Ever since I got online back in the 1980s, I’ve wondered how in the heck anybody would make money off the Internet, especially after the advent of the World Wide Web (except porn and gambling sites). Well, Facebook is still trying to figure that one out …
Now I hear that Congress may, again, try to force users to pay taxes for online purchases. Even Republican governor Chris Christie is in favor of collecting taxes in New Jersey — Mark Zuckerberg’s old stompin’ grounds. The Wall Street Journal shares the happy news in “Tax Break Nears End For Online Shoppers: Republican Governors, in Need of Revenue, Drop Opposition,” writing that “Mr. Christie called taxation of online sales ‘an important issue to all the nation’s governors’ and endorsed federal legislation giving all states taxing authority.” [Update at end of post.]
From the WSJ story:
Republican governors, eager for new revenue to ease budget strains, are dropping their longtime opposition to imposing sales taxes on online purchases, a significant political shift that could soon bring an end to tax-free sales on the Internet.
Conservative governors, joining their Democratic counterparts, have been making deals with online retail giant Amazon.com AMZN +7.87% to collect state sales taxes. The movement picked up an important ally when New Jersey Gov. Chris Christie—widely mentioned as a potential vice-presidential candidate—recently reached an agreement under which Amazon would collect sales taxes on his state’s online purchases in exchange for locating distribution facilities there.
“Having one of the most recognized and widely popular Republican leaders take this position gives other politicians comfort that the online sales tax is fair and helps state budgets in crisis,” said Scott Mason, a vice president at Lowe’s Cos. The retailer says it has a 5% to 10% price disadvantage compared with online rivals, with some customers using its stores to pick products and then ordering them online to avoid sales tax.
The move toward taxing online sales has broad implications. Online shopping will become more expensive for consumers. Brick-and-mortar retailers won’t have the price disadvantage they now have compared with online sellers. Strapped states suddenly could be flush with $23 billion in new annual revenue, according to the National Conference of State Legislatures.
The newfound support among Republicans is a dramatic change from just a few months ago. In February, at the Republican Governors Association meeting in Washington, one agenda item was online sales taxes. The reaction was decidedly cool, with Louisiana Gov. Bobby Jindal worried that the effort sounded like a new tax, according to two attendees. Mr. Jindal’s office didn’t return a call seeking comment.
There’s also a WSJ video featuring Christie.
Hell’s bells. The taxmen are going to get us come hell or high water. Well, since we’re getting screwed, let’s just lie back and enjoy it. Well, of course we shouldn’t! Or should we?
Update: There’s also the “can of worms” problem.
Internet-exclusive sale of goods is in its infancy, yet already there are tens of thousands of such companies, all of which employ growing numbers of employees.
If all 50 states are permitted to charge taxes for online purchases, what is to stop counties and cities, even towns, from making the same demand?
So, you ask? I happen to know the president and vice president of a small but thriving company (hereafter “U.S. Exclusives) that sells 98% of its manufactured goods via the Internet. It’s neither here nor there, but this company is the last of its kind to exclusively manufacture all goods in the U.S., rather than China (yet ships its products to China). U.S. Exclusives is small, with around 14-16 employees, all of whom receive health care insurance, paid vacations, and other benefits.
Here’s the rub: The executives of U.S. Exclusives told me that, if every county and city passes laws requiring this company to pay its taxes, the cost of dedicated tax software (subject to constant updates as more and more government entities pass tax requirements) as well as the extra employees needed to verify and maintain the software will be highly significant.
There will be an inevitable loss of customers although how many is difficult to predict.
Then there’s the remarkable cost in man-hours, paper, envelopes, printers (and cartridges), and postage (!) required to mail out the tax payments, each of which will be due by dates unique to each town, city, and county in all 50 states.
Further, how will this small company become informed about the passage of each town, city, and county’s taxes — and any upward revisions? The cost of the specialized software — if it is even able to track so many government entities — will skyrocket.
The executives of U.S. Exclusives are plagued by an issue that many executives would ignore: They are honest, to a fault. They are unfortunately serious and sincere people who operate with already high standards of ethical behavior towards their employees and their customers. It would never occur to them to refuse to “forget” to charge their customers for each one’s relevant taxes.
And, because U.S. Exclusives sells a significant percentage of its products around the world (name the country, they’ve shipped products to its citizens). Futher, let’s not get into the prospect of other nations charging taxes or the nightmarish possibility that each state and region of each country might add their own taxes.
A mammoth company like Amazon can perhaps absorb the costs, but will inevitably have to raise its prices to pay for the costs I’ve listed above. But what chance does a small company have to honestly accommodate the taxes?