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U.S. Ecommerce To Be Broadly Taxed? 639

Posted by Zonk from the the-end-of-the-world-as-we-know-it dept.
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? More

U.S. Ecommerce To Be Broadly Taxed?

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  • Free startup idea (Score:5, Funny)

    by winkydink ( 650484 ) * <sv.dude@gmail.com> on Thursday December 22, 2005 @01:20PM (#14319587) Homepage Journal
    Start a company that acts as an intermediary and provides the taxation service for small businesses.

    Throw in some mumble about Ajax and Web 2.0 and watch the VCs line up to throw money at you and beg you to have sex with their women-folk.

    • Re:Free startup idea (Score:4, Insightful)

      by dfn5 ( 524972 ) on Thursday December 22, 2005 @01:24PM (#14319642) Journal
      Start a company that acts as an intermediary and provides the taxation service for small businesses.
      How about a company that sets up shop in a tax free state, like NH, to accept the deliveries of on-line purchases where the buyer can come and pick it up. Kind of like a mailboxes etc. Oh wait....

      • You are missing a point...

        Sales Tax is generally though of as a Comsumption Tax.

        That means where the item is consumed. It the middle guy does nto use/consume the item then it is passed on to where it is consumed.

        If I remember correctly, buying Cigarette (more thazn a pack or two) is another state and you bring them in to New York, you are bootlegging.
      • Or better yet, how about a company that accepts deliveries from merchant in NH and then trans-ships them to the end customer for a couple bucks.

    • Too late (Score:3, Informative)

      by dereference ( 875531 )
      They've [streamlinedsalestax.org] already been there and done that [slashdot.org].
    • Better yet patent the idea of doing that and let that stew for a few years then torpedo every website :)

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

      by scoove ( 71173 ) on Thursday December 22, 2005 @02:36PM (#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:Free startup idea (Score:3, Insightful)

        by belmolis ( 702863 )

        If they do start taxing internet sales and lots of small companies start having to worry about this, I wouldn't be surprised to see an open-source tax info project come into existence. Getting the individual pieces of information is presumably simple since it is public information and not voluminous or sensitive - the problem is just one of scale. If people were contribute the information for their area, it seems like it would be pretty easy to construct a national database.

  • Sheesh... (Score:5, Interesting)

    by armyofone ( 594988 ) <armeeofone@hotmail.com> on Thursday December 22, 2005 @01:22PM (#14319618)
    Why don't they just implement the fairtax [fairtax.org] and be done with all these other convoluted ideas?

    • Because you'd still have state fairtax and national fairtax, and still have 50 different forms to handled depending on which state fairtax applies.
    • Why don't they just implement the fairtax and be done with all these other convoluted ideas?

      The fair tax will just change the way people work to minimize taxes - the goal will be to reduce prices in order to lower taxes. So in the end you wind up with as convoluted a system, just with different ways to reach the end goal.

      And before someone points out that prices can't go below a certain poiny (i.e. cost); let me point out that price and profit on a sale are not necessarily related.
    • It's easy to trumpets sails taxes (Consumption taxes to those trumpeting) as the most fair awesome thing ever. "Its entirely volentary!" they say, as if buying things was optional. What else is money useful for? The problem is sales taxes are regressive, they have huge overhead costs, they are easy to cheat and they are absolutely 100% evil.

      People hear no income tax and think "ooh.. how nice, I'd only have to pay that little bitty sales tax instead of my huge painful income tax". This is incorrect. Un

  • Nightmare (Score:5, Insightful)

    by mysqlrocks ( 783488 ) on Thursday December 22, 2005 @01:23PM (#14319624) Homepage Journal
    This is going to be a nightmare for small business owners to implement. Most states make you pay to register with their sales tax department. Multiply that by every state that you have customers in. No wonder big companies like WalMart are supporting it.

    • Re:Nightmare (Score:4, Insightful)

      by mysqlrocks ( 783488 ) on Thursday December 22, 2005 @01:25PM (#14319653) Homepage Journal
      Oops, I missed this part:
      The legislation would apply only to businesses with more than $5 million in "gross remote taxable sales" each year.

      You now it's just a matter of time before this number gets lower and lower though.

      • Re:Nightmare (Score:3, Insightful)

        by aaronl ( 43811 )
        That number is already incredibly small. Those taxable sales are not profit, they are revenue. Having revenue of $5 million is not that difficult for a moderately successful online merchant. 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?

        • Re:Nightmare (Score:3, Interesting)

          by HardCase ( 14757 )
          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-
    • The government doesn't care about small business!

      Find me a small business with lobbying cash.
    • If this does pass, they'll probably include provisions to simplify sales tax, like have one unified rate for each entire state. Or so you'd hope.

    • Re:Nightmare (Score:4, Interesting)

      by ortholattice ( 175065 ) on Thursday December 22, 2005 @01:39PM (#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.

      • 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.

        You are kidding right? If anything such a law would likely have a significant fine for not making sure you are collecting the right taxes.

  • If it does, buy stock in these companies (Score:3, Interesting)

    by shodson ( 179450 ) on Thursday December 22, 2005 @01:24PM (#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.

  • Should be reversed (Score:5, Insightful)

    by the_skywise ( 189793 ) on Thursday December 22, 2005 @01:24PM (#14319640)
    If your eCommerce business is run in, say California, then it should charge California sales taxes.

    It makes no sense for a company in California to try to figure out the sales tax for an order from New Hampshire.

    • Re:Should be reversed (Score:5, Informative)

      by donnyspi ( 701349 ) <<moc.ipsynnod> <ta> <5knuj>> on Thursday December 22, 2005 @01:26PM (#14319680) Homepage
      NH has no sales tax :-)
    • Yeah, because there is no sales tax in New Hampshire.

      But I understand what you meant to mean.
    • 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.....

    • I agree. And, it's called a sales tax, not a purchase tax. The tax (if any) should be based on where the product was sold, not from where it was purchased.

    • Yeah but that would never fly because it would discourage businesses from setting up in regions that have sales tax. Here in San Francisco, sales tax at the cash register is 8.5 percent. How many e-commerce businesses are going to incorporate here if they have to charge that rate to everybody in the country? None, because they know they won't be able to compete against New Hampshire. Therefore, every state in the nation (with the possible exception of New Hampshire) is going to be against it.

      Also, the sales

      • 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.

  • 30 states? (Score:4, Funny)

    by Andrewkov ( 140579 ) on Thursday December 22, 2005 @01:25PM (#14319658)
    Last time I checked there were a lot more than 30 states .. I'm not even American, and I know that.

  • Mail order? (Score:4, Interesting)

    by kbahey ( 102895 ) on Thursday December 22, 2005 @01:25PM (#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?

  • This "feels" unconstitutional somehow (Score:3, Insightful)

    by erroneus ( 253617 ) on Thursday December 22, 2005 @01:26PM (#14319669) Homepage
    I am by no means an expert on the subject, but my feeling is that this is somehow against the constitution. And for this to be trackble and enforcable, the states would have to collect their tax money with the federal government as the intermediary. Just on the surface, this idea seems unworkable due to the complexity.

    And how about taxes for the local state? Do you get taxed twice or does one take precedent? I speak of situations where you buy from a company online and they have presense in your state as well as others. At present, if the company has presense in my state then I also have to pay local state tax. But what if the transaction is with a company in, say, N.Carolina (just pulled that from a hat) but they also have a presence in Texas where I am at now. Current practices say I have to pay tax to Texas. But with this, am I paying double tax?

  • Since all levels of government is greedy for taxes, would it not be more cost effective to say tax all purchases a flat rate of 3% and not force a million web sites to code in the complexity? And let the state, county, city fight over the 3%.

    And if expensive tax states don't like it... touch $h1t.

  • Mail order (Score:3, Interesting)

    by deanj ( 519759 ) on Thursday December 22, 2005 @01:27PM (#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.

    • Actually, the mail order industry was the primary opponent of taxing out of state sales. The Supreme Court has ruled (ND vs. Quill) that companies are only required to collect sales tax from a sale to a customer in state X, if the company has "nexus" in state X (i.e. some physical presence, be it offices, a warehouse, whatever).

      Interestingly, this situation actually divides the mail order industry (and ecommerce, for that matter). Before ecommerce became big, there was a schism between companies like LL B

  • Nothing creates business opps like (Score:3, Funny)

    by Alex P Keaton in da ( 882660 ) on Thursday December 22, 2005 @01:27PM (#14319697) Homepage
    Nothing creates business opportunities like gov't regulations. You will see clearing house companies spring up to process taxes for you. Funny about Ohio- when you buy someting in a county with lower taxes, and take it home, you are supposed to send the state the difference.
    btw- Counties in Ohio have different tax rates. It has nothing to do with municipalities, so you only need to know the tax rates for each of our 88 counties... (Mine is Summit county, 6 3/4 percent)

  • Cut taxes for the rich raise taxes everywhere else (Score:3, Insightful)

    by digitaldc ( 879047 ) * on Thursday December 22, 2005 @01:28PM (#14319702)
    http://www.boston.com/news/nation/washington/artic les/2005/12/09/house_approves_561b_cut_in_taxes/ [boston.com]

    From the above article: "They cut vital programs and services that benefit hard-working lower- and middle-income Americans, and with the money saved, are giving more tax cuts to the wealthiest of the wealthy."

    From the ZDNet article:
    "...Sen. Mike Enzi, a Wyoming Republican. "This is costing states and localities billions in lost revenue."

    So the Senators think they shouldn't tax the rich, but its okay when it is everyone else.
    Anyone think that this is unfair? Or is this okay with you?
    • Here's some data about what people pay now (don't get me wrong, I think the Internet tax shouldn't happen). I'm posting the following to show how much those "rich" people really DO pay.

      This was taken from another site, but it's good data:

      Check this out [ustreas.gov].

      It shows that the top one percent of taxpayers paid 34.3 percent of all federal income taxes in 2003, although they earned just 16.8 percent of the adjusted gross income. The top five percent of taxpayers paid more than half of all federal income taxes, the

  • Poster didnt read the article either. (Score:4, Insightful)

    by Ween ( 13381 ) on Thursday December 22, 2005 @01:31PM (#14319747)
    Poster: 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

    Article: The legislation would apply only to businesses with more than $5 million in "gross remote taxable sales" each year.

    Of course, maybe my definition of small business is different than the posters.

  • Y2K all over again... (Score:5, Interesting)

    by woodsrunner ( 746751 ) on Thursday December 22, 2005 @01:31PM (#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?
  • While I sympathize with the painful idea of dealing with 50+ tax codes, I think we all have to admit that the tax code (at some point), has to be adapted to include online purchases.

    I hate taxes as much as the next guy, and I've certainly enjoyed nearly tax-free internet shopping for the past decade, but as more and more purchases are made online they begin to seriously cut into state and local government's revenues. Internet shopping has yet to eliminate my usage of roads, and someone has to fund them...

    I

  • Controversial Thought... (Score:3, Insightful)

    by tenchiken ( 22661 ) on Thursday December 22, 2005 @01:37PM (#14319842)
    I think it is well past time to ditch the different taxation systems (income, property, inheritence, sales, capital) and replace them all with a single sales tax. That gets rid of this problem and also alliviates the massive problem with a competly wacked tax system that actually increases the difficulty of moving between the different classes.

    I don't know much about the so called "FAIR Tax" although I have heard people say that it is similar to this idea. I dislike the flat tax because it unfairly impacts larger families (although I am sure the population nazis would love that).

    But in general, why on earth do we maintain this system? It's not efficent, not effective, and benefits no one except politicans wanting to play social engineering!
  • Comment removed based on user account deletion
  • ...reciprocity [webster.com], the legal tenet that says each state, being part of the United States, is obliged to respect the rights and laws espoused by the other states in The Republic. Which is why your driver's license is valid in all 50 states and the territories. This includes taxation for the purposes of interstate commerce - exemptions can (and have been) made in the past, but it requires the agreement of all 50 states. And it is also possible to recoup these sales taxes in certain cases [salestaxadvisors.com].

  • A Simpler Method (Score:3, Interesting)

    by InterGuru ( 50986 ) <interguru@@@gmail...com> on Thursday December 22, 2005 @01:41PM (#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.
  • Unfortunately Congress is just ignorant enough about how the internet works to pass a bill that will have a devastating affect on Ecommerce. They'll figure it out eventually but only after the damage is done. Most small businesses will have to ignore the law or simply go out of business. Many of the businesses are working on tight margins and given shipping costs are often offset by the lack of a sales tax they simply won't be viable. The convience is nice but there's always risk ordering off-line. If the c
  • Set up a nice simple webpage/web service that you can enter your values into and it'll tell you what you owe, and distribute it to the right people. That way, rather than you having to pay to every state you ship to, you only have one point of contact...

    I mean, if they're going to take more of your cash, they can at least make it easy for you...
  • I work for a company that has offices in all 50 states plus DC, and the hassel to collect the correct tax location is nearly impossible. We can get it right for about 97-98% but after that you hope the agents that have local knowledge or the default will be close (IE you "eat" a liitle on every transactions)

    First you need is good address validation software, so the county can be determined. Then you need tax software on top of that, that understands the where the tax lines are drawn.

    Example: There are "sp

  • simplicity, please (Score:3, Interesting)

    by MattW ( 97290 ) <matt@ender.com> on Thursday December 22, 2005 @01:48PM (#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.
  • Why do we need states? Why do we need fifty separate miniature countries, each with its own tax system? We bitch about how complicated the EU is, for godssake.

    The union of independent states was important for the original thirteen colonies, each of which was its own little fiefdom/nation, and damned jealous of their power.

    Why not put 50 units of government out of business? What good is the division doing us? From what I see, I see business playing the states against each other, reducing wages and getting ta

  • Unconstitutional (Score:4, Informative)

    by Guppy06 ( 410832 ) on Thursday December 22, 2005 @01:51PM (#14320032)
    "As proposed, businesses would be required to collect sales taxes and send them to the state the purchase was shipped to."
    No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States(.)
    Congress can let them tax ecommerce, but the proceeds can't go into state coffers.

  • Civil Disobedience... (Score:5, Interesting)

    by PortHaven ( 242123 ) on Thursday December 22, 2005 @02:08PM (#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.

  • Taxation Without Representation? (Score:3, Insightful)

    by DanielMarkham ( 765899 ) * on Thursday December 22, 2005 @02:40PM (#14320709) Homepage
    Couple points:

    1) If somebody comes to my online business hosted in CT from New York, why would I have to pay NY taxes? I have no representatives in New York, I am not a citizen of New York, and my business is not incorporated in New York. We have no New York offices or interests, save being taxed. How then, would I have recourse to adjust my taxation from New York? Move there? Payoff a politician from there? Seriously, how is it that a state in which I have no connection with able to impose it's legislative will on me? And if it is allowed to do so, where does it stop? Can they apply extra taxes to out-of-state purchases to allow for more in-state businesses? Tax certain businesses but not others? States are notorious for adjusting their tax systems to have some sort of social impact. Should CA be changing economic conditions in TX?

    2) Somebody is going to start doing the math on this one. If I buy big ticket items, it would probably be best to tranship them to a tax free entity (Canada? NH?), deliver them there, then continue shipping to the original destination. For anything with a tax over 30 bucks or so (and a small item) it would be cheaper. (And for those of you who say it would be illegal, please see #1. Illegal where?)

    Town Attacked By Giant Snowman (on my blog) [news2lose.com]

  • eww (Score:3, Interesting)

    by kisrael ( 134664 ) on Thursday December 22, 2005 @03:33PM (#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.

  • Read their lips (Score:3, Insightful)

    by RomulusNR ( 29439 ) on Thursday December 22, 2005 @04:06PM (#14321817) Homepage
    Remember when Republicans eschewed taxes as an undue punishment on trade and wealth? Remember when the Republican Party was committed to cutting taxes? And now a fully Republican/conservative US government wants to implement what would be the biggest tax since excise tax?

    Do parties even mean anything anymore?

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