-2013, 11:41 AM   #11
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I have a fundamental disagreement with almost every tax ever imposed ever. The problem is almost every state already has a Use Tax on the records--I posted my state's.

Legally, everything I've ordered online without paying VA state taxes for could put me in jail, since I've never once filled a CU-7 and I don't plan to.

So yeah, I oppose the internet sales tax thing, but honestly, how long did you think this would go on before states figured out it's probably really easy to collect those taxes now. nothing is tax free.
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Old 05-09-2013, 12:54 PM   #12
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Quote:
Originally Posted by Braineack View Post
So yeah, I oppose the internet sales tax thing, but honestly, how long did you think this would go on before states figured out it's probably really easy to collect those taxes now. nothing is tax free.
Exactly.

All that has really happened is that technology now allows the states to close a loophole which the vast majority of consumers have been illegally exploiting (often without even knowing it) for decades.

We have *always* been required to pay "sales tax" on mail-order purchases, whether they make them via the web, via telephone, vis USPS or via Western-Union telegram. The only difference is that this law is now much easier to enforce.



As to it being somehow byzantine and causing huge cost burdens to small business (I'm now addressing Jason's point), this argument makes no sense at all. Small businesses which support online transactions are, by definition, already using the services of an e-commerce portal system which automates the computation of shipping costs and the levying of sales-tax for purchases made to in-state customers. The handful of companies which provide these portals are already in possession of all 50 states' (plus DC) tax information, so they will simply update their software to allocate the appropriate use tax based on the ship-to address.

The day-to-day impact on small online retailers will be precisely the same as that one the girl working the register at Wal-Mart. It will be zero, because it is fully automated.

The retailer will, of course, have to make some extra sales-tax remittances, however this will probably continue to be performed as a value-add service by the operator of the e-commerce portal. So again, net impact zero.


If your concern is that the enforcement of the use tax will make online retailers less competitive vs. their brick-n-mortar cousins (because consumers will be less incentivized to seek them out once they can no longer exploit the use-tax loophole), well, that's what they call a level playing field.
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Old 05-09-2013, 01:03 PM   #13
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determining local sales taxes on some of these content managment systems will be a huge cluster **** for small businesses btw.

A lot cant do it by address, just state, and OH alone has a 5.5-7.5% tax depending on the county/city/school district/etc.

It will also create a lot more work for them, now not only will they have to file/pay the local sales taxes once a year (or 4 times a year) for the current state they operate in, they will have to submit to 52 states.
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Old 05-09-2013, 01:11 PM   #14
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IIRC there are 9600 different tax codes that online businesses will have to keep track of.

Luckily one of the major backers of this bill, Amazon, is ready to sell a service that does just that to everyone. How convenient!
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Old 05-09-2013, 01:22 PM   #15
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The basic premise of the law is reasonable, as Joe pointed out above. Closing a loophole.

It also stands to benefit small business owners who do not do a lot of mail order. I'll give a personal example. My friend started a business quite a while ago. Electronics of all sorts. Small shop that had cameras, camcorders, computer parts, etc. Think of a miniature Best Buy. Lots of customers, but he was losing money. People came in to "shop" - meaning playing with the demo models, checking out features, getting technical advice. But not buying. They'd take the info and go do a search online to buy the same thing from Amazon or someplace. He was keeping his prices at rock bottom, hoping to get more sales, but still losing out to online with free shipping and no tax. They also expected him to honor warranties when they had purchased elsewhere. He ended up losing his shirt and closing the doors.

However, that being said, I look forward to the multitude of screw-ups, lawsuits and general B.S. that this law will generate.
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Old 05-09-2013, 01:25 PM   #16
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Fortunately for (really) small businesses, annual revenue under $1m online is exempted from this requirement.

Of course, that exemption kind of destroys the idea that this is about equal enforcement of tax law. It's really about giant online retailers forcing compliance and audit costs onto smaller online retailers.
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Old 05-09-2013, 01:33 PM   #17
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Quote:
Originally Posted by rleete View Post
The basic premise of the law is reasonable, as Joe pointed out above. Closing a loophole.

It also stands to benefit small business owners who do not do a lot of mail order. I'll give a personal example. My friend started a business quite a while ago. Electronics of all sorts. Small shop that had cameras, camcorders, computer parts, etc. Think of a miniature Best Buy. Lots of customers, but he was losing money. People came in to "shop" - meaning playing with the demo models, checking out features, getting technical advice. But not buying. They'd take the info and go do a search online to buy the same thing from Amazon or someplace. He was keeping his prices at rock bottom, hoping to get more sales, but still losing out to online with free shipping and no tax. They also expected him to honor warranties when they had purchased elsewhere. He ended up losing his shirt and closing the doors.

However, that being said, I look forward to the multitude of screw-ups, lawsuits and general B.S. that this law will generate.
this bill will not save his business. not at all. ask best buy if you dont believe me.
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Old 05-09-2013, 01:35 PM   #18
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Quote:
Originally Posted by mgeoffriau View Post
Fortunately for (really) small businesses, annual revenue under $1m online is exempted from this requirement.
I worked for an online retailer who did about 2 million in online revenue a year, after the recession. This was only a 15-18 employee business. We eventually hired a remote employee who worked based out of OH as a consultant as sorts. We had to then start collecting OH sales tax...it was a nightmare.

They eventually went out of business the begining of this year, they couldn't get prices low enough to compete. I believe Staples runs the operation now.
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Old 05-09-2013, 01:42 PM   #19
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Quote:
Originally Posted by thenuge26 View Post
IIRC there are 9600 different tax codes that online businesses will have to keep track of.
See, this is the faulty underlying assumption.

People who run small online businesses are not keeping track of any tax codes at all. They are simply utilizing the services of one of a handful of e-commerce portal providers, and those providers are already experts on the tax code.

An analogous comparison would be pointing out that most individuals do not prepare their own income tax returns directly- they either use a software package (Turbotax, H&R Block, etc) to prepare the return, or they employ the services of a tax preparer to whom they just hand a pile of paperwork and walk away. Thus, the hundreds of tiny year-to-year changes in the income tax code aren't really noticeable to most people, since they utilize the services of a third-party expert whose job it is to absorb that responsibility.

Same principle applies here. The owners of small online businesses won't have to change anything, because they are already paying someone else to manage their e-commerce functions, including the assay of sales tax.



Quote:
Originally Posted by rleete View Post
The basic premise of the law is reasonable, as Joe pointed out above. Closing a loophole.

It also stands to benefit small business owners who do not do a lot of mail order(...)
Yeah, I find it ironic that "we" (as a broad generalization) tend to rally around individual mom-n-pop small businesses as a cause célèbre, shouting about how box-box stores are killing them and so forth.

Now, we're arguing against something which would directly benefit these mom-n-pop operators, by forcing their online competitors to play fair.
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Old 05-09-2013, 01:46 PM   #20
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this will not benefit mom-and-pop stores.

it doesnt level a playing field.


ask circuit city if you dont believe me.
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