Supreme Court Takes Up Internet Sales Tax Conundrum | Hacker News Reader

Supreme Court Takes Up Internet Sales Tax Conundrum

reason.com

78 points_delirium80 comments

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.

The idea that a state is entitled to some cut of a purchase just because the purchaser lives in the state is absurd to me. If I can walk across state lines and buy something in a brick-and-mortar store and be charged that state's sales tax, why should I be taxed according to my own state's sales tax if I instead buy something online that's physically located in another state? Or, to make it less "techy", if I order something over the phone or by mail order, why should my state feel they deserve a cut of that?

I think it makes more sense for all purchases to be taxed at the rate where the seller resides, regardless of where the buyer is. So if I live in CA and buy something from a seller in NJ, I pay NJ tax, to NJ, even if the seller has no presence in CA. This has what I consider to be the nice effect of making this detail a part of the reason why you might want to move your operations to a particular state. State governments can offer businesses incentives to move/stay in-state if they do have a higher sales tax rate: they can offer other tax breaks to a company that will allow them to reduce prices so they can remain competitive, or states can just lower sales taxes to be more competitive. I'm not 100% sold on that latter bit, since I like the idea of taxing consumption (encourages saving and/or investment), but I like some of its other properties. This does get more complicated when a business has a presence in multiple states, but I'm sure someone can figure that out[0].

I don't find your argument about sellers moving out of the country to be persuasive. That sort of thing can be fixed with shipping taxes and/or import duties. If states or the US aren't implementing those sorts of things, that's the thing that should be fixed.

[0] Note that I'm looking at all this from the perspective of a "user" of the system. I don't know or care how complicated it is to implement by businesses or the states (as long as the complexity is limited such that compliance doesn't add undue costs); what I do care about is what seems fair and reasonable to purchasers who are subject to the taxes.

> 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.

I don't see that as an issue. Raising rates for other taxes is a perfectly reasonable action to take to keep state revenue stable and predictable. This is already a problem with sales taxes: recessions and booms affect sales taxes in ways that require states to adjust budget already.

States would get into a race to the bottom in for this effect, which is not what the states wants to do with its own tax collection. That would basically be pulling the amazon tax bargaining with every single state for every single sales tax.

I'm all for it, but that system is likely to not survive.

Corporate income taxes by state would seem to deny a race to the bottom. Very few (6?) have no corporate income tax and not all business are located in those states.

While states like business there, they also like taxes. Not allowing them to tax out of state sales would seem to be a good brake on their greed.

The point of sales/use tax is that the tax on your consumption pays for the government services that you use.

Is it on consumption or production + transfer? If I continually consume something that I've always had, I'm not paying recurring sales tax. But if I produce something new and sell it, I am, making the GP's point more sound.

In economics, "consumption" basically means "buying things".

It's obvious that this does get abused by some sellers.

It's also obvious that states don't have the authority to enforce their sales tax law on out-of-state sellers. Their options are either to switch to a tax structure that they are capable of enforcing or to lobby the federal government to regulate the collection of sales tax by out-of-state sellers.

But how do they receive the credit card payments? What company is the one that actually receives the credit card payments from the consumer? Is it the "authorized distributors"? Or is the bank account that receives the CC payment linked to the parent company? It seems that states could go after the location that actually receives the credit card payment (if it's not a Caribbean corporation).

Or just place a consumption tax at the local level - doesn’t matter where it came from.

I’m pretty sure this is already the case everywhere, but enforcement is impossible unless you already have some other registration requirement (like cars or boats) that lets the state know you’ve acquired something.

If you really have this information have you submitted it to the IRS? You would get a percentage of the taxes they retrieve if you actually have credible and specific information.

https://www.irs.gov/compliance/whistleblower-informant-award

Sales and use taxes are purely creatures of state or local law.in the US, excluding a few specialized federal taxes on products like alcohol and gasoline. The federal IRS has nothing to do with that. And if the structure is defensible in court, neither would the many state or local tax authorities.

Sales tax seems like it's just obsolete (and it's regressive, to boot). They should just make up any shortfall via property tax or income tax, rather than clinging to this thing they can no longer control.

> They should just make up any shortfall via property tax or income tax

Or they can waste less money and stop stealing from me at gunpoint.

It fascinates me how those isn't even an option in some people's minds.

They're not stealing from you, it's what's been decided by our elected representatives. You're free to try to elect people who agree that taxation is theft (you won't be the only one).

Or you can always move to a state that already agreed with you and tries to minimize your tax burden.

Because most people don't see taxation as theft, and don't mind paying it in exchange for certain goods/services?

>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.

In most states you can't just add up everything you bought online all year and multiply, because there are different sales taxes for different categories of goods, and some items in an order might be exempt or taxed at special rates, while others aren't. So you need to at least group the items into the different categories.

For example, when I lived in Atlanta, there were four categories. Some items were exempt from sales/use tax entirely. Others were exempt from the statewide component of sales/use tax, but still subject to local option tax (groceries were in this category, so they were taxed at 2.2% or something like that). Most of the remaining items were subject to the regular statewide and local-option taxes. Finally, a handful of things (like cigarettes) had an additional excise tax added on top. To make matters worse, you pretty much need a database to determine which items go into which category; the rules around what counts as "prepared food" (fully taxed) vs. "groceries" (partially taxed) aren't entirely intuitive. Another example is that in many states (but not GA), textbooks are sales-tax-exempt, but other books aren't, so if you order from an online bookstore, you need to treat those separately when computing your use tax. The value of the individual items can also make a difference: individual clothing items under $110 are tax-exempt in NY, while those over $110 are taxable.

To further complicate matters, not only my city, but my zipcode too spans two different counties.

> 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.

You seriously keep receipts for every purchase you made online for the past 12 months and spend the time to add it up for your 1040? You honestly don't just check the box that says, "Meh, it was like $1,000 or so," and they take $20 or whatever?

I don't, and I also don't really purchase anything from a vendor that doesn't already charge sales tax, but I guess it could be a problem for businesses. But it is the law, and enforcing it would probably bring about solutions.

> all you have to do is add up all your purchases that did not have sales tax charged

This is the hard part. Credit card statements don't tell you if charges include sales tax.

"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"

This is something Americans will never get. There is a political obsession with lowering taxes. The only thing that keeps the US from crashing is US Treasury bonds.

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?

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)

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.

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.

TaxJar already handles all the sales tax lookups and filings, and is integrated with Stripe, Shopify, etc. And it’s cheap too.

The problem comes when you want them to handle the filing and remittances for you. That can get expensive fast.

Really though, I suspect that the number of small (and large) businesses who are 100% compliant here is zero. 50 states, all with different rules, and increasingly international jurisdictions that want to charge sales, income, and VAT taxes on global companies of any size based on where the customer is, not where the company is. I can’t imagine the enforcement can even come close to keeping up with all this.

For example, my understanding is that businesses anywhere in the world are supposed to charge EU customers VAT starting this year. Dream on.

> For example, my understanding is that businesses anywhere in the world are supposed to charge EU customers VAT starting this year. Dream on.

I've been following the EU VAT plans somewhat closely, and I'm not aware of any such changes affecting non-EU businesses occurring this year. Or maybe I missed it, could well be...

Sellers of digital services situated outside the EU already have been supposed to charge VAT from EU customers for a few years now (since Jan 2015 IIRC).

For physical goods, some additional measures are in the pipeline for 2021 - e.g. marketplaces become responsible for collecting VAT on some imports, and sellers outside EU can pre-remit VAT for a fast-track customs procedure for some imports, and VAT-exempt small imports will end - but nothing that requires all non-EU businesses to charge VAT from EU customers, they can still leave it to end-customer to pay on delivery (unless the marketplace took care of it).

Yeah, I’m wrong about this, it happened awhile ago.

It just seems insane to me. I don’t understand how some random country thinks they have jurisdiction over the entire globe just because someone else sold their citizen something digital. If you want to tax that transaction, I think the best you can do is hold the citizen responsible for payment. But of course, tax law is not usually about what’s right or logical or fair. It’s about what you can enforce and get away with.

A random country clearly has the power to ban imports. Would you prefer that over paying taxes?

EU is not a country. It does however represent the world's biggest unified market.

And as the US clearly demonstrates: taxation is better done centrally.

Well, its certainly trying to behave like one then! Uniform currency, no border enforcement/passport requirement, law enforcement that spans members. Its as much like a country as the United States individual states are a country?

Anyway, taxation is, as the famous dude said, the art of plucking the goose as to get the most feathers with the least squawking. Any semblance to a rational system is only there to appease/content the citizens as they get plucked.

Some jurisdictions also make it almost impossible for an overseas company to register.

FBA for international companies is really problematic. If your company has a real physical presence and employees in a state compliance with sales tax is probably a minor amount of extra work attached to operating in a state. If you have sent 1 shipment of items to FBA (a process which might take you an hour to setup) the burden of now having to register and file sales tax in 15 states is massive compared to your operations in those states.

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.

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.

  Zip+4 isn’t specific enough either, you can still run into the same issue.

Depending on area, that can be very rare. My building has its own zip+4, and even my P.O. Box has its own. In wrangling voter data, I didn't hit a single case where a given zip+4 spanned multiple precints (but the 2000 census gerrymander came close in a few cases).

Not just the rates though... Like ice cubes aren't taxed here, but blocks of ice are taxable. Adult diapers aren't taxed here, baby diapers are taxed there. This water is food, this soda isn't food. So would have to somehow classify items... Then I wonder how it works if you bought a prepacked meal that isn't taxable otherwise but since it included a small juice or soda like a lunchable might - one package but items part of it are classified differently.

+1. Knowing the rates is the easy part - knowing which rates apply to what items can be nearly impossible.

Here in Minnesota I can buy two pizzas from national chains, one from Papa John's and one from Papa Murphy's. The one from Papa John's will be taxed, but the one from Papa Murphy's won't - it's uncooked, and falls into the untaxed "grocery" categorization. Tax laws are just weird.

Unfortunately the zip code level is not always precise enough to determine local tax rates, but your point stands that it isn't usually overly difficult to find the tax rates for a particular shipping address.

I remember a few years back when I was doing ecommerce, I came across a service called TaxCloud[0] that was supposed to handle all of the tax collection for you, for free. I never actually used them, but the idea was you use their API to calculate tax rates for all your orders, you remit the tax to them and then they paid the states. Apparently many states offer a commission to 3rd parties that collect and remit owed taxes, so TaxCloud was supposed to be making their money that way.

[0] taxcloud.net

> computing the sales tax is easy

Sure, it's almost as easy as time zones!

Creating the database and maintaining it is obviously hard work. But, once it exists, doing a lookup can be straightforward just as it is with time zones.

I'm sorry, but no.

Here is a pencil. Is it taxed in both A and B? Now, here's another pencil, but it was made from recycled wood. Is it also taxed the same way in both A and B? What about C, which is another one of the USA's 6000+ tax jurisdictions?

Wait... did that state just declare a tax-free weekend for school supplies (Texas does), so should that item no longer be taxed for Texas residents? Does the tax free weekend apply to both types of pencils?

Wait... A city in California just decided that pencils are dangerous if kids run with them, so they impose an extra sales tax to discourage unsafe writing practices. How are you expected to know about this local rule if you live several states away? Normally, rules of nexus would exempt you... unless you are using affiliates to help you sell pencils. Affiliates can trigger nexus. How can you know the local tax rules for every affiliate that signs up?

And, sorry... if you think timezones are simple, then you are way off base. If it is easy, then it is because so many people have dedicated their resources to provide the tools to make it easy. (https://www.timeanddate.com/time/dst/events.html, https://en.wikipedia.org/wiki/Tz_database) Sales tax is much, much more complex (9 time zones in the USA vs 6,000+ tax jurisdictions in the USA).

1. Make product categories consistent across all tax jdxs.

2. Every tax jdx will maintain online db of 'REGION|PRODUCT|TAXRATE'. Sellers need to fetch periodically (say 1hr). Also note, REGION is defined by gps points.

Problem Solved. I hate to say it as ancap but this is not a problem a little standardization cant fix.

This assumes though that that database can be integrated into the existing software and workflow. That is not trivial to do and can break things easily with proprietary or custom systems.

And not all goods or services (that are in theory taxable) are even 'shipped' to a zipcode.

That's fair and I shouldn't have used the term "easy" before. That said, a lot of companies who sell online and have a widespread physical presence obviously manage to do it. Of course, that's a lot different from a small business doing it.

Those large businesses often still get it wrong and get audited.

When I last looked at this, most online offerings failed at least one of our test addresses. Most online stores seemed to fail it too. And this was only for California, ignoring the other 49 states.

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.

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.

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.

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.

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-supre... and http://www.courtnewsohio.gov/cases/2016/SCO/1117/150386.asp

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.

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.

Not for lack of trying: http://www.bkd.com/articles/2014/new-york-enacts-major-corpo...

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.

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.

> 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?

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?

I'd love to have some support for a real number. I found a source [1] for the cost to retailers to collect a tax (about 4.23% of tax collected in WA) but while most states make it pretty easy to see how much sales tax was collected they don't make it easy to see what it cost to collect that tax, separate from the other taxes they collect (income tax, corporate tax).

If you have any insight into this, or suggestions that are less painful than "read the state budget detail", I'd love to have a cost number that is based on facts.

[1] https://dor.wa.gov/content/retailers-cost-collecting-and-rem...

Perhaps they are including the cost to the businesses of marking up items, checking tax rates etc?

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?

It’s not as hard as you think. Sales tax is mostly automated, with maybe 100 people in a large state running the program, with a few hundred more auditors.

Administration costs are not really a factor - tax people are able to statistically estimate their loss ratio and can pretty accurately model the ROI on investments in enforcement. If a state was spending 3.5% of collections on enforcement, there would literally be a guy at the door to inspect your receipt.

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.

I have been routinely dealing with these with my previous gig in WA. It's worse when places like Google (for Android sales) didn't provide full address of the buyers. (I remember they used to, but then it was down to city/state pair, I don't know how it is now...)

For the most, it was possible to devise where in the county by looking at the amount of sales tax Google collected, but there were so many of edge cases.

Since most of time, it was only a dozen or two sales within the state, but recurring joke was that maybe it's better off not selling to Washington State resident altogether. Like you said, if it was 50 states, it would be impossible to handle this.

Sales tax is and absurdity and needs to be replaced by property tax and income tax

Land Value Tax instead of property tax. Prop Tax discourages owners from improving their properties because then they’d owe more tax. Land value usually isn’t created nor destroyed by the owner, so it makes more sense to tax it.

Well fuck.

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.

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

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.

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.

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!

I live in Alberta, so I only pay GST :)

My point was, there are only 10 sets of tax rules a seller has to know to do business in Canada:

1. GST

2. BC PST

3. Manitoba RST

4. New Brunswick HST

5. Newfoundland and Labrador HST

6. Nova Scotia HST

7. Ontario HST

8. PEI HST

9. Quebec QST

10. Saskatchewan PST

It is quite manageable for a business to know and abide by 10 sets of rules. Having to know, abide by, and follow the updates to 6000+ different sets of rules would be difficult even for large enterprises, let alone small businesses. I am glad Canada does not give the power to levy sales taxes to sub-province entities.

Individual cities can and do charge sales tax.

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

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.

Would you also like to see more of Talking Points Memo and The National Review?

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