Up to $13 billion in 2017. Brick-and-mortar gets some relief. Consumers not amused.
The US Supreme Court ruled today that states may require out-of-state online retailers to collect sales taxes on merchandise they sell in that state. The decision overturned its 1992 decision – Quill Corp. v. North Dakota – that had blocked states from compelling retailers with no “physical presence” in that state to collect sales taxes. At the time, two years before Amazon was founded, the internet was dogged by “worldwide wait” dialup, and the idea consumers would buy everything from shoes to couches on the internet was remote.
The 1992 decision eventually gave a huge boost to out-of-state online retailers in that they received a consistent state tax subsidy with every sale that their in-state and local competitors – brick-and-mortar and online alike – did not receive. At first, online retail was just a minor sideshow, but after a quarter century of booming, it has become the place to be, and the squealing from all sides about the tax subsidy has been deafening for years.
It amounts to big bucks. The Government Accountability Office estimated that state and local governments could have collected between $8 billion and $13 billion in sales taxes in 2017 “if states were given authority to require sales tax collection from all remote sellers.”
In today’s decision, authored by Justice Anthony Kennedy, the Court sided with South Dakota, which had passed a law in 2016 that required large out-of-state online retailers to collect sales taxes on merchandise sold in the state. Online furniture retailer Wayfair, along with Overstock.com, and online electronics retailer Newegg sued to block the law and won in lower court.
The battle may not be entirely over, Kennedy noted, as the law could face legal challenges on other grounds.
Nevertheless, there will be a mad scramble by the 45 states that have sales taxes to try to collect sales taxes from out-of-state retailers. Many states will still have to pass laws in order to do that, so it won’t be instantaneous.
But Amazon has already lost that battle some years ago. The tide turned against Amazon when California and Walmart ganged up on it, and Amazon, after threatening to shut down part of its operations in California, buckled. By early 2017, Amazon was collecting sales taxes in all states that have sales taxes, but it was doing so only for merchandise it sells directly, not for merchandise other retailers sell on its platform.
Ironically, today’s ruling is a boost for Amazon, now that its competitors will also have to collect sales taxes. And it’s a boost for our beaten-down brick-and-mortar retailers – those that haven’t been liquidated yet – that always had to collect sales taxes and thus had to fight against out-of-state online sellers that benefited from this tax subsidy. And it’s a boost for state and local government revenues. Legislators are already licking their chops. But it’s another whack at consumers who end up having to pay for it all.
It was bought out by a PE firm, saddled with $8 billion in debt, and grapples with its fate. Read… Is This the Next Big Retailer to Melt Down? Its Bonds Crashed
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Let’s identify the real problem.
1) Sidebar: I’m against income tax and the Fed in general (1913 was a very bad year), since income tax only enables Keynesian (read Progressive/Socialist) policies as executed by the Fed. The Fed’s “2% inflation target” is usurious and complete BS. Only sound money and stable value will enable true wealth creation. Bring back the gold standard (can’t print gold) and end the Fed. Inflation is an insidious covert tax. The $ has lost 98% of it’s purchasing power since 1913, and esp. since 1971 (off the gold std.). This is the real issue.
2) On point: However, I’m not opposed to a uniform collection of sales tax, with the exception of States that already have no sales tax. This is essentially leveling the playing field for online and brick-and-mortar retailers and I don’t see a problem with this.
death and taxes and all that…
Nothing wrong with paying taxes if the money is used wisely. I have, at times, paid up to 40% of my wages deducted at source with no available loopholes that contractors or company owners might benefit from. This is Canada, and wage earners have no where to duck beyond deferring through PP contributions.
We have also had taxes deducted for out-of-province online purchases for as long as I can remember.
But, we have good highways, schools that share equal resources (regardless of area code), great single-payer health care coverage, etc. Example: my sister-in-law, retired captain US Army, is a Canadian citizen after relinquishing her US citizenship a few years ago. Yesterday, she underwent major abdominal surgery for 4.5 hours, here in BC. It was deemed a success and she will be released from hospital in 4 more days and should make a full recovery with 2 months of dietary restrictions. Her cost for all specialist appointments, various scans..mri…ct….ultra sound etc, the surgery (two surgeons + support staff), meds, hospital stay etc? Nada, as it is paid for through her past payroll taxes and the single-payer coverage we enjoy.
She is grateful and should live a couple more decades (being 70). Oh yeah, this is on top of two replaced hips. She is also a health nut and quite fit so the prognosis is excellent for her.
Nothing wrong with paying taxes at all. But there are wrong choices made out of our control. Example: a country might not have money for single-payer with no premiums and co-pays, and said country might rely on employer-paid medical insurance premiums (which is really just another payroll tax), but there is money for a Space Force. Go figure. Oh well, as long as there’s no socialism it all must be good.
“Nothing is certain but death and taxes.”
However, I think we can agree that inflation is a decrease in purchasing power due to an increase in the money supply and is a stealth tax. In the U.S., we don’t have a tax credit for “inflation target of 2%”. This is a clear violation of the U.S. Constitution’s 5th Amendment takings clause. Money printing is counterfeiting and inflation is stealing. If it walks like a duck…
“The problem with socialism is that eventually you run out of other people’s money [to spend].” – Margaret Thatcher
Good ol’ Space Force. I can’t help but imagine Peter Dinklage showing off the uniforms, pointing out his awesome Space Pants. Maybe even installing a laser on the moon and calling it the Death Star. Hard to take that man serious, even though he is full on serious.
Too bring it back on point, the new tax revenue will pay for Space Force expansion. Which is way may important than keeping the lead out of water or any public assistance. How dare people who pay taxes get any of it back.
Do you think your sister’s past payroll taxes paid for two hip replacements and major abdominal surgery? It’s impossible to say since you probably have neither the exact amount she paid in taxes (not deposits BTW) nor the amount of the medical bills for each operation.
All ponzi schemes work for the early adopters. Saw a good movie years ago that used the Canadian health system as the backdrop – Barbarians at the Gate. The U.S. health care system is equally a nightmare, but Canada’s is not the answer.
Medicare does that too. All insurance works that way. You pay into it forever, and when you need something big — even if it’s a lot more than you ever paid into it — it’s hopefully there for you so you don’t have to die in the gutter. I doesn’t matter how you pay into it, whether you write a check to Anthem every month or get it payroll deducted as you do for modern health insurance, Medicare, and single-payer systems, such as Canada’s.
2 hips replaced and an abdominal surgery shortly after moving to canada at 67…she knew what she was doing! #BridgesNotBorders #NoWalls #PrepareYoSelf #ImmigrantsNotIllegals!
Paulo, a couple days ago you said our (USA) President is “a man who has declared bankruptcy 6 times”. That is not true. Perhaps you’d like to correct that for the record? Because it’s libel if not.
Trump opening admitted to it, is this post sarcasm or insanity? I feel like answering anyway.
On whether or not Trump businesses filed for bankruptcy.
“On occasion – four times – we used certain laws that are there.”
As to why he claims only 4 and not 6:
Trump told Washington Post reporters that he counted the first three bankruptcies as just one.
Imprecise, but not libelous. Six of his casino properties have declared bankruptcy, along with a few other business failures. The article doesn’t say who was left ‘holding the bag’ after the failures. Trump has never declared personal bankruptcy. Time to adjust that wedgie.
BirdBrain, you posted this comment already earlier. Are you going to dog Paulo forever for having left out “corporate”? No you won’t because this violates my “broken record” guideline.
The way you’re dogging Paulo is misleading too. Companies that Trump owned and ran stiffed their creditors and filed for bankruptcy to shed their debts. So yes, in that respect you’re correct, it wasn’t Trump personally who filed for bankruptcy, but he personally made the decision for his companies to file for bankruptcy.
@Prairies – “I never went bankrupt, you dope!” DJT 25 Apr 2013. Also read Wolf’s comments if you’re still not following.
@W0LF – I was late to the game on those comments after 115 were posted, so wrote it on a current article so Paulo would see it, nothing more nothing less. If you think that’s dogging, well, that’s your opinion. He wrote a huge negative spread about DJT so I wanted to correct the record. The record, not opinion, the record.
BirdBrain, I’m OK with your explanation about the duplicate. I just didn’t want to see it again and again :-]
Paulo, there is no doubt in my mind and experience that the single payer Canadian system is much, much better than the lunacy of the state side system. When I worked in Canada, I paid the payroll health taxes, and they were much lower than what I pay in the US. The US has the worst health care system of any developed country. And I know a thing or two about just how screwed up it really is, because it’s my work.
In America, you’re free to profiteer off the miseries, sufferings and vulnerabilities of life: for-profit medicine, for-profit child and elder care, for-profit prisons/detention centers, payday loans… because Markets.
Perhaps ur not counting the real estate taxes Canadian government has been enjoying these few decades. I wonder how that single payer would hold up after a reversal, whenever that shows up.
Right on and nicely put
I think I cannot post an original comment so will just reply to this comment.
I think the author of this article misused the term “tax subsidy.”
What is a tax subsidy?
It is usually in the form of a cash payment or a tax reduction. The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy.
Subsidy Definition | Investopedia
Agree whole heartily.
The Federal Reserve does not in any way support Keynesian policies. Keynes himself saw little role for Central Banks in managing economic policy. He was much more inclined in the federal treasury taking that role.
The federal reserve more closely follows the libertarian monetarist policies of Milton Friedman. So the Fed uses its open market operations to manage interest rates and monetary supply, leaving private sector banks in charge of the economy instead of the government.
Is it “Libertarian” to have and execute policies that specifically favor one group (the connected banks) over all other groups ? I.e., other industries, regular citizens, or anyone else who is not a connected bank?
Instead of giving trillions to the crying banks, during the meltdown that the banks themselves caused — the FED might have bought all distressed mortgages for about the same cost — and benefited regular people like you and me and that other hurting guy over there.
Remember, the banks were so thankful for the rescue (at 100c on the dollar !) that the FED lavished upon them, that they did not even pause a bit from giving themselves obscene bonuses, for a job very very well done.
By the way, what other screw-up gets rescued for 100c on the dollar ?
Upon re-reading, I might have said it better, “Instead of LENDING trillions to the crying banks, during the meltdown that the banks themselves caused”.
Makes the same point, IMO.
Milton Friedman advocated the monetarist policies that the federal reserve uses. Milton Friedman was a self-professed Libertarian. I’ve always viewed Libertarianism as a made up ideology to get the proles to advocate against their best interests in favor of the “free market”. The free market of course being that set of individuals who own and control the markets. Mostly the bankers. So, of course it is libertarian for the federal reserve to institute policies that work in favor banks.
Thanks Kent for clarifying, well said.
Please reconcile your statement, “The Federal Reserve does not in any way support Keynesian policies,” with the fact that the Fed has, until very recently (*if reports of tapering are to be believed*), been buying Treasuries en mass via quantitative easing?
Do you have a source that Keynes ever advocated the federal reserve buying treasuries en mass?
The issue is not Keynes’s view of QE, but that the Fed, as the buyer of last resort, has been supporting government spending. You see these deficits that a lot of commenters on this website are worried about? The Fed makes those deficits possible and since Keynes was the advocate of deficit spending, ergo the Fed supports Keynesian policies.
Kent, there is nothing libertarian or free market about a group of people price fixing the price of money. The price of money being a key input into every economic decision.
Kent, re: “I’ve always viewed Libertarianism as a made up ideology to get the proles to advocate against their best interests in favor of the “free market”.
We are so far removed from a free market at this point. It is sort of like talking about unicorns. The cycles for humanity are much longer wave than a single lifetime or even a century or 2 …which is a serious impediment to learning fundamentals about the human condition.
The USA was the first to recongize the value of the individual and a right to liberty. There were a few serious libertarian types among the founders who risked their life for it. Just a few. True libertarians are indeed rare and they care enough for all people to let them guide their own destiny. What man have you met who can manage your life better than you?
We all owe it to ourselves to study our own higher and lower natures …and recognize that a few folks have used their liberty wisely – specifically, they managed to rise above what Keynes referred to as our “animal spirits”. Not sure Keynes was able to.
Setarcos: Thank you for mentioning ‘the fundamentals about the human condition’, so important to step back and consider.
The mix of informed people who take the time to comment on Wolf’s articles helps stave off the feeling of insecurity in me.
Thank you Setarcos.
Ask yourself this: what should be the role of government in society? Should government be an impartial umpire, or should it be an active player in people’s affairs?
Society does need (some) government at local, state, national and to a slightly lesser degree international levels. And it does cost money to govern. A sales tax is a direct method of taking money from the citizen to use for governance. If government is an impartial umpire, then the rules should be the same for all I reckon.
Maybe the US Supreme Court just called it right like a good umpire/referee does.
In regards to your sidebar 50% of the taxes in the United States go to empire building directly or indirectly. 1913 was a very bad year but there is nothing socialist about paying defense contractors to kill people and take their stuff. Countries with democratic socialism typically have higher taxes, better schools, better healthcare, are higher on the gross national happiness list, and have a smaller military. That seems like a good deal to me.
In regards to your on point I am with you here. Uniformity under the law is a theoretical guiding ideology that too often is ignored in exchange for the powerful picking winners and losers at a whim.
AMZN has been collecting for over a year. Makes no sense why they’d be down 1% on the news. Guilt by association.
Maybe people will buy the dip.
My theory is that Amazon is down 1% because the stock indices are down nearly 1%. Just part of the mix.
To add the irony: Most big retailers have a massive investment in online sales, so they’re going to get hurt online but helped in-store. The biggest winners are smaller brick-and-mortar operations — and their shares are not traded on the stock exchanges.
Amazon collected sales taxes in all states with sales taxes in 2011.However this applied only to its direct sales.Third party sellers ,which accounted for about 1/2 of Amazons total volume do not pay tax currently on out of state taxes
The issue of online sales tax has nothing to do with libertarians disdain of taxes
It has to do with online retail companies enjoying an unfair advantage over brick and mortar companies.
Currently there is a case pending in SC regarding sales tax payments by these third party sellers in previous years.
This ruling should have zero effect on AMZN because AMZN never has nor will it ever make money on retail sales
“AMZN never has nor will it ever make money on retail sales”
I’m waiting to see see your explanation of that statement.
Over the past 5 years (2012-2017):
o AMZN has expanded net sales from $61B to $177B
o AMZN property & equip has grown from $21B to $49B (and appear to have reasonable depreciation policies)
o AMZN long-term debt has frown from $3.1B to $49B (note 2017 current assets = $60B).
This is spectacular & (for the most part) internally-financed growth…that’s where AMZN’s money goes.
Should AMZN growth be restricted, for what ever reason, I would expect the slow/no growth AMZN (without growth expenses & cap ex) to immediately be very profitable.
I live in a high sales tax area. Since the sales tax is a burden, I wait to buy items, especially higher priced items, and buy only when they are discounted by more than the sales tax. I am basically transferring the sales tax burden to the merchants and lowering their profits, which leads to even lower tax collections for the state.
Considering the state of the economy in the last decade, I am hardly the only person doing this. Because the sales taxes are so onerous consumers have no choice but to wait for lower prices and these lower prices generate lower levels of income tax revenue. I wish more politicians were business people instead of lawyers, maybe then they could figure out that low to no sales taxes increase sales volumes and therefore increase income taxes.
If you have not heard of “The Minimalist” both as a book and a movie, may I suggest that you give it a go. You may find yourself in a brand new ‘space’.
Politians never have enough money, there are to many promises, and their eyes are bigger than the voters pocketbooks, thus increased taxes.
The day you see any elected official actually sock away any funds for that ‘black swan rainy day’ you had best hold on to them with hands and feet.
Not sure if you still may live in Florida, Petunia, so it doesn’t make much difference if it is sales tax or income tax, they last few scraps of meat will be chewed off the bones of the public.
As for Amazon, make me cry. They just got a big money grant from Michigan…to help with ‘payroll’. Those of you who are hooked on Amazon should ‘click’ over to Wallmart and see that Amazon ‘s bargains are an illusion. Neither treat the employees well, so lets get that sound bite complaint off the deck.
“The Minimalist” seems to be a 37 minute movie ? I just killed-off FIOS, big cable is now gone forever ! ! ! I have H S Broadband and a coupla dozen local channels.
Maybe “The Minimalist” is a good enough reason to consider Netflix ? I am not really sure what to do next, but I am saving a lot sans FIOS.
I am familiar with the minimalist movement and have always liked the esthetic. I practice a form of it by being a modernist. In my closet, not so much, but I keep things a long time and wear them out.
Get a Roku stick or box and you get lots of free tv and movies.
re: “The day you see any elected official actually sock away any funds for that ‘black swan rainy day’ you had best hold on to them with hands and feet.”
(ignoring the pension fund deficit, of course)
Sales taxes were/are simple to collect and submit to their respective state governments for brick-and-mortar businesses and online businesses that only have to collect tax on sales from their home states. It would be a nightmare for a small online business to have to collect and submit tax for all 50 states plus D.C.; fortunately there isn’t a world government (yet) that requires tax collection for all governments worldwide.
I can foresee a push in some states to eliminate the sales tax entirely and replace it with increasing progressive taxation on income and unearned capital gains, especially real estate. Or there could be a push for all states to implement the same universal sales tax rate policy.
Sales tax and VAT are regressive in that they make no distinction on someone’s ability to pay.
There are over 10,000 separate tax jurisdictions in the United States alone, so it’s worse than just 50 states. Of course, a simple solution would be to have these jurisdictions band together and create a clearinghouse with GIS data for addresses. Any business, including small business, could use a web API to reference the clearinghouse on any transaction. But that is too logical for governments to build….
There are private companies that have this data, it’s not technically difficult for a retailer to subscribe to this information.
Don’t forget that all items are not necessarily taxed and if they are taxed, not necessarily at the same rates, and not necessarily at all times during the year.
EG Tom Thumb tried to tax me on marshmallows once, claiming it was candy.
In my experience, Blue states are lower tax and don’t tax food, Red states are higher tax and tax food. It’s just one person’s experience, but Hawaii where I grew up taxes at just 4.x%, and doesn’t tax food, California is in the middle with 9.x% tax and doesn’t tax food, and Arizona, a Red state, taxes over 10% in some areas of AZ close to 12% and as a friend put it “they’ll tax my banana”. Yep, they tax food.
Sales tax calculation has been automated for decades (by ship-to address). The new programs are pretty slick. Amazon offers it (for free?) to the retailers on its platform. No one in their right mind would do this by hand. So everyone in the business knows that sales tax collection by ship-to address is not a technical issue in this day and age. It’s a money and competition issue.
I use Magento software to run an online business, so I know how easy it is to calculate sales tax and add it to invoices based on shipping addresses. The challenging part is submitting sales tax payments and returns to the state every week, month, quarter, or whatever period you’re required to do. For one state: no sweat. All 50? Better hire someone to do that for me!
Fortunately small online retailers have flown under the radar so far.
Yes, I’m sure for small businesses there are what’s called “compliance costs.” I face those too – thank god not with sales taxes. They’re a bitch, but they’re part of the cost of doing business :-]
Many states already have no sales tax. New Hampshire, for example, has no sales tax and no income tax. They get all their taxes from property taxes. Most states have some combination of these three sources, or only one or two of them, like NH.
I am not at all confident this a meaningful boost for brick and mortar.
The majority of online retail occurs probably more due to convenience and availability. For the purchase of goods I don’t need to personally inspect or try, online pretty much always wins unless buying at a real store saves money.
Price parity, online will generally win.
Agreed. I usually prefer to buy at a brick and mortar only because I can see and handle the merchandise and walk away with it right away. I don’t buy a lot of stuff and unfortunately, B&M never seems to have the item I’m looking for. So I end up buying on-line anyway.
Same here. I live in an area that’s apparently not large enough to have things like the “smartwool” socks I like, bags to fit my small shop-vac, nozzles etc for same, and so on.
Things I should be able to walk into Big-5 Sporting Goods, Lowe’s, etc and buy.
1) AMZN and the other FAANGs are ridiculously overpriced by any measure.
2) A 1% move is inconsequential.
3) Markets make the news; not the other way around.
4) It’s clear from AMZN, NFLX, etc. stock price that they’re in a bubble. Think dot com stocks in 2000. What goes up must come down. We’re either approaching or in the “blow-off top” phase for the FAANGs. Invest accordingly.
5) All of this due to Fed actions of easy money, low rates/ZIRP, QE and other debt monetization schemes. Result is the “everything bubble”. Heck of a way to run an economy (into the ground)… From bubble to bubble. End the Fed.
I think most everyone forgets that the Supreme Court of the US doesn’t make law. It offers its ‘OPINION.’
True. However this opinion backs the precedent set by S.D.
So other States will follow suit, which will take a year or 2….at least. I am surprised this has taken so long to come onto the radar screen.
I personally have been shocked all along about the lack of sales tax. But thank you, I will gladly not pay whenever possible.
Among other things, the Supreme Court affirms laws or strikes down laws. In this case, its ruling affirmed (revived) a law that a lower court had struck down. It also overruled precedent and set a new precedent.
Individual buyers were SUPPOSED to remit the sales tax they were not charged to their home state in the form of Use Tax. Each year I look at my online charges and send in the use tax with my state income tax return but for every one of me there were 9,999 that didn’t send any money in. People got a nice break for some 20 years but it’s time to allow the states to have sellers collect the taxes from us.
Wow! You did that? You’re my hero.
Mvojy, I wonder how many politicians did what you did? Would really like to see the data on this, especially on the pol’s who are most anxious to raise taxes.
I’d venture to say next to nil. I know one whose wife told me one benefit of Amzn was that they didn’t have to pay tax shopping there. I thought that was very ironic since they both work for the g00bermint (big $$$ too).
All those tax jurisdictions…little trouble for major corps to deal with compared to a small business person who is now mostly screwed.
I used to manufacture and sell equipment in a few states. dealing with the different schedules was costly, given the few overall transactions. Not to mention being hounded for years even without future transactions…
Another win for that one corp that is going to rule the world….
Software does this today. It goes by ship-to address. Any jurisdiction.
Is there any software out there that will automatically submit sales tax payments and returns to each state/jurisdiction after they’re collected?
Maybe Amazon or other big companies have a system like that. For the rest of us plebes, it would require going to each state’s tax commission website and filing a return and payment each period. The future might be a central sales tax clearinghouse, but that doesn’t yet exist.
For a small retailer, the software’s a significant expense, e.g:
exactly. Then when you are no longer in business, you will be hounded for taxes by every jurisdiction you have ever paid in to. Or at least documentation that you did not sell anything…
Software aint magic.
I’m surprised no one mentioned the offset this creates to the Trump tax cut. Or am I missing something here?
The North Dakota law confirmed by the court does not require small online retailers to collect the state’s sales tax.
So we have yet to see how the legal scramble to qualify as “small” goes, and how the myriad little retailers on eBay, for example, will deal with that.
If its similar to ‘small business’, multi-nationals will be included.
“So we have yet to see how the legal scramble to qualify as “small” goes”
Yes, there’s the rub.
“…Kennedy, the Court sided with South Dakota, which had passed a law in 2016 that required large out-of-state online retailers to collect sales taxes on merchandise sold in the state. …”
I guess it is legal but I do not understand how a state can pass a state sales tax law that only applies to LARGE out of state online retailers.
In fact, I think, but not positive, Texas may have a similar law. Also I think some out of Texas large online retailers actually charge the Texas sales tax to their Texas customers on a voluntary basis.
It’s high time states began collecting this revenue. This of course doesn’t release legislators from the obligation of allocating revenue as though they had earned it themselves.
So is China going to collect sales tax on drop shipped items?
This court decision gets into some questionable territory in regards to the Constitution. What exactly can a state require a foreign (out of state) entity or person to do when it doesn’t have a physical presence in that state?
Next, are the courts now going to allow states to impose income taxes on someone who lives in another state? Or will states start to require physical retailers (in other states) to inspect each customer’s driver’s license and withhold sales tax if they are shopping out of state? That is the logical conclusion.
Yes, I still pay state income tax in CA even though I moved out of this hell hole 3 years ago. This is because I still have earned income generated in this state. Additionally, CA has floated the idea of taxing nonresidents for retirement benefits earned while living in CA. Homelessness is the wave of the future if politicians have their way.
These are all concepts that the state of California is likely discussing right now. I think California will enact tariffs on all goods coming into the state that do not have sales taxes added.
This may force companies to ship products into Mexico first to take advantage of NAFTA ?
Just my guess……….
“Next, are the courts now going to allow states to impose income taxes on someone who lives in another state?”
No, it’s not “next.” This is long-established practice and law :-]
If you live in Texas but earn part of your income in Oklahoma and in New York, you have to file OK and NY income tax returns and pay state income taxes in those states. This is a big thing with pro ballplayers who play in many states: When they play, they work and earn money, and so they have to pay taxes in those states where they played. Sure it gets complicated…
But how can one state dictate to businesses in another state that they must withhold and submit taxes to that foreign state, while not having a physical presence there?
I think they are looking at it from the wrong side. The onus to pay the tax should be on the buyer and not the seller. Because almost all online sales take place through either the Visa, Mastercard, Amex, Discover, or PayPal online networks, those companies should be required to file reports to each cardholder’s respective state. Then each buyer would have to settle up with his respective state at the end of each year.
California’s personal income tax form already has a line for reporting sales tax not reported by out of state sellers under the 1992 Quill decision, but I suspect that most taxpayers ignore this requirement. Companies like B&H Photo and Video will now have to collect sales tax from California residents and remit it to Sacramento. B&H is not a small mom and pop operation. Their catalog is the size of a suburban phone book.
CA’s State Board of Equalization (for remitting sales tax) was a nightmare in the soda and snack vending biz many years ago. i.e., what is considered food, snack, prepared food, beverages have sales tax and CRV (CA redemption value). They made clear their agent’s advice offered over the phone could not be counted on; had to be in writing. I had heard of a competitor holding a letter in a safe deposit box in the event of audit.
I had to have nerves of steel signing/submitting quarterly, even though an S corp, CA tax authorities have a special way of making your life miserable.
The EDD is no picnic either.
To me this seems like a big deal. I’m cheap and I know that either because other Americans are also cheap and/or more than likely poor it’s going to get to a point where they cant afford it anymore. This may be it.
Just like the writer says the old days were different. With free returns and the ubiquitous nature of internet sales I have no issues ordering virtually anything and skipping the taxes. Heck in the current climate I cant find the vast majority of stuff Im looking for anywhere but the net. Its not in stores.
The no tax deal made me start buying online. The no tax deal was sometimes the factor that made the purchase possible. So in the end with all ther other stuff thats happening vis a vis tariffs/trade war, bunker increases, truck shortages, subprime, etc. etc. etc. I can’t help but think this is going to be a set back. I hope its not the straw that broke the Camels back.
@Wolf, this is off-topic but I think significant. Please read.
The FRB/FRED site shows that the FEDDT (=Federal Agency Obligations, FAO) balance dropped by a massive 1.982B on June 13 from 4.391B to 2.409B, a drop of 45%. This drop is known to be part of the QE unwind, but it is large and the balance is getting quite close to ZERO by recent historical standards. Last time it was ZERO was 2008-09-17, 3 days after Lehman Brothers went bankrupt.
I looked in the system open market account tables and found the following maturing bond from the Federal Home Loan Mortgage Corporation, which FRB apparently has let roll off and did not reinvest:
6/13/18 3137EABP3 FHLMC 4.875 1,982,000.0 (in thousands)
This is the first time since 2017-11-22 that the FEDDT/FAO amount has been allowed to drop, and as of today I can find no indication that FRB has reinvested the proceeds in any similar bonds that provide temporary mortgage financing. To me, it looks like this big reduction in what I assume is mortgage “pipeline (conduit) financing” must by necessity lead to some significant upward pressure on mortgage rates, because FHLMC must now get their pipeline financing somewhere else if they want to keep mortgage issuance volumes at recent values.
What say you, Wolf?
Not sure what data you’re looking at, but if you look at the long-term chart of this…
… you will see that they peaked at $169 billion in 2010 and have since dropped consistently toward zero. The Fed has been systematically unloading them since 2010.
They’re now down 98.6%, to about $2.4 billion. The balance will go to zero over the next few months. This has nothing to do with the QE unwind since those securities were almost gone before the QE unwind even started.
The drop of $1.98 BILLION on the June 14 balance sheet is a drop in the bucket. It’s not even a rounding error on the balance sheet that is over $4.3 TRILLION. This drop represents 0.05% or 1/2100th of the total balance sheet. It is minuscule. And since this is minuscule and unrelated to the QE unwind, I don’t mention it.
Another off topic post, Kansas Southern is ordering engines from GE. Is this b/c they have too many of them parked somewhere in the dessert and need to add more, or are they anticipating a ramp-up?
Unfortunately, GE is now selling its 111-year old locomotive division. What a shame! Pretty soon that company will be kicked out of the index for small-cap stocks.
Surely there will be an impressive parade of golden parachutes while they attempt to offload the pension obligations onto the taxpayer.
Wolf-you say there is software to determine sales tax rates in every county of every state. However, sales tax is much more complicated than that. For example, if I buy a chainsaw and use it on a farm in Ohio, it is not taxable. If I use it in my backyard, it is. If I buy a forklift to move material from one manufacturing line to another manufacturing line, it is not taxable. If I use a forklift to unload trucks and move items to storage, it is taxable. Sales tax law may be simple for the final consumer, but it is complicated for a producer, and I am sure most businesses overpay.
By the way, my theory is you always want to pay use tax on your state income tax form. If you pay nothing, there is no statute of limitations. If you pay some, then the statute of limitations starts and limits how far back they can audit.
You need to talk to the people that sell this software/service. Amazing what these things can do.
As I said many times before, tax cuts always end in new taxes and or an increase on existing taxes. The short boom tax cuts produce end being not worth it afterwards.
You guys wanted proof? Here it is! Want more? See Trump new taxes, want even more?
Anyone knows were to find a summary on all the new taxes and taxes increases this year?
There is a lot of software out there that is not running on an e-commerce site that is legacy and will be affected by this change. I have been forced to look in to this in the past. Yes, there are third party sites that do a decent job, with a subscription, of providing you with the information. But without a rewrite of software, this can be a manual process of updating the tax tables. Again, a win for large companies. A Lot of what has been proposed by the current administration, to eliminate the red tape, has just been dumped on to small companies. I am fortunate in that the vast majority of my end customer, due to position in the supply chain, is tax exempt. But even under the old system, keeping up with the outliers was untenable .
Some places use software so old it cannot run on ten something year old computers without emulation.
Is one of the reasons many places keep running XP as long as they could, XP could run Windows 95 programs. And if you wanted to run something even older (mostly some accounting programs that were last updated to be y2k ready, and library administration tools) well there is Dosbox for that!
Like Hampton Florida annexing land to corruptly steal speeding ticket revenue, I predict the same will now occur, so corrupt local governments can tax peoples online purchases……..
You could start a new TV reality series……Government thieves run wild….
What are the chances that states will return the monies collected from online retailers in lower state taxes?
What everyone misses is that at some point, all the taxes we are charged means we no longer have life, liberty and the pursuit of happiness.
The courts need to stand up and put a substantive limit on all the taxes you can pay and the people need to stand up and pass a constitutional amendment that limits the total taxes and makes the tax system no bigger than 10 pages.
I think it’s only fair in today’s world, that online retailers charge state sales taxes, too. That puts brick and mortar retailers, including Mom-and-Pop operations, on an equal footing with them.
The dissent per Judge Roberts states this pretty starkly….. we no longer are represented under the rule of law with this decision and killing Ecommerce for many online retailers that cannot afford to comply:
“The Court argues in favor of overturning that decision because the “Internet’s prevalence and power have changed the dynamics of the national economy.” Ante, at 18. But that is the very reason I oppose discarding the physical-presence rule. Ecommerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule.
Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress. (this right here boys and girls is where the rubber meets the road).
The Court should not act on this important question of current economic policy, solely to expiate a mistake it made over 50 years ago.”