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Businesses The Internet Government Politics

U.S. Ecommerce To Be Broadly Taxed? 639

fl!ptop writes "ZDnet has a story about U.S. Senators proposing sweeping changes to how Americans are taxed for online purchases. As proposed, businesses would be required to collect sales taxes and send them to the state the purchase was shipped to. As a small business owner that primarily sells via ecommerce, I am shuddering at the prospect of having to deal with government sales tax forms and coupon books for 30 or more states. Will I have to register with each state's tax department? As an ecommerce Web developer, I'm also wondering what implications this will have on maintaining code that calculates sales taxes, expecially in states like Ohio where they differ by county and municipality."
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U.S. Ecommerce To Be Broadly Taxed?

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  • Once again (Score:1, Interesting)

    by COMON$ ( 806135 ) on Thursday December 22, 2005 @02:22PM (#14319614) Journal
    Why is the Gov't taxing us for these items? What is the justification? Maybe I am off base here, but the gov't doesnt have much to do with e-commerce.
  • Sheesh... (Score:5, Interesting)

    by armyofone ( 594988 ) <armeeofone@hotmail.com> on Thursday December 22, 2005 @02:22PM (#14319618)
    Why don't they just implement the fairtax [fairtax.org] and be done with all these other convoluted ideas?

  • by shodson ( 179450 ) on Thursday December 22, 2005 @02:24PM (#14319638) Homepage
    First Data Corp [yahoo.com], which owns Taxware [taxware.com] and handles taxation in multiple states and coutines nicely, even in jurisdictions that have different tax rates within the same zip code.

    The other big e-commerce tax product is Vertex [vertexinc.com] which has a bigger Fortune 500 footprint, but they are not publicly traded nor are they owned by a publicly traded company. Good acquisition target.
  • tax (Score:1, Interesting)

    by mdman ( 846276 ) on Thursday December 22, 2005 @02:25PM (#14319646) Homepage
    What they really should do is eliminate the sales tax system and the fedral tax system and come up with a Flat Tax on what you buy.. no loop holes or BS IRS This way the poor pays less and the rich pay more.. its a fair system
  • Mail order? (Score:4, Interesting)

    by kbahey ( 102895 ) on Thursday December 22, 2005 @02:25PM (#14319659) Homepage
    I understand that mail order in the USA is not taxed, unless the purchaser is from the same state that the mail order house is in.

    So far, ecommerce had the same rule (or similar).

    If this gets implemented, then will it apply to mail order as well, or will it be for ecommerce only?

    What about if an American buys from a Canadian business via the internet? Will the Canadian business be required to collect US state taxes too?
  • Mail order (Score:3, Interesting)

    by deanj ( 519759 ) on Thursday December 22, 2005 @02:27PM (#14319693)
    The thing the ticks me off about this is that the mail order lobby was the group that started all this crap back in the 90s, because they saw their revenue going down. Back then, it was "oh, tax the internet, but leave us alone".

    Personally though, I don't think either of them should be taxed, but if they do pass this, the better make all the regular mail order companies comply with it too.

  • Re:Once again (Score:5, Interesting)

    by Uhlek ( 71945 ) on Thursday December 22, 2005 @02:30PM (#14319730)
    The problem is tax revenue. Sales tax makes up a considerable percentage of revenue for many states, especially states like Texas that have no income tax.

    Back in the day, most people bought almost everything they bought from local merchants, meaning that there was very little way to avoid sales tax. Catalog mail order and later, telephone orders, made up such a small percentage of commerce that the items remained untaxed. The smaller northeastern states, and even some municipalities (like in the Oklahoma City area) sometimes lower their tax rates to encourage people to come shop in their malls. Delaware makes a big stink about not having a sales tax, and there's a lot of outlet malls that advertise as such. Still, it wasn't much money.

    Now, thanks to advances in shipping technology and Internet ordering, people are spending more and more money online, especially in the holiday season. This money isn't being taxed.

    Some states have provisions to attempt to curb this. Virginia, for example, has a "use tax" where if you purchase any item and do not pay sales tax, you have you pay a "use tax" on it. Problem is, it's hard to track and almost no one reports anything, much less what they really spent.

    The tax system is so convoluted and fucked up it should be changed, I agree, but this is totally legal. The sticky point comes in where states are trying to force e-merchants to collect their own sales taxes. Depending on how this is accomplished (i.e., not a federal law) if you've got a state that isn't part of this agreement you're going to see e-merchants move to those states to avoid having the additional burden of collecting those taxes.
  • Re:Once again (Score:3, Interesting)

    by COMON$ ( 806135 ) on Thursday December 22, 2005 @02:30PM (#14319733) Journal
    Ok I am going to get flamed here, but the gov't is a non-profit. Not a money making machine. Or at least it is not intended to be one. If taxable items are reduced, and the gov't gets reduced revenues then the services that the taxes pay for get reduced. oversimplified sure, I know gov't spending is much more complex than that (work in gov't myself).

    Maybe I am calling for reform here but tax for services rendered is the system I would like to see.

  • by woodsrunner ( 746751 ) on Thursday December 22, 2005 @02:31PM (#14319748) Journal
    Right now, I am working on an app that calculates tax by county. What fun. There are roughly 3200 counties, parishes and independant cities in the US and every one has different rules on what is taxed and how much.

    Something like this is really going offer employment opportunities for programmers. It will be a bigger boon than Y2K! Because if the states are getting their tax money, the counties will want theirs too. Of course it will crush commerce for the small guy and most everyone. Just think of the cost of tracking and sending these funds out on a regular basis. So it will be like a bigger bubble and a bigger crush. The nineties all over again.

    Yow, Where's my aereon chair and foosball table?
  • by DynamoJoe ( 879038 ) on Thursday December 22, 2005 @02:36PM (#14319818)
    Why should I, as a resident of another state, be forced to subsidize your state's government? You wouldn't want to pay my 7% sales tax (6.5% for the state, .5% county) instead of your own, where you get none of it applied to your local infrastructure....

    If your idea took hold, Oregon, NH, and other no-tax states would get lots of new fedex depots.....

  • Re:Nightmare (Score:4, Interesting)

    by ortholattice ( 175065 ) on Thursday December 22, 2005 @02:39PM (#14319873)
    A few years ago when I dealt with ERP systems, I had to specify one of the commercial sales tax databases. Some of them are customized, or have customization modules, that adapt to particular ERP or order processing systems. They are broken down not just by county or zip code, but sometimes even street; there are places in the US where a given zip code will span two counties or municipalities. Given the huge number of municipalities, the tax database changes almost daily, and there are companies specializing in collecting this information - there is no national central repository. In addition to location, in many cases the tax is based on one of several classifications that a product falls into. By the time you add up all variations of laws you end up with dozens or hundreds of categories, and you need to hire specialist consultants to correctly classify the products in your inventory. These databases are huge and you'll just have to bite the bullet and pay the several thousand dollar subscriptions fees for the continual updates. There is no way you could do this yourself; a lot of these laws are on paper only in local government offices, and you have to have the right contacts to make sure that you haven't missed one.

    If this does come to pass, I would hope that the law would also provide for a publicly accessible database funded by the government. The subscription fees charged by some of these commercial database companies would break a small business, and possibly even one at the $5million level proposed depending on the nature and margin of the business.

  • A Simpler Method (Score:3, Interesting)

    by InterGuru ( 50986 ) <(moc.urugretni) (ta) (dhj)> on Thursday December 22, 2005 @02:41PM (#14319901)
    All interstate commerce should be subject to a 5% sales tax collected by the federal government. At the end of the year the feds would distribute the collected taxes to the states in proportion to their own sales tax collection from in-state purchases. That is if state X's collected sales taxs were 3% of the sum of all the 50 state's collections, it would get 3% of the federal collected taxes.

    All of us, including me, love to evade sales tax, but we all want the roads, schools and police services that it pays for.
  • simplicity, please (Score:3, Interesting)

    by MattW ( 97290 ) <matt@ender.com> on Thursday December 22, 2005 @02:48PM (#14320002) Homepage
    My wife operates an E-commerce store (which also has a physical location). I write e-commerce software for a living.

    This isn't a big deal, so long as states simply have one rate per state, and there is an easy way to find the rates and be notified of changes. Collecting differently based on county, municipality, etc, is gruesomely inconvenient. Of course, it that were required, I'm sure a couple companies providing a tax-rate web service would spring up, assuming that you didn't already receive such a service from someone like your payment gateway service.
  • Re:Free startup idea (Score:2, Interesting)

    by deacent ( 32502 ) on Thursday December 22, 2005 @02:54PM (#14320094)
    There's a company, Vertex [vertexinc.com], that makes some very expensive, but very comprehesive tax software. A former employer of mine uses it and I've worked with the eQuantum API. A co-worker and I were wondering when someone would start a service company based on Vertex's software (with their blessing, of course).
  • Re:Unconstitutional (Score:1, Interesting)

    by Rotten168 ( 104565 ) on Thursday December 22, 2005 @03:06PM (#14320268) Homepage
    A rebuttal section of the Constitution might this though:

    Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof.

  • by PortHaven ( 242123 ) on Thursday December 22, 2005 @03:08PM (#14320288) Homepage
    No taxation without representation....

    Screw'em. If they want me to pay taxes out-of-state, they can give me a representative to vote on my behald in their state.

    How long until one state makes itself a no online tax state. And a company sets up "receiving/shipping" and you just have it sent to a PO Box and then it's routed elsewhere. You bought it in "x" tax free state.
  • by Dan667 ( 564390 ) on Thursday December 22, 2005 @03:21PM (#14320454)
    Love you fair tax people. Fair tax is the worst idea ever. No poor person protections are going to make this a good idea, except for the very rich. Not even the rich elite think this is a good idea. Warren Buffet had this to say about the Flat Tax (not the "Fair" tax idea, but close): I wouldn't support it. We have, in my view, a taxation system that's much too flat already. If you look at the payroll tax--which is over 12% now, and that applies on the first $80,000 or $90,000 of income--Bill and I pay practically none of that in relation to our income. For the people that work for us, their tax rate in many cases is the same or even higher than my own, since the rate on capital gains and dividends was cut to 15%. What has gone on in this country in recent years is a huge benefit to the very rich and not that much relief to people down below. Frankly, I think that Bill and I should have a higher tax rate on the income we get. We pay less than half the rate that I was paying 25 years ago when I was making a lot less money. They have really taken care of the rich. -- Fortune [fortune.com]
  • Re:Once again (Score:2, Interesting)

    by Anonymous Coward on Thursday December 22, 2005 @03:23PM (#14320487)
    Now, thanks to advances in shipping technology and Internet ordering, people are spending more and more money online, especially in the holiday season. This money isn't being taxed.

    The money isn't being taxed?? You mean it is not being taxed for a fourth or fifth time. For every dollar you earn, it is taxed by the Federal government, probably your State government, maybe your local municipality, and it has FICA and Medicare taxes removed. Then, even if you don't pay a sales tax on the Internet purchase, the company you purchase from will pay income taxes on it, and out of the profits that it makes, it pays it's employees who then pay Federal, State, local, FICA, and Medicare taxes all over again. Eventually, that untaxed dollar will be spent locally, where it will get a sales tax applied to it.

    Even illegal profits get taxed when they get spent through the system on something legal. Don't we have enough taxes?
  • by doubledoh ( 864468 ) on Thursday December 22, 2005 @03:24PM (#14320493) Homepage
    Harry Browne explains what life would be like without the income tax or the "fair" tax: http://www.harrybrowne.org/articles/IncomeTaxDay.h tm [harrybrowne.org]
  • Re:Once again (Score:3, Interesting)

    by surprise_audit ( 575743 ) on Thursday December 22, 2005 @03:25PM (#14320510)
    Don't lose sight of the fact that there's some company that's pushing for *their* tax-calculating software to be adopted by all the states. Supposedly, internet taxation hasn't happened yet because it puts too big a burden on the e-stores to calculate all the different states, citiy & municipalities taxes. I don't have time to look up who it is, but this company has the idea that if they can get their software legislated into a certain number of states for e-commerce taxation, then *all* the states would have to adopt them, and they'd get an instant lifetime monopoly.
  • by Senior Frac ( 110715 ) on Thursday December 22, 2005 @03:36PM (#14320647) Homepage

    If your eCommerce business is run in, say California, then it should charge California sales taxes.

    Yeah but that would never fly because it would discourage businesses from setting up in regions that have sales tax.

    Exactly as it should be. Ladies and gentlemen, this is the free market in action! As an added benefit it relieves overcrowding because, in general, the more crowded the region the higher the taxes needed to support the infrastructure.

  • Re:Free startup idea (Score:5, Interesting)

    by scoove ( 71173 ) on Thursday December 22, 2005 @03:36PM (#14320648)
    I'm also wondering what implications this will have on maintaining code that calculates sales taxes, expecially in states like Ohio where they differ by county and municipality.

    In the telecom world, one does not usually find small business CLECs because we have to comply with several database requirements, including: Vertex (or similar tax databases), E911 and SS7.

    Last time I had to deal with it (late 90s), a Vertex subscription for our Oracle-based billing system was about $220K annually. You are, of course, free to write your own and obtain tax information from every locale independently.

    Of course, you can imagine that these great laws were proudly supported by the incumbant telcos who are pleased to have complicated taxes to merrily pass along to the customer. The more complicated it is, the less likely any up-start competitor can ever handle the up-front cost. Each barrier to entry pushes the benefit to the largest scale of business.

    You can bet Congresspersons are getting heavily lobbied by larger institutions that favor taxes. And since 2/3 of our population doesn't understand that corporations don't pay taxes, customers do, we'll never have enough opposition to these ploys. Worse yet, not only will we end up ultimately picking up the cost of the taxes, but the drop in competition will push up the price of goods for us too. And you wonder why your paycheck goes less far each year!

    A solution is the fair tax, but it's boring to one half of the population and misunderstood by the other half, so expect to continue to get screwed by the partnership between big government and big business.

    *scoove*
    p.s. Did you collect and file taxes on your last Ebay sale?
  • Re:Nightmare (Score:3, Interesting)

    by HardCase ( 14757 ) on Thursday December 22, 2005 @03:36PM (#14320652)
    For example, if you receive $50 in sales for each of 295 people a day, 340 days a year, that's $5,000,000. How many online retailers do you think can manage to do that?

    Not all that many - that's over $13,500 per day in sales. That is a big number! For retail trade, $6,000,000 in revenue is the upper end for the Fed's definition of most small businesses.

    I've been involved with several successful small businesses in retail and service and none approached that limit.

    -h-
  • Re:Once again (Score:3, Interesting)

    by bigpat ( 158134 ) on Thursday December 22, 2005 @03:49PM (#14320859)
    "1) Be cheap software available to help retailers work this out. The software already exists, since web sites like target.com already have to deal with it."

    Please define "cheap" when you are talking about small business? Small business drives the economy more so than the businesses that can afford such things.

    Making retailers jump through hoops to collect the taxes is the ultimate cowardice of polticians who want the money but are unwilling to go after their own citizens except through middlemen, because if they did force people to account for their own spending then people would suddenly realize how much they are getting taxed and you would see how much the government really is representative.

  • eww (Score:3, Interesting)

    by kisrael ( 134664 ) on Thursday December 22, 2005 @04:33PM (#14321406) Homepage
    Until recently I worked at one of the more significant Salestax / VAT software places.

    Frankly it's all a bit of a mess. Some place, like Louisana with its Parrishes, are just crazy. These tax companies are hoping to get in on the Streamlined Sales Tax Initiative, where they would act as Service Providers, giving retailers an easy way to cover their bases, but not every state wants to play along, because a lot of the states have different definitions for how to handle locations and what not.

    In the 90s, I used to be against online tax just because I wanted to see companies like Amazon etc suceed. Now that online shopping is a pretty well established part of life, I can kind of see the desire to level the playing field a bit more.
  • Use a pool (Score:2, Interesting)

    by djchristensen ( 472087 ) on Thursday December 22, 2005 @04:56PM (#14321683)
    Seems to me there is a simple solution to this (which means no politicians would ever go for it, of course).

    Create a tax pool and use some tax percentage that is a reasonable average. Businesses would simply report how much of their taxed revenue went to each state, then each state would get a payment based on the revenue derived from shipments to that state. Perhaps purchase data could be kept as granular as the county being shipped to, and then states could divy up the money appropriately.

    So, for example, a flat 7% could be charged on all goods ordered via mail, phone, or internet and shipped. If California accounted for 20% by revenue of all orders, then CA would get 20% of "the pot". Then CA could divide the money however it wished. Maybe they could apportion it based on per-county purchase amount, or they could just rebate income taxes to counties based on each county's contribution, or whatever.

    There will be some states (namely those currenty without sales tax) that will find this a great boon, and those that won't like it so much (namely those with sales tax rate higher than whatever flat rate is chosen). And yes, it means that the money won't get distributed precisely as it would if the purchases we actually made locally, but I suspect it would be close enough to matter little in reality.

    Overall, this would be far simpler to administer and probably no more prone to abuse than any other system that might be dreamed up.
  • Re:Once again (Score:2, Interesting)

    by doubledoh ( 864468 ) on Thursday December 22, 2005 @05:24PM (#14322007) Homepage
    Also, physical goods aren't usually dropped from the sky, so at some point it has to go over roads and bridges and such, a portion of which is paid for by the state from tax revenue.

    To be honest, my take on the subject is that if businesses want paved roads to their stores so that consumers will be more likely to drive to them, then the businesses ought to pay for those roads, not the consumer. The same goes for residents of residential areas...if they want paved roads, they ought to pay for them via the purchase of their house in association fees and a very small annual maintenance fees agreed upon by the residents. There is no need to drag the government (and its associated buearacratic and non-competitive costs) into it. All the other roads (like those joining city to city) should be paid for by the DMV when you register your vehicle and at the pump with a gas tax (that is to be used only for roads and road lights). In other words, the only people that should pay for the roads are those that benefit from them (drivers, businesses, residents etc). There needs to be a tighter accountability for funds paid out and the recepients of those funds...and I garauntee you, the road building and maintentance costs will go down drastically (because private industries will compete for the money).

    Also, believe it or not, roads and street lights require only a tiny tiny amount of money compared to the amount of money collected by sales taxes and/or state income taxes.

    In any case, if the people are unwilling to pay taxes for out-of-state sales, then the people should be heard, not the politicians that are buddy buddy with the complainers at the huge brick and morter outfits that see legitimate competition creeping onto their margin sheets. This is no different from the MPAA/RIAA asking the government to crack down on consumers because their business models are flawed. The government has no business protecting monopolies.

  • Re:Once again (Score:3, Interesting)

    by Reziac ( 43301 ) * on Friday December 23, 2005 @04:29AM (#14325326) Homepage Journal
    Maybe Canada has a surplus at the moment, but per every figure I could find, Canada also has about $600 billion in debt, and is paying about $42B/year just in interest on that debt.

  • Re:Free startup idea (Score:3, Interesting)

    by jackb_guppy ( 204733 ) on Saturday December 24, 2005 @03:35PM (#14333050)
    Consumption Tax is based are the moment of sale, NOT USE. But USE can change the tax rate.

    The information is very complex...

    1) Where is the address:
              inside USA
              inside a State (watch out for federal lands)
              inside a county (watch out for State and Federal area)
              inside a city (watch out for above plus unincorporated)
              inside a special tax district 1
              inside a special tax district 2 ...
              inside a special tax district N

    2) What are the laws govering the order and amount of tax.
              In Texas, the State Rate is 6.5% (if I remember correctly) with up to another 1.5% that can added to it. You must add the whole % so if you had .8% City, .5% County and .25% MTA, then you would only be taxed for City and County, since the MTA will be .05% to great.

              In Hawaii they do not have a Sales Tax but and Exise Tax that can be passed though to consumer. This tax is 4%. So the cusomer rate is 4.1666666666%, but YOU CAN NOT ROUND UP.

    The only hope I could see is make the Post Office responcable to know the correct rate for every location.

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