Wednesday, November 30, 2011

Tax Can Be Taxing

Tax and laws created before there was an Internet often can create conflict often between bricks and motor stores and online eretailers however changing the law can often be as hard as collecting the tax.

In the US, sales tax has been a thorny issue between online and physical stores. On one side stands Amazon, eBay and the new breed of online only etailors, who do not have a physical presence in a state and do not have to collect sales tax and on the other, there are those who have physical stores and operations and have to collect taxes. Brick-and-mortar retailers, are claiming that because of their sales tax burden they suffer a competitive disadvantage compared to their online counterparts
States are prohibited from taxing a person with whom it lacks a relationship between the taxing authority and the taxpayer. Some 19 years ago, the Supreme Court held that, at least for purposes of collecting sales tax, ‘ a state lacks substantial nexus over a taxpayer that has no physical presence in the state.’ It was the courts view, uncertainty about what jurisdiction has power to tax, as well as compliance with numerous and difficult tax policies, would place an undue burden on interstate commerce.

The current hearing was set up to explore whether Congress should reform the sales tax legislation and to understand how this could be done so that it does not increase administrative and compliance burdens on America’s small businesses.

Currently 45 US states and the District of Columbia have a sales tax and also a “use” tax, equal to the sales tax rate, which residents must pay for the usage, consumption or storage of goods purchased in a non-resident state and brought into the state. A consumer in Florida who buys goods online from a retailer that does not have any physical presence in the state is responsible to pay use tax and pays no sales tax on his transaction. This is achieved by taxpayers declaring their purchases in other states. Obviously this is a significant tax loophole and as a result online purchases invariably escape taxation altogether.

Three separate bills have been tabled to address the situation and Amazon testified before the hearing to put forward their case.

Paul Misener, vice president, Amazon global public policy, today made a testimony in which they fully backed the need for change. Misner stated that, ‘Far from an e-commerce "loophole,” the constitutional limitation on states’ authority to collect sales tax is at the core of our Nation's founding principles. For this reason, Amazon has steadfastly opposed state attempts to require out-of-state sellers to collect absent congressional authorization…’

He continued, ‘ Fairness among sellers should be created and maintained. Sellers should compete on a level playing field. Congress should not exempt too many sellers from collection, for these sellers will obtain a lasting un-level playing field versus Main Street and other retailers. Congress should rectify the current imbalance and avoid a future imbalance…’

Amazon recognised the need for a small sellers threshold, ‘Such a threshold, which would exempt some sellers from a collection requirement, must be kept very low to attain the objectives of protecting states’ rights, addressing the states’ needs, and creating fairness among sellers…The consequences of the threshold level to states’ rights, the states’ needs, and fairness are very significant, because a surprisingly large fraction of e-commerce is conducted by smaller volume sellers. For example, nearly 30% of uncollected sales tax revenue today is attributable to sellers with annual online sales below $150,000, and only one percent of online sellers sell more than this amount. In other words, a $150,000 exception would deny the states nearly 30% of the newly-available (yet already owed) revenue, but would exempt from collection 99% of online sellers. Any higher threshold would deny the states even more revenue and keep the playing field even more un-level.’

But they ten took a swipe at eBay saying that , ‘while Amazon is prepared to make its technology available as a service to help sellers by collecting sales tax for them, eBay seeks to avoid any role in collection, claiming that small volume sellers will be burdened and, implicitly, that eBay’s technology is not capable of helping its largest sellers to collect. And these claims are made despite the fact that eBay manages to collect the transaction fees it charges its sellers, and despite the fact that eBay already calculates state sales tax for eBay sellers, all the way down to the local jurisdiction level. Amazon and many other service providers will help smaller online sellers collect; surely eBay can as well.’

So change looks imminent which would take the pressure off Amazon having to fight many state battles and give them consistency across states.

Amazon Press Release
Link to watch 2 hours 30 mins of the hearing

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