US Senate approves proposed Internet Sales Tax

Didn't Amazon drop affiliates in other states when those states tried to use the affiliate rationale to charge sales tax? Why is NY different?

Usually I'd use a combination of my Mint records (which had convenient totals for each online merchant, of which I really only used 5 or 6 in a typical year) and the Massachusetts safe harbor law (which essentially allowed me to assume that I spent 1% of my AGI on untaxed purchases less than $1000, and pay use tax based on that number). If I bought anything online or out-of-state that cost more than $1000, I'd add that in separately, but that happened rarely enough that it was pretty hard to forget how much I spent on those items.

What we have right now is a situation where some stores collect taxes in some states. As a consumer, I would prefer it if all stores collected taxes for all states, for three reasons. First, I wouldn't have to figure out which stores already collected taxes, so it would save me time. Second, because I like seeing how much I'm going to pay for something, taxes included, at the time of purchase. And third, because I believe that taxes should be levied fairly and consistently, and that would put online stores on the same footing as brick-and-mortar stores, and honest taxpayers on the same footing as people who are inclined to see what they can get away with.

As a startup founder, however, I'm less enthusiastic. The process of filing taxes in all 50 states would be a huge burden. If a national sales-tax clearinghouse existed, it would be a different story, but under the status quo, it's just too much paperwork for a small company to handle.

It is actually because it is nearly guaranteed to be collectible when it is attached to inelastic goods which are needed by everybody. On the other hand, raising things like estate tax and income tax increases the amount of legal tax dodging through trusts, municipal bonds and the like so it's unpredictable and difficult to collect. This dates back to a reversal of Andrew Mellon's prudent and lucrative tax policies by FDR and Morgenthau, who turned to gasoline and alcohol taxes to cover shortfalls caused by their extremely high progressive income tax rates, and since then high earners have gotten in the habit of tax avoidance regardless of current political and fiscal strategies, permanently entrenching the regressive taxes as necessary.

It's also easier because it's a state issue (national politics always get more coverage) and usually tied to something people can actually see or understand (we're raising the sales tax .25% for 15 years to fund mass transit).

Not to mention that there's a significant portion of people who really are so poor they aren't online. I understand that the HN community may be sheltered in many ways from a world where people can't afford a computer or Internet access, or a smart phone, but that world exists, and is not as small as we'd like to think. (I grew up in a family where a trailer home with a broken-down Pinto in the yard would have been a step up ... for some family members, very little has changed)

> "because they're vastly more likely to be unbanked"

This is not true in the US, where your debit/bank card is also a VISA/MasterCard fully usable online. Even people with zero credit can easily spend money online. If you have a bank account in the US, there are effectively no barriers to spending the money in it, online.

Is there any data out there on this perhaps? I definitely tend to agree with your theory but I'd also love to look at some data or existing research.

Would appreciate any links that anyone might be able to provide for further reading or data related to this topic...

Except that the people that are hit hardest by this likely aren't paying income taxes, because their income is so low.

But the legal dollars do to, if you go buy a new garden hose from a local realtor, and the owner goes and buys doritos with his proceeds, you get the taxes off both.

In practice, you could tax one thing everyone elses (like food) and just wait it out, and all money will eventually route itself back through the taxed exchange. The point of such taxes is to take a fraction of all exchanges.

Though, I'd rather they solve the problem of why a black market needs to exist than try finagling a tax solution on it. You have to go back to the drawing board and ask "what is there a demand for we have artificially restricted such that it is forced onto a black market?" and see that tremendous potential tax revenue for what it is.

These exist. Rates are easy (http://www.zip-tax.com/) and the filing portion can be handled by HR/Payroll companies like Paychex (http://www.paychex.com/payroll-taxes/sales-tax-payment.aspx)

Though I'm sure there is an opportunity to help small companies since most companies who currently need to manage national sales taxes are large (have a presence in every state).

There are a number of companies doing this kind of data collection/rental, though they're mostly focused on the enterprise market. The data is needed by folks like supermarkets who operate in lots of jurisdictions and need to charge the correct sales tax in each one. In addition to the rates varying by city/county, the taxable items may as well, e.g. in some jurisdictions food isn't taxed, and the definition of "food" varies, too.

This is one of the companies that collects a giant database of jurisdictions and tax rates, as well as a db mapping SKUs to jurisdiction-specific tax categories: http://tax.cchgroup.com/sales-tax-data/default.htm?cookie_te...

Some large retailers already have at least a partial handle on this. My zip code crosses 2 jurisdictions and I'm always asked if I live in jurisdiction A or B. I assume they're doing it for local tax purposes even thought we have only a state sales tax here.

One solution that a number of people have been working on is called the "Fair Tax." [1]

The general idea (and I'm probably missing some of the significant points, but this is a rough outline) is that there would be no income tax at all — all taxes would be on consumption. Rather than trying to regulate what is taxed and what isn't, everything would be taxed at the same rate.

To fight any regressiveness involved in that, everyone would get a set amount of money every year, which is equal to the consumption tax you'd be paying on the first, say, $30K of purchases a year. So if the consumption tax rate is 25%, you'd be given $7,500 a year. (The term they use is "prebate.") That way, everyone's first $30K of expenses is a wash. After that point, you're only taxed on the money you spend beyond it. The more you buy, the more tax you pay.

A number of Republicans have been in favor of the Fair Tax, and it was one of the planks of Gary Johnson's presidential campaign last year. But it gets support from Democrats as well, and was one of the main components of Mike Gravel's campaign in 2008.

I'm sure others will point out downsides to it, but one that I know of is that current retirees, who have already paid income tax on some of their savings, would have much less purchasing power under the new plan. That is, they'd be double-taxed on the money used to buy goods under a Fair Tax plan. I believe there's also been skepticism from opponents that the numbers actually work out well enough that a Fair Tax system would bring in enough money (as compared with current tax revenues). [Edit: the double-taxation wouldn't be limited to retirees; they're just the group that's often mentioned as being significantly affected.]

(I'm not an apologist for a Fair Tax approach; just wanted to mention it as one theory for introducing a consumption-based tax in the US, in case you're interested / want to learn more.)

1. http://www.fairtax.org/

We have this in form of VAT back in the other side of the pond. It's a massive, massive failure because it's impossible to actually keep the items list up to date. For example, a refrigerator and a TV are counted as luxury items because of the date the law was enacted, and it has since not been updated because of the gridlock not unlike D.C.'s.

Is a $50,000 car a necessity? $20,000? $10,000? Is a car a necessity at all?

How about food? Is a $250 dinner at Saison a necessity? $5 dinner at McDonalds? $20 per pound imported beef at the grocery store?

$200 jeans vs $80 vs $20?

Are glasses a luxury item? How about Google Glasses?

How do you define it? The devil is always in the details with laws and especially tax law, you can't just hand waive this kind of stuff away.

Surprised nobody has mentioned a Land Value Tax.

http://www.monbiot.com/2013/01/21/a-telling-silence/ http://www.newstatesman.com/blogs/mehdi-hasan/2012/02/land-t...

You'd have to figure out where "basic necessities" stop. No taxes on a 10 million dollar house but the poor family buying a TV will have to pay?

Televisions and cell phones are not luxury items.

Exempting specific categories of purchases quickly becomes a quagmire of complexity. Better to just have an automatic tax credit of whatever amount is determined to offset tax on the typical "basic necessities" purchases of an individual or family.

You'd have to place caps on items. That said, you'd have to deal with complexity in pricing: $500,000 for a house in Houston is probably a luxury, but not so much in markets like San Francisco.

Where do you draw the line? Is a home broadband connection a necessity or a luxury good? How about a computer? Or a car?

I imagine that would have severe economic implications.

Its not too unusual for a republican to be in favor of a sales tax. Income, capital gains, property, and inheritance taxes are another story.

They're not taxing you more. You already need to report and pay any sales tax that you didn't not pay on items purchases over the Internet. The so called Internet tax moratorium was not an actual ban on taxes, instead it did not allow states to force Internet entities to collect sales tax. This removes that barrier.

> from real goods to services

Hence inventions like Canada's "goods and services" tax.

It's fairly easy to collect (like gas taxes) since you're dealing with a set of vendors and not the whole population.

I'm not a professional economist but it seems to me that consumption is what is fundamental to market growth, and that capital is merely what you must have to scale up to maximize your ability to supply the products and services demanded by the consumers.

You can partition by B2B, B2C, B2G, whatever, but at some point it has to stop being a pyramid scheme, and that point is with the consumer who are generally able and willing to consume more if taxed less.

These are pretty bold claims given that the last cuts to capital gains offered little to no economic growth and hurt government revenues as well as contributing to the recent rise in income inequality in the US. Have a look at the published research on the topic.