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Democrats Push for Internet Sales Taxes (cnet.com)
27 points by ojbyrne 1387 days ago | comments


codingthewheel 1387 days ago | link

As a freelance developer who sells software and services on the side, I can say this would hurt. Badly.

First, the clerical and administrative requirements. It's tough enough to set up e-commerce as it is without also having to track purchases by whatever state's perverse and Byzantine tax infrastructure. My God. But let's assume the payment gateways handled this at their end. Fine.

Next: the $$$. I don't know about you, but I'm not a good enough marketer (or developer) to overcome yet another 10% vig on my productivity. I already get to keep less than 50% of what I earn. If margins are razor thin at the equilibrium price point without taxes, then the addition of taxes simply causes business to fail. Not everybody's margins are this thin, but small businesses often are. And that's who this bill would ultimately hurt.

Not to mention geolocation issues. We already can't say with any certainty where a particular IP address hails from. Oh we can get it 80% of the time. But proxies, dynamic IPs, mobile connections, cloud the issue. What happens if you're actually in California, but your cellphone is talking to a relay in Nevada, and you live in Texas, but you're buying a product from a company based in Florida, but of course the actual product's not in Florida, it's at the warehouse in Missouri. The last person in the world I trust to make sense out of this is a politician, or a politician's trained IT monkey.

Ranting aside though, I don't see any way to change this. The government will have its due, and there's a notion of "implicit collusion" among corporations: which is that incrementally and over time, competition can be squashed by raising the barriers to entry through taxation and regulation.

The Internet threw a screwdriver into the gearworks, but rest assured, they'll get you my pretty. And your little dog, too.

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MichaelSalib 1386 days ago | link

Next: the $$$. I don't know about you, but I'm not a good enough marketer (or developer) to overcome yet another 10% vig on my productivity.

Is this a general principle that you're willing to defend? I mean, there are many marginal businesses that are not viable right now but that could be viable if they didn't have to pay taxes. Do you believe that all of these businesses should be forgiven from having to pay taxes?

Not to mention geolocation issues.

The article seemed to speak entirely about physical goods. And when you're talking about physical goods, it seems that geolocation issues aren't really a big deal: just tax based on the delivery state.

competition can be squashed by raising the barriers to entry through taxation and regulation.

That's one way to look at it. Alternatively, one might simply say that freeloading is bad and that internet retail allows some people to unfairly reduce their tax rates without a corresponding reduction in their use of state services. So, if young upper middle class folks buy lots of stuff on the internet and save $500 of sales tax every year, then the fact that they've come up with a clever way to screw over their fellow (older, not-so-upper-middle-class citizens) isn't really a sufficient justification for the state to preserve their little racket.

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yummyfajitas 1386 days ago | link

Is this a general principle that you're willing to defend?

I imagine (not being the original poster) that the general principle is that the benefits of increased government revenue should be weighed against the cost (to businesses and consumers) of increased taxation.

So yes, if the current level of taxation is preventing the creation of many new businesses, we probably should reduce taxes.

By the way, purchasing an item from another state uses very little in the way of state services, far less than purchasing from local retailers.

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MichaelSalib 1386 days ago | link

I imagine (not being the original poster) that the general principle is that the benefits of increased government revenue should be weighed against the cost (to businesses and consumers) of increased taxation.

But we're talking about a situation where people used new technology to avoid paying taxes. This seems very different from a world in which the government introduced a radical new sales tax.

purchasing an item from another state uses very little in the way of state services, far less than purchasing from local retailers

Do you have a cite for this claim?

I see sales tax as an implicit headcount tax: everyone needs to buy a certain amount of stuff every year to live so everyone ends up contributing a minimal amount to the state government. If one group of people manage to get their stuff without paying sales tax, that's a problem because their usage of state services hasn't decreased significantly: they still send their kids to school, they still use libraries and parks, they still benefit from state courts and prisons and environmental regulators.

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yummyfajitas 1386 days ago | link

I don't have a cite for my claim that out of state purchases uses less state services, but I do believe it is pretty obvious. My reasoning:

An in-state retailer uses police/fire protection for the entire time the item is sitting on the shelf, local roads to move the item to the store, police/fire protection at the production site if the item was made in-state, and assorted local regulatory services depending on the specific business (e.g., health inspectors).

An out of state retailer only uses local roads as the item is shipped to the customer.

I don't see any plausible way that an out of state retailer could use anything remotely close to the same amount of state services as an in state retailer.

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MichaelSalib 1386 days ago | link

I do believe it is pretty obvious.

Your analysis ignores the fact that in-state retailers pay property taxes, income taxes, user fees, and employ people within the state who in turn pay taxes.

If you convert the traditional cost-benefit analysis into a cost analysis, then you can prove that literally anything is a bad idea. But that's not a serious way to argue a point.

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ericd 1386 days ago | link

I believe property taxes make up much of the school, etc. budgets in most states.

Sales tax might have once been a convenient way to tax people by locale, but it meshes poorly with the internet. If there must be a per-sale tax on internet goods, it should probably be a new type of tax which reflects the fact that the internet isn't related to geography. If anything, it should be a flat tax.

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MichaelSalib 1386 days ago | link

I believe property taxes make up much of the school, etc. budgets in most states.

Yes, however: (1) property taxes do not fund the entire school budget in most states and (2) states spend money on a great deal more than just schools.

If anything, it should be a flat tax.

Um, isn't sales tax already a flat tax? It sounds like you're describing the simplified internet sales tax agreement mentioned in the article...is that true?

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ericd 1386 days ago | link

Sales tax is a flat tax within a state, but it's wildly variable from state to state - Delaware has none, Maryland has ~6%, NY has over 8%. I think a percentage agreed upon by all states is probably the agreement they mentioned, but I don't think they had enough detail to confirm it.

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tzs 1386 days ago | link

"And when you're talking about physical goods, it seems that geolocation issues aren't really a big deal: just tax based on the delivery state."

Would it just be the state tax rate you have to worry about, or would it also include local taxes?

I'm in the state of Washington, and we have to collect sales tax on sales to Washington customers. The tax has to include local taxes. We've got a table from the state giving the rates for each location in the state.

There are 1.6 million rows in the table. The key is a thing called the "location", which is a state-assigned number. Fortunately, it turns out no zip+4 spans a location boundary, so we can use zip+4 to determine the rate. If the state's locations ever end up not being a superset of zip+4 places, then we'd have to go by the full address.

There is another huge table available from the state that lists every single address in the state and gives what location it is in. Of course, people don't always give their addresses in the canonical form that state uses. E.g., someone on "Martin Luther King Blvd" might enter "MLK Blvd", "ML King Blvd", and so on. Or they might say "st" instead of "blvd".

I'm sure a sufficiently clever and determined programmer could come up with heuristics to deal with that. E.g., if the state doesn't have an MLK street but does have MLK blvd, then it could guess that's what the user meant. If there are both, it might tell by street numbers if the ranges don't overlap, and of course there's a good chance those two roads would not be in the same zip code. So it is probably a tractable problem, but a pain in the ass that I sure don't want to deal with.

Now imagine having to do all this for all 50 states. Ugh.

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MichaelSalib 1386 days ago | link

Now imagine having to do all this for all 50 states. Ugh.

Looking at the Streamlined Sales Tax Project, it doesn't seem very hard at all. It seems like you don't have to bother with any tables yourself; you just connect to a service provider to calculate the tax for you.

http://en.wikipedia.org/wiki/Streamlined_Sales_Tax_Project

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avalara 1386 days ago | link

Pointing out Avalara's avatax. Solutions to this problem are not quite as expensive as you point out.

http://www.avalara.com/Sales-Tax-Web-Services

But still a cost, and taxation is still a vile form of theft.

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MichaelSalib 1386 days ago | link

taxation is still a vile form of theft.

Indeed, and that's why I long for the business paradise of Somalia, where no one ever has to pay any taxes.

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yummyfajitas 1386 days ago | link

...Somalia, where no one ever has to pay any taxes.

Wrong.

http://allafrica.com/stories/201004190409.html

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MichaelSalib 1386 days ago | link

If you think that I'm not aware of the fact that warlords and terrorists extract protection money from anyone they can, then, um, you're very confused.

The larger point should be clear to everyone though: people with money always end up paying a portion of it to those with power. If they're lucky, they pay a small portion that is used to benefit them in a democratic society. If they're not so lucky, the money is extorted to fund warlords and terrorists and they get nothing in return. The inability to differentiate these two scenarios is a principal indicator of political and economic ignorance.

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yummyfajitas 1386 days ago | link

If you think that I'm not aware of the fact that warlords and terrorists extract protection money from anyone they can, then, um, you're very confused.

Silly me. I interpreted "[...] Somalia, where no one ever has to pay any taxes" as indicating a belief that in Somalia, no one ever has to pay any taxes.

We all post in ignorance. Just say "oops, my mistake". You won't be kicked off HN for making a mistake, I would have been gone long ago if pg did that.

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_delirium 1386 days ago | link

I think the point is that those aren't taxes; those are fees demanded by private-sector entities. That's what tends to happen in anarcho-capitalism: without a government wielding ultimate power, private-sector entities with sufficient power can demand payments with offers you might find difficult to refuse.

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rbranson 1386 days ago | link

"by avalara 3 minutes ago"

Nice job with the advertising.

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mudil 1387 days ago | link

Ronald Reagan liked to describe the sequence of actions that government typically takes toward private business:

"If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it."

http://online.wsj.com/article/SB1000142405274870457530457529...

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_delirium 1387 days ago | link

Does this comment add anything to the topic under discussion, or is it just a general "I hate taxes and love Ronald Reagan" political jab? Do we really want DailyKos-quality political discussion here?

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mudil 1386 days ago | link

The comment is what exactly happens when gov't sticks its nose into private enterprise. It is true regardless who says it.

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_delirium 1386 days ago | link

Isn't it kind of boring to just copy and paste a generic anti-tax quote, though, with the only relationship being that this is a discussion involving taxes? I could copy-and-paste some generic pro-government quote from JFK or something, but it wouldn't be too useful either.

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harold 1386 days ago | link

"Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government."

– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964

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mudil 1386 days ago | link

The quote is dealing exactly with the problem we are witnessing. Internet is a vibrant bazaar of ideas and products and services. It runs: so they will tax it. Stage one is being negotiated. Probably not in our lifetime, but in our children's, the third stage will be accomplished.

P.S. Please I want to see a quote from JFK or even Obama Himself on why it is good to strap an industry. But best place to find a quote like that would be in the Lenin Library.

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_delirium 1387 days ago | link

It does make some sense to me to rationalize it somehow, though not necessarily in this direction. It seems somewhat strange that if I sell stuff to people near me, sales tax is collected, but if I sell stuff to people far from me, sales tax isn't collected--- leads to perverse incentives against buying things that are already near you, and instead encouraging you to buy exactly the same thing from somewhere else where it has to be shipped to you.

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Aaronontheweb 1386 days ago | link

Generally speaking, it's just best to keep government out of the economy where you can - if you give them an inch when it comes to taxation, they're going to take a mile. The state and federal government(s) of the United States do not have an income problem - they have a spending problem. New taxes aren't the answer.

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itistoday 1387 days ago | link

Yes, but how does this apply to intangible goods and services? I hope they're not planning on taxing that.

It also seems like something that would be very difficult to implement and enforce, you know, considering the whole no-boundaries thing.

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_delirium 1387 days ago | link

It's mostly the physical goods that seems the most wasteful to me, so I'd be happy to limit it to that. The way we currently have it set up, stuff gets cross-shipped: there are stockpiles of widgets in both A and B, but due to the sales tax weirdness, the person in A orders theirs from B, and the person in B orders theirs from A, resulting in things being flown back and forth across the country for no real reason. It also ends up being somewhat regressive, because well-off people buying expensive things are much more likely to order them off the internet than poor people buying cheaper things are--- so poor people pay their local sales tax, and well-off people avoid it.

It's also logistically a bit easier to do it with physical goods, because you're necessarily shipping to an actual address.

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mudil 1387 days ago | link

You hope? You really hope for gov't to restraint itself? Good luck with that!

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MichaelSalib 1386 days ago | link

Sure. There is plenty of historical evidence to believe that restraint is likely. Top marginal tax rates have declined significantly over the last half century.

If you believe that the government cannot restrain itself, I think you'll have difficulty accounting for that basic historical fact.

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jquery 1386 days ago | link

You say that governments restrain themselves and then say to look at history. When I look at history, I see a massive graveyard of failed states and empires. Even the surviving, "successful" states have had long, unpredictable periods of tyranny and suffering.

Therefore I am concerned about government growth and encroachment, because it takes decades and the blood of heroes to recover lost freedoms, and by then I'll be old or dead. Better to be concerned now and look foolish than to dismiss concerns and be proven naive.

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_delirium 1386 days ago | link

I guess to me, tax rates are really low on the list of concerns. If someone's agitating over free speech, over unreasonable searches and seizures, etc., then I'll support them, but whether taxes are 5 or 10% this way or the other way just doesn't seem to be that big an issue to me. It's not a totally unimportant issue, but I wouldn't put it in my top-20.

The only way I could really see tax rates being a top-tier freedom issue is as a restraint on government: the Grover Norquist theory that low taxes starves the government of the ability to do things, so in turn reduces spending and government involvement in everyone's lives. But I haven't seen that over decades. We lowered taxes in the 1980s, and that didn't stop government spending from more than doubling in that decade. We lowered taxes again in the 1990s and 2000s, so the government couldn't afford to invade Iraq or Afghanistan, and we invaded both anyway, borrowing money we didn't have to spend on the invasion (and we're still spending money we don't have on both), and then we spent more money we didn't have on bailouts in late 2008. Basically it seems over at least 70-80 years or so, tax revenue hasn't really been a meaningful constraint on spending.

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jquery 1386 days ago | link

> I guess to me, tax rates are really low on the list of concerns. If someone's agitating over free speech, over unreasonable searches and seizures, etc., then I'll support them, but whether taxes are 5 or 10% this way or the other way just doesn't seem to be that big an issue to me. It's not a totally unimportant issue, but I wouldn't put it in my top-20.

I take tax-rates much more seriously. Taxes are a direct line to slavery--obviously a 100% tax rate would be complete slavery. My current 1/3 tax rate makes me 1/3 slave--maybe a fair trade for being 2/3 free, but a trade nonetheless. Unfortunately, as you succinctly pointed out, tax rates of late have had little relation to spending, but in the long-term input = output, so as a young individual I see taxes and spending as two sides of the same coin.

To the extent our government has shown restraint, I think that is due to people making their concerns known and visible, as well as some good old fashioned American luck. Politicians will tend to acquire as much power as the people let them.

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MichaelSalib 1386 days ago | link

Better to be concerned now and look foolish than to dismiss concerns and be proven naive.

What exactly does concern accomplish? Shouldn't you be "concerned" about space aliens invading Earth? Shouldn't you be concerned that your neighbor is a witch who has put a hex on you? I mean, it would much better to be "concerned" about that dire threat than to merely look foolish for ignoring it, right?

This rhetoric about "concern" troubles me because it comes from nowhere. It is not based on a factual analysis about the growth of government power in recent history; it is just ahistorical venting of misplaced anxiety.

The fact of the matter is that in the US, top marginal tax rates have declined significantly over the last half century. Government control of industrial policy has declined radically. Government commissions used to literally set prices for all kinds of goods. Airlines couldn't set their own routes and schedules while banks couldn't open branches in adjacent states. Now, all those regulations are not only gone but considered quaint and absurd. Does any of that history ameliorate your "concern" at all? Or is your concern resistant to facts?

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jquery 1386 days ago | link

> What exactly does concern accomplish? Shouldn't you be "concerned" about space aliens invading Earth?

To have my concerns about governmental encroachment on freedoms put on the same level as space aliens does put us on a different planet, philosophically.

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itistoday 1386 days ago | link

Did you skip your civics classes? What do you think gives you permission to say that? Did you forget that the government is run by elected officials?

The entire Bill of Rights is an example of government restraining itself. The Constitution is an example of that.

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drblast 1386 days ago | link

Nothing gives him permission to say that; the U.S. was founded on the idea that you don't need anyone's permission to do things that don't harm other people. It's an inalienable right; you can't take it away.

Our entire short history is a narrative of how the government erodes the Constitution and that basic idea at every opportunity. Hardly a model of restraint.

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itistoday 1386 days ago | link

"Nothing gives him permission to say that"

Let's not nit-pick, it's an exercise in futility. By permission I meant he's not going to be killed or tossed in jail for saying that, that should be obvious.

"Our entire short history is a narrative of how the government erodes the Constitution and that basic idea at every opportunity"

Selective memory? Let's just forget all the examples where basic rights have been expanded to people. How about the restraint shown when women won the right to vote? Or when black people became officially recognized as people? It was in fact the government that enforced these laws and sent in military personnel to protect black kids from the angry white masses during desegregation.

It has rules and procedures in place on what each branch of government can and cannot do. Etc. Sometimes they break these rules, yes, but that's getting back into the same nit-picking of whether mudil had "permission" to speak his mind. For the most part these rules are followed, and for the most part when they're broken there are consequences.

The government created laws and amendments that clearly demonstrated restraint. How could it do this? Because our government, while imperfect, isn't (yet at least) completely in the hands of some aristocracy, and it has over the years both limited and expanded its powers.

"The Government" is also not an individual entity with a single consciousness that's out to get you. It's a synecdoche that refers to a large group of _elected_ officials. If there's something wrong, the entire country shares the blame.

To view it through a monochromatic lens is to ignore history and to be cynical for cynicism's sake.

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kungfooey 1387 days ago | link

The title is somewhat misleading. It's not really a new tax, just a different interpretation/application of an existing tax. I do love how these bills always come under such monikers as the "Main Street Fairness Act."

Lack of regulation is one part of what makes internet-based commerce so great. I wonder if services (ie: Basecamp, git, etc) would fall under the sales tax, further complicating the legal landscape of 'net based tools.

In the state of Tennessee, software development services that I render to local companies is already taxable under a 10% "use" tax (the state has no income tax, and developing software is considered creating something of 'use,' therefore, taxable).

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r0s 1387 days ago | link

"online retailers should be forced to collect the same taxes that brick-and-mortar retailers do."

Pretty sure all retailers are exempt from tax on out-of-state sales. But don't let that stop the money grab.

I'm personally more concerned with closing tax loopholes for the largest businesses and allocating funds from wasteful programs (DHS).

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MichaelSalib 1387 days ago | link

Pretty sure all retailers are exempt from tax on out-of-state sales.

I don't think this is true in most states. If I as a resident of MA buy something from a company in CA, the company doesn't have to collect the tax and pay it to MA, but I am still responsible for doing that.

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steadicat 1386 days ago | link

You are responsible for doing that for Internet purchases as well. See orev's comment above:

Everyone is required to pay sales tax for purchases made over the Internet, there's just no way for the states to enforce it. That's why most state tax forms now ask you what purchases you've made online so they can add that into the tax. If you don't answer this question truthfully, then your liable for tax evasion.

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whyenot 1386 days ago | link

I think it's more of a "Greek tax" -- you are supposed to pay it, but almost nobody does. The current system is pretty unfair to local retails. I recently bought a new camera. My local camera store, Keeble and Schuchat, had it for $819. Amazon.com had it for $819. Santa Clara County sales tax adds an extra $75. How many people are choosing Amazon over a local retailer in that kind of situation -- I bet a lot do.

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r0s 1386 days ago | link

Well that's interesting. I can't help but think internet businesses have been spurred by this lax enforcement.

So the real question is should they continue to enjoy this oversight.

I suppose the eventual taxation of all online commerce is inevitable.

Seems to me that if the present conditions continued, eventually tax would be forwarded to carriers(UPS,FedEx,USPS). Maybe this is pessimistic but I see all online purchases being charged sales tax in the future. Of course, the bureaucrats will have to set up some system for that, which will take years if not decades.

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MichaelSalib 1386 days ago | link

Isn't that exactly what I said?

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SkyMarshal 1386 days ago | link

What's ridiculous is that the financial industry just extorted a trillion dollars out of the US Government, and now instead of increasing taxes on the industry that makes money by moving money around, the government is looking to squeeze productive enterprises to make up some of the shortfall.

There's absolutely no justification for even having this discussion in Congress. Can we please have our Ghandi-esque civil disobedience revolt now?

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petercooper 1386 days ago | link

Scrap sales taxes and replace them with a single, national synchronized VAT. Say 10%. Sure, sure, it'll never happen because hundreds of thousands of people make their living out of taxes being complicated and screwing every one of you over, but hey, I'm a utopian.

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jboydyhacker 1386 days ago | link

Why do you believe a VAT is less complicated than a sales tax. If the issue is conformity across jurisdictions, a 10% VAT made uniform us just as easy to do as making all sales tax 10%. And a Vat is far more complicated to collect since it has to be assessed at every stage of production.

In addition, a VAT discourages domestic production since it is not assessed on foreign production, only U.S. production and "value added" is taxed which is horrible if you want to promote U.S. manufacturing.

A sales tax is far better than a VAT. We don't need to copy Europe in every single way do we?

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kqr2 1386 days ago | link

Some states, such as California, already have a use tax. Although they cannot directly tax out of state businesses, they can push that burden onto its residents.

You are supposed to track all out of state purchases and pay the tax when you file your normal income tax.

In fact, software such as Turbo Tax, will automatically prompt you for it.

http://www.boe.ca.gov/sutax/faqusetax.htm

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CRASCH 1386 days ago | link

I hope if they must implement this that they turn it on its head.

The sale would take place in the state that the seller is located in, not the buyer. At the very least it would be less work. One state tax code to deal with instead of 50. The bonus is that most online retailers already have to collect tax for in state purchases.

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abalashov 1386 days ago | link

What state is the "seller" located in, in the case of an online store? :-)

Is "location" defined by the jurisdiction where an incorporated entity of some description is registered? Or where the business owner maintains residence? What if there are multiple owners; then, which one? Is it about where the servers are hosted?

All these attributes can be moved around; I live in Georgia but can register my corporation in Delaware. I can host my servers in Norway. And so on...

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orev 1386 days ago | link

The article (or at least the headline) frames this politically and that makes the author (or editor) a bad journalist. Everyone is required to pay sales tax for purchases made over the Internet, there's just no way for the states to enforce it. That's why most state tax forms now ask you what purchases you've made online so they can add that into the tax. If you don't answer this question truthfully, then your liable for tax evasion.

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DanielBMarkham 1386 days ago | link

The saddest part about this story is going to be the people who will rationalize it, even though if it were 4 years ago and the opposite party, they would be raising hell.

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dublinclontarf 1386 days ago | link

Would this not simply mean that even more business would move outside the US? OK for physical good's that won't happen but SaaS, why not relocate to ... Ireland or even better, Iceland (I know for a fact tax in Ireland is much lower, not sure about Iceland, that's an assumption based on something I vaguely remember reading).

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TerminalDummy 1386 days ago | link

Why does my own party make me hate them more, and more, and more ?

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sabat 1386 days ago | link

My thoughts exactly.

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[deleted]
MichaelSalib 1386 days ago | link

When last I looked, MA did not have a significantly higher taxes than other comparable states. Do you have a cite showing otherwise?

I mean, MA certainly has higher tax rates than some undeveloped backwoods rural states that have little intellectual or human capital to speak of. But it is precisely because MA has real human capital that companies like ITA Software reside there rather than in lower tax states like Mississippi.

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