Interstate Commerce and Tax Anomalies

[ShibbOleth]

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.

[Exapno_Mapcase]

http://www.entrepreneur.com/article/0,4621,323728,00.html

Generally, when you’re selling stuff–online or otherwise–you charge sales tax only when the buyer is located in the same state as you. Under current law, which may be changing soon (see below), you’re not supposed to charge sales tax on sales to buyers who live in other states.

There are two exceptions to this, however, and your seller probably fell into one of them:

First, if the seller has an office, warehouse, distribution facility or retail location in your state, the seller may have to charge you sales tax because he is legally “doing business” in your state. This is why, when you buy something from a mail order catalogue, the invoice form sometimes says “residents of States A, B and C, please add sales tax to the total.” The mail order company has its retail or warehouse outlets in States A, B and C and is required to collect sales tax from buyers located in each of those states, regardless of the actual location your order is shipping from.

Second, a growing number of states are entering into “compacts,” or agreements, encouraging in-state sellers to collect sales tax from buyers in neighboring states. New York and Connecticut have such an arrangement, while eight Midwestern states have banded together to create the Midwest Border Tax Compact. The idea is that by charging your buyer state sales tax, you’re helping the buyer avoid liability for “use taxes” on stuff they buy from out-of-state vendors. (In just about every state, the sales tax and use tax are the same rates and are calculated the same way.) How thoughtful of them!

Use taxes

Strictly speaking, however, purchasers are required to pay their own state’s sales tax rate–the concept is called a “use tax”–and then voluntarily report the amount owed at tax time.

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

From the perspective of state tax collectors, the simplest solution would be to require out-of-state shippers to collect taxes. But shippers generally can’t be compelled to do that, thanks to a Supreme Court decision that said only businesses with offices or other tangible connections in the destination state can be required to collect sales taxes.

State officials are lobbying Congress to change these rules. They’re proposing a so-called “streamlined sales tax.” The idea is to create a uniform set of rules effectively permitting tax agencies to require out-of-state sellers to collect use taxes.

[Billdo]

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.

[Shagnasty]

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.

[ShibbOleth]

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?

[MLS]

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.

[Shagnasty]

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

[Freddy_the_Pig]

@Shagnasty

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.

As this site points out,

The purpose of the Commerce Clause has never been to relieve those engaged in interstate commerce from paying their fair share of state taxes.

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

@Shagnasty

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.

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

@Shagnasty

Although hardly anybody pays their use tax, it seems unconstitutional on the face of 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.