I hadn’t thought it through myself until I heard mention of a court case on it’s way to consideration in the Supreme Court today, but there is a very real imminent problem that isn’t being addressed in the news, or by any leading politicians right now. That is the problem of State tax revenues, in the era of failing brick-and-mortar vendors.
State sales taxes are a big part of how states manage their budgets. But as the internet continues to rapidly bring about the end of physical stores, that source of State income is under tremendous threat, as never before. In my state alone, I’m seeing Sears die, JC Penny, and so on. It’s not just the loss of the jobs they provide to clerks that will be missed, it’s all the state sales taxes they were feeding in to fund the state roads and schools and so on. The way tax laws work, the states can’t collect them from anyone who doesn’t have a “presence” in the state.
How do we deal with this? A complete shift of government paradigms?
Land and property. That’s the only taxable thing that can’t be offshored - I should think most countries are going to have to move in that direction one way and another.
Technically, you should pay the sales tax if you get something shipped to you from out of state. It’s usually called a use tax. It’s just that companies don’t have to collect it from you. However, “presence” is already being redefined. Amazon, for example, already collects a sales tax in every state that has a sales fax (all but 4 I think). I don’t know if they collect the local sales tax as well or not. With everything computerized now, the computer can figure exactly how much tax is due regardless of which state the merchandise is going to plus know exactly what is or isn’t taxed.
Property taxes, by and large, are collected at the local level. I don’t think stats will start collecting that. May states, of course, do collect income taxes.
The whole idea that you can buy something from a vendor in a different state and have it shipped to you tax free is bit odd. Is it actually legal, or is it just a loophole that is not enforced?
Aside from the revenue issue for the states, it’s hugely unfair to bricks-and-mortar vendors. It’s a little surprising that the loophole hasn’t been closed one way or another.
About time, too. Good luck hiding land and it would incentivize high density living with its attendant public transit and economic benefits. We may yet get to make Henry George happy.
The main obstacle is that land owners would lose out overall and they have more political clout than non-land owners as a group.
As I already explained, no, it is not legal (at least in the states I’m aware of. You, the recipient, are supposed to pay a “use tax” which is equal in magnitude to the sales tax you would have paid had it been an in-state purchase. Connecticut actually, for one, has a line on its income tax form asking for this exactly. I doubt 1 in 1000 people pay it. You’re required to pay it, it’s just that the out-of-state store isn’t required to collect it in the state’s name.
Some merchants when they know they’re talking to a tourist even advise people to have expensive items shipped to avoid the tax. Often they’ll tell you the tax you save is more than the shipping cost. It’s not technically a lie, I guess, if they tell you you’re avoiding sales tax. You are doing that; you just have to pay a use tax.
The one place you are usually caught is on car sales. If you buy a car out of state, a state will often not let you register the car unless you pay the local state tax.
Seems the easiest way to deal with this is change the way tax laws work, so that states can tax online transactions in their states. That doesn’t seem like that huge of a hurdle to overcome.
Yes, you might well think that would be easy, but in fact it apparently is not. Hence the Supreme Court case over it.
Interstate commerce is a Federal bailiwick. Hence the difficulties. A state can NOT up and declare that they are owed taxes from another state’s businesses. If they went that way, we’d likely see all state borders turn into blockades, with officials collecting taxes on anything that you bought in another state and are carrying home.
Curious you should say that. All Things Considered yesterday ran a story on just such a thing.
Massachusetts is trying to make sales taxes from MA residents collectible from online sales by claiming that the cookie online retailers place on users devices counts as having a physical location in the state - therefore requiring sales tax to be collected. It’ll be interesting to see how that plays out.
That is the basis for Federal preemption. While I am sure that case law may change over the coming decades, but it will be on the edges of those words.
Igor alludes to the very real problem in the Articles of Confederation that lead to the inclusion of the Commerce Clause.
H.R. 2193 and S.B. 976 were introduced this year but appear to be dead in committee but the latest attempts seem to be centered around the government being required to provide systems the the selling companies.
IN Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the court added:
But I think that it has been a hard sell, and without the government providing systems to automate the collection of “use taxes” it seems that there is little to no support to pass the laws.
The issue is that the court would be less likely to uphold a law that placed a burden on interstate commerce, and it is hard to find a solution that would not give an advantage to a pure brick and mortar store.
To meet this test the law will need to ensure that it does not cause:
In my state, which does not have an income tax and has use tax rates that differ from even city to city and county to county it would be an issue today for a company in another state to comply with all laws. If they had to deal with a large amount of tax laws from all 49 other states this would be a burden.
It also touches a few hot buttons for the states rights crowd, but the challenges are pretty high.
To be honest us consumers are the scofflaws here, we are effectively tax cheats when we fail to pay the use taxes, so it may just be that ways to enforce the local states use taxes are found and enforced for states that really need the income.