Senate Backs Bill to Force Tax Collection on Internet Sales
nytimes.com
nytimes.com
* There are over 23,000 distinct tax rates in the US. Most of these can be nicely pigeonholed as 'State', 'County', or 'Municipal'. Some can not.
* There are a handful of cities with multiple municipal tax rates. Most of these straddle counties. A small handful of them, perplexingly, don't.
* Most states charge tax based on the three(ish!) rates applicable at the sale's destination. Several charge based on the origin.
* Some states charge tax on shipping. Some states charge tax on shipping and handling. Some both, some neither.
* Three states only charge county and municipal level taxes if the destination is located in a county that the business has a phyiscal presence in. Of these three, one does something subtly different still.
* Figure the 5-digit zip code is sufficient to identify the applicable rates at a given address? Nope. You actually need to geolocate the street address to get it right sometimes.
* There are a nearly-unfathomable depth and breadth of exceptions on a type-of-goods basis (selling clothing in New York? It's exempt if it's under $110, but only from State tax, and additionally county tax if the destination is in one of 14 specific counties, unless it's in the cities of Norwich or Oneida, in which case the County tax applies again.)
This astounds me as a Software Developer and a Canadian (we have vastly simpler Sales Taxes). How they expect Joe Merchant to be able to charge all these taxes correctly without radical simplification (and unification) of tax codes is beyond me. Very far beyond me.
--EDIT--
After reading the full bill, it's not as bad as I previously thought (logistically, ignoring the more-taxes discussion). However, it is still pretty bad.
Salient points:
* One central authority per state means at most ~50 points of contact. This is better than 23,000, but not exactly good.
* Doesn't apply to merchants doing less than $1M/yr in business.
* States are required to provide a database of rates and boundaries. As worded in the bill, it's unclear whether this means zipcodes or bounding coordinates. Geolocation is not a cheap service at scale.
* Each state is required to provide software to calculate rates for a given sale. Given government, this will likely be a desktop Windows app that does not integrate cleanly with any server-side infrastructure, nevermind the fact that there will be 50 likely-distinct pieces of software.
On the other hand, with states actually being encouraged to publish their rates in a freely-available machine-friendly format for once, perhaps we'll see some startups pop up around this problem to ease the pain.
It's still going to be complicated (up to 50 returns, 50 possible audits, and in the worst case 50 subtly different definitions of what's taxable), but nothing like what you're describing.
I guess if it actually results in tax code simplification, that's a decent silver lining.
Amazon's just fine with it. That in itself should tell you which side the legislators' bread is buttered on.
Our US State Sales Tax system was written by a Shopify employee?!?!
I kid you not, http://www.sos.state.tx.us/ucc/forms/UCC1.pdf on that form section 1g and 2g there's an option to check NONE if you do not have an organization id. Well, depending on the state you file (this may have changed) you would either write none, check the box, do both, or do neither. Good times.
What I'm trying to say is, if you need to go into that much detail it sounds like you have an excellent business opportunity to sell your logic SaaS.
It's not hard to google for the rate provider services, but they don't give you all the information you need to handle all the inane edge cases properly (at least, not the ones I've investigated)
This is something I'd like us to do better on. I have an idea for how to improve without adding an intolerable amount of complexity or expense, but I haven't had a chance to implement it yet.
Of course, we are talking about the same government that used flat files to manage the entire country's tax data until recently.
http://reporting.sunlightfoundation.com/2013/tax-preparers-l...
* 1M/yr in business with slim margins means this can apply to folks not even making enough to get by. Given the long tail of e-commerce, this will have significant impact on many small internet vendors
* The software provider catch-all means big wins for companies like Amazon to sell add-on tax calculations. Translate: more big walled gardens, less mom-and-pop businesses
* I'm still not sure who categorizes goods and services to determine taxation. The same good or service can be taxed differently by any one of those 23,000 taxing authorities (per your example of shipping and handling), but how is categorization information supposed to make it to the software provider (or merchant)?
* This complexity means that it's not a matter of merchants optionally using a software provider to compute taxes. For all intents and purposes, this legislation will require the use of a software provider to compute taxes
* Not only will the extra paperwork hurt small businesses, the added few percentage points will hurt poor consumers -- the people who can least afford it.
After reading your comment I've changed my mind.
Ah you misspelled COBOL on a AS/400.
I've occasionally wondered if an aggregator is legally possible. Simply remit an annually agreed upon 5% across the board along with full shipping records in electronic format and we'll take care of the rest. Some localities will charge 10% some 0% but you just remit 5% and we pay out roughly 4.95% and keep the last 0.05% which probably adds up to quite a bit.
The third point I would like to make is how this will be enforced overseas. I've bought stuff from dx, seeed studios, and overseas ebay stores, and if the shippers can get the price down in bulk the tax savings would be valuable. In the long run, the only real effect could end up being amazon's kindle store moves to Jamaica (or whatever) and shipping takes a little longer from warehouses in Canada.
I am old enough to remember when congress intentionally and methodically and thoroughly destroyed the american shipbuilding industry by social engineering the tax code. I have no idea why they wanted to do this other than the usual .gov goals of destruction of the middle class etc. I could totally see a repeat happening this decade with e-commerce.
Boxer: yea
Feinstein: yea
Silicon Valley sucks at politics, even our own senators are selling us out.
b) Why should internet retailers get special privileges? Complexity sucks but that's life, and the law does require states to simplify the collection process.
For an individual making $30k/year (3% net on $1m in gross), is that really levelling the playing field? How many of your aunts and uncles do you think have the time and the skill to locate, understand and properly comply with 50 states' separate tax codes? Contrast that to opening a brick-and-mortar shop on main street in their town, where if they need help, they can walk up to the town hall and ask the tax administrator in person, or hire a local accountant who already knows all the local rules. That's feasible, where getting assistance from 50 accountants to start a business is not.
You could avoid them entirely by only selling to the five states that don't have sales taxes, that's a vastly larger market than the area around a single mom & pop store.
I'd be all for some sort of scheme for streamlining tax collection for online purchases, but paying nothing at all is just rent-seeking.
> For an individual making $30k/year (3% net on $1m in gross), is that really levelling the playing field?
If they're making that $30k/year because they're dodging state taxes, then yeah, it's leveling the playing field.
I didn't say there could or should be no tax, I said that this bill creates an uneven burden. How is that a ridiculous statement?
You're claiming that' it's somehow treating them differently, but I call bullshit. Building an online retail site and marketing nationally is comparable to Best Buy building stores in all states, and of course one expense of doing that is having to pay sales taxes in all the states.
> even if they have customers from all 50 states come by and make a purchase
That is an edge case that is rare in practice and is difficult to exploit. If it was a huge problem then yeah I'd agree they should make a special tax setup for it (and this DOES exist: if you live in Washington and buy a car in Oregon, they will come for the sales tax: http://askville.amazon.com/Washington-State-resident-buy-car...). I would certainly agree that if they are delivering products to all the states then yes, they should have to pay sales taxes to all the states that they delivered to, and if this law doesn't handle that case then yeah, I think it should.
> internet retailers do not legally owe any sales tax to any state they don't have nexus in
This is technically true but highly misleading. In almost all states, the receiving party is required to pay tax on out-of-state mail order. The problem is that the law is unenforceable because the states can't force the retailers to document and collect it. This law closes that loophole.
I know in Seattle for example food is tax free, unless it's carbonated (which has a surtax), or prepared, or alcoholic, or coffee, or until recently a 'snack' which of course has a lengthy definition on page 3,641 section 4 subpart D...
Even if you make a million dollars in sales, it's hard to imagine keeping up with these regulations.
I'd be especially worried if I was a sharing based company (will Airbnb pay hotel rate taxes, RelayRide car rental rates? Who pays, the owner or the company?)
I wrote a summary a few weeks ago:
http://www.dangrossman.info/2013/04/24/what-startups-need-to...
> Such authority shall commence...after the date that the State...implements each of the following minimum simplification requirements: a single audit of a remote seller for all State and local taxing jurisdictions within that State
Local municipalities have no legal jurisdiction to tax entities outside their boundaries, and this bill does nothing to change that.
Neither do states, but that's not stopping them from trying.
The issue is not whether the state can tax entities outside their boundaries. The issue is when the state can ask companies headquartered elsewhere to assist in the collection of taxes owed to the state by citizens of said state.
In legal theory the taxes are owed regardless of whether third parties like Amazon assist in their collection. In practice they don't get collected unless it is done by those third parties. (Because people don't volunteer that information, and the state has no way to prove who bought what for how much without paying taxes.)
Until this bill, the question centered on how broadly states could define companies headquartered elsewhere as having a business presence in the state, and therefore within the state's power to compel. But this bill is being passed by Congress under the Commerce Clause, and there are no legal questions about whether sufficient legal authority exists for this purpose.
That's between me and Illinois, though. I don't see why some company that's not even in Illinois (and that thus receives no Illinois services of any kind) should have to take the hit to comply with Illinois law.
Once you have the characteristics by state/county/etc. (how the product is described legally), you can then cross reference it to where it is sold to and calculate a tax.
Is it a lot of data? Absolutely, but it is doable and the person/team who does it is sure to have a fairly large business charging companies who want their products sold online and companies using their system.
[ADDED] There will likely be multiple providers which should drive the price down and economic profits to zero. There is no reason why you would pick 1 tax calculator over another except price.
Most foods won't be an issue since they aren't sold as much online.
If you are a retailer of a new item with low volume, that is really where this is a problem. Once you make over a million a year in sales, you will likely have to hire an expensive consultant to figure out your tax implications.
[Additionally Added] I agree that it will be a challenging transition. But, in 10 years, this will be a non-issue.
I'm more worried about the small retailer that sells $1m in goods and pockets $150k, who now needs to buy expensive tax calculation software and pay taxes in 50 states.
Add to this that state and local laws change frequently, and that they aren't machine-readable (and, even if the rules were easily accessible, the rules frequently would require a lawyer to parse, and might change based on where the goods are sold). It is a very thorny problem.
These issues are mostly resolvable with time and money. Regardless, the transition is going to be rough, in my view.
It sounds like the Ryan budget that was passed in the House back in '10 and was never going to pass the Senate.
Either it's inefficient politics, grandstanding, kabuki theater or all of the above. It's definitely not newsworthy.
I thought I woke up in an alternate universe where congress wasn't bought and paid for.
The SC rulings on out-of-state taxes have always specifically said that Congress is free to make changes that would enable tax collection. E.g. Quill v North Dakota:
> [O]ur decision is made easier by the fact that the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve. No matter how we evaluate the burdens that use taxes impose on interstate commerce, Congress remains free to disagree with our conclusions
Agreed, but that's not what they're doing. They're granting authority to one state to regulate commerce in another state. They might have the authority to enact a national sales tax paid to the federal government (but then again, they might not -- note that the income tax required an actual constitutional amendment), but I don't think they can make citizens of one state subject to the tax (or other) laws of another.
If they do have that power, how far does it go? Can the feds require that you abide by all the laws of (insert least favorite state) even though you've never set foot in it?
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This aspect of our decision is made easier by the fact that the underlying issue is not only one that Congress may be better qualified to resolve, 10 but also one that Congress has the ultimate power to resolve. No matter how we evaluate the burdens that use taxes impose on interstate commerce, Congress remains free to disagree with our conclusions. See Prudential Insurance Co. v. Benjamin, 328 U.S. 408 (1946). Indeed, in recent years, Congress has considered legislation that would "overrule" the Bellas Hess rule. 11 Its decision not to take action in this direction may, of course, have been dictated by respect for our holding in Bellas Hess that the Due Process Clause prohibits States from imposing such taxes, but today we have put that problem to rest. Accordingly, Congress is now free to decide whether, when, and to what extent the States may burden interstate mail-order concerns with a duty to collect use taxes.
Indeed, even if we were convinced that Bellas Hess was inconsistent with our Commerce Clause jurisprudence, "this very fact [might] giv[e us] pause and counse[l] withholding our hand, at least for now. Congress has the power to protect interstate commerce from intolerable or even undesirable burdens." Commonwealth Edison Co. v. Montana, 453 U.S., at 637 (1981) (WHITE, J., concurring). In this situation, it [504 U.S. 298, 319] may be that "the better part of both wisdom and valor is to respect the judgment of the other branches of the Government." Id., at 638.
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[1] http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us...
Just the news itself I can get from elsewhere; the usefulness of something being on HN is if it produces good discussion, which repeated submissions of the same topic tend not to do, unless interesting new information comes to light between the submissions.
That said, it's still on the front page 8 hours after submission, so obviously most HN readers don't agree with me.
(And the first person to chime in with "hurr durr a chance to disrupt the state tax industry" can go fuck right off.)
EDIT: Reading Dan's summary above, it looks like states (not the feds) will be responsible for providing this API. Urk.
Especially as it's already been done by Avalara and a bunch of others.
But it's OBSCENE to exact the costs required to comply with every little tiny jurisdiction. Make a streamlined approach where tax is based on 1-10 plans laid out in federal statues, and able to be looked up via a city/state/zipcode lookup table
Why does the US not have VAT and instead have this big mess called sales tax? IIRC it's one of the only few developed countries without VAT.
Have you considered the implications of the fact that Amazon is pushing for this?
Byzantine regulations favor the incumbents. Even sometimes ironically the complicated regulations designed to favor the little guy, who is unable to hire enough lawyer power to take advantage of them while the incumbents work out how to use the new loopholes.