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Comment by jabits | Hacker News Reader

About time, on many fronts. Sales tax is the most economically beneficial tax (from a long-term viewpoint), encouraging savings, reducing consumption, and is taxpayer controllable. And it captures gray/black market transactions as well. No reason any electronic retail transactions should escape. Modern tech removes any "burden" claims.

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It's also incredibly regressive, targeting poor people with a higher percentage of their net income than rich people.

That's one reason, in practice, for the popularity I think. When a state proposes raising income tax on the one hand, or sales tax on the other hand, raising sales tax is often easier to accomplish, because the lobbies against it are weaker. (There might also be a psychological aspect in that it's more of a nickel-and-diming: people may not realize what it adds up to in terms of a yearly total, while they do see that for income taxes.)

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.

I'm not sure I buy that as a "because". I think it's more likely sales taxes are passed preferentially because income taxes are more often defeated in legislatures due to political opposition, not because of technocratic arguments about collectibility.

It would be interesting to have some numbers on collectibility, though. Both income taxes and sales taxes can be dodged (black-market purchases and out-of-state online purchases are two common ways of dodging sales taxes). There are a number of examples of states raising either one, and it'd be interesting if someone has extracted data on the results.

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).

Poor people are disproportionately likely to shop in-store rather than online because they're vastly more likely to be unbanked (i.e. no credit card) and be low-education.

I'd hazard an educated guess that the percentage of income spent by the poor online is tiny. Both because the above factors and also because the majority of spending for those group is going on rent, groceries, vice (cigarettes and alcohol) and transport which aren't commonly bought online in any case.

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...

Which part would you like data on ? - the unbanked payments issue is pretty well known in the payments/retail industry.

See this press piece by Walmart:

http://news.walmart.com/news-archive/2012/04/26/walmart-anno...

There's also several startups in this space like Fuze Network and PayNearMe.

> "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.

If you're unbanked you don't have a bank account, hence no debit/credit card. Between 18-24% of the US population fall into that category.

Walmart and K-Mart are "fixing" this with free payroll check cashing and rechargeable debit cards. One uses MasterCard and the other uses American Express.

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)

This could be remedied with a tax credit on the state income tax return, i.e. you get an automatic tax credit for sales taxes paid in whatever amount is decided to be "fair".

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

How does sales tax capture black market transactions? Does your local pot dealer have a Retail Merchant's Certificate?

But when he goes to buy doritos and a red bull at 7-11, some of that money is captured. I.e., Lot's of black market dollars wind up being used to make legal taxed sales purchases.

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.

I suspect it's theoretically demonstrable (though I couldn't do it, admittedly) that a black market must always exist.

Well as long as you are trying to tax and monitor transactions, there is always a market for not paying the tax, even if everything is legal to buy or sell.

Maybe not a burden for the Amazons of the world, but for smaller e-comm stores it is most certainly going to be a burden IMO.

I'd suspect that many online retailers would be forced to go down the path of outsourcing most of this using something like Shopify or similar -- it's just a lot of tax rates and calculations to keep track of, not to mention report on and optimize for!

If you were talking about a single national sales tax, you could be right. But what is being discussed is 50 different state taxes, which would be a burden, regardless of modern tech.

It's even worse than that, since there are cities and counties which levy their own sales taxes. If an Internet retailed has to collect all of these, they need a comprehensive sales tax database plus a mechanism for sending payments where they're due.

I see a great opportunity for a webservice startup here.

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...

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).

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.

"Sales tax is the most economically beneficial tax..., encouraging savings, reducing consumption, ..."

Encouraging savings and reducing consumption might be good things for society, but it seems that they hurt the economy (less trade, fewer jobs) rather than benefiting it.

Saving money and reducing consumption hurts the economy in the short term, but in the long term it encourages capital investment, lending, and other behavior that creates sustainable jobs and more trade. Whether or not an increase in sales tax will have those effects on Americans has yet to be seen.

Savings would be a good thing, but I don't think the banks care to pretend they want to encourage savings any more ... au contraire. The 5% interest passbook savings rate - which the Depression/lWW2 generation enjoyed - "encouraged" savings ... until it got stripped away after the S&L bailout and was never replaced.

So the "good thing" would have to come from Congress. Good luck with that.

It also only applies to the upper tiers of society. For poorer people, they are going to be able to save less because essentials cost more, and go further into debt if a catastrophe strikes.

I've got a serious Poe's law problem with this post.

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