Interstate Commerce and Tax Anomalies

Our company sells stuff, mostly in Florida and Georgia. If we sell in Florida, we have to charge sales tax. If we sell anywhere else, we don’t. We are a distributor for some products, so other companies from other states often sell the same stuff. When they sell into Florida, they don’t have to charge the customers tax. So, when we sell to our local customers we are at a disadvantage, but have an advantage over the “local” distributor when selling into other states. We have to add an additional 6-7+% on to the customer if they are in the same state as we are.

This just seems odd. What, pray tell, is the logic* behind this?
Also, for a company like Amazon which is the prototype “virtual store”, where, if anywhere, do they charge sales tax?

*Yeah, I know, it’s government, there doesn’t need to be logic. But there must be some reason, even if it is oversight.

Use taxes

In the future every purchase will likely be charged the appropriate sales tax.

Yes, if you receive something from out of state and haven’t paid sales tax on it, you are required to pay your own state’s use tax. (In addition, if you have paid a lower sales tax rate on something you’ve bought out of state and brought into your state to use, you have to pay the difference in the tax rate.)

Normally, this is a big issue with items that have to be licensed or registered like cars and boats. However, sometimes states do enforce this on consumer goods. One thing that New York State used to do (maybe still does) is have inspectors in the parking lot of Ikea in Elizabeth, New Jersey (just across the river from New York and in an special low-tax zone) who would note the purchases and license numbers of New York registered cars, and follow up on whether they’ve paid use tax.

In the last few years, New York has had a section on its personal income tax returns where you are requested to pay a modest amount (based on your adjusted gross income) for sales tax you haven’t paid on out of state purchases. You also have the option to compute exactly what you owe and pay that, but I suppose that that is subject to audit.

Ah yes, the use tax. Every year I take out thousands of receipts from all over the country, note the location the purchase was made, look up the relevant state tax rates in a chart noting any changes during the year, calculate the differences, add them all up to pay my state’s use tax, and carefully store them away in case of audit.

Sometimes it takes a week or more. I guess I am just not good at it because nobody else seems to take as long on their state taxes as I do.

We have no state income tax on personal income. I don’t know whether or not there is a state income tax on businesses. Maybe a form on the internet?

The issue I’ve heard made in defense of not charging tax on out-of-state mail order is that it requires the seller to know all the sales taxes of all the other states. Then the seller also has to keep track of what he collected for each of the other states, *and * make the appropriate payments. Big headache. I’m sure Amazon could write something into their shopping cart and checkout software to deal with it, but this could be problematic for small businesses.

This may be GD but I can’t help but notice how close this stuff comes to running afoul of the Interstate Commerce Clause IMHO. Forget the internet stuff for a moment. I can’t see how Massachusetts charging me a use tax for buying say, an appliance from a Mom and Pop shop in another state, isn’t at least a small restriction of free interstate trade. If say, New Hampshire thinks it is great for me to drive over the border and buy a washer and dryer, I don’t see how Massachusetts can be entitled to any money for doing nothing whatsoever. Although hardly anybody pays their use tax, it seems unconstitutional on the face of it. Maybe somebody will file a definitive lawsuit and get this mess cleared away.

I did some research on it and this kind of stuff is very unclear:

http://www.law.umkc.edu/faculty/projects/ftrials/conlaw/interstatetax.htm

As this site points out,

Since use taxes don’t discriminate between in-state and out-of-state sales, they aren’t an undue burden on interstate commerce.

Because you’re using it in Massachusetts. If they can tax you for buying it, they can tax you for using it.

People do pay use taxes on cars, because they have to be registered with the state. If these taxes were found to be unconstitutional, state sales taxes on cars would take a big hit, because it’s a large enough purchase to justify driving to a low-tax jurisdiction. I don’t expect this to happen, however; I know of no serious argument why use taxes in general violate the commerce clause. The only point at issue in most of the litigation is whether out-of-state corporations can be conscripted as collection agents.