I work as a sales tax auditor and I am always amused by these lawyers that love to talk in the courts.
These guys aren't even aware of how badly the current nexus statues are being abused. The current trend I've seen is companies move abroad (usually to south america or the Caribbean) and then ship goods into the USA to all 50 states. All sales are routed through this entity and thus since it is a foreign entity they are not required to collect any sales tax at all. This actual entity is most likely just a letter box company as well.
For the actual shipment of goods they have another company that acts as a drop shipper. Most states have exemption rules that make drop shipment transactions exempt from sales tax collection which gets abused since the duty to collect falls to the foreign entity but the foreign entity has no duty to collect either. Also due to these exemption rules, this structure is 100% defensible in court as well!
If they need sales agents in the state then they use a network of "authorized distributors" to do the soliciting. If you audit one of these authorized distributors then all of them have the same defense: we do not own or ship the goods being sold. We simply act as a sales agent (and only collect a commission). If you want to do the audit you need to go to the company that owns the products which of course is the foreign entity which does not have nexus.
See how elaborate this stuff gets? To make matters worse, the use tax is rarely paid by small consumers since it is way too complex to comply with and to be frank the odds of you getting personally audited for sales tax are pretty much 0% unless you are a high net worth person. It is no surprise that the companies that setup these elaborate schemes often sell the majority of their goods to small individual consumers rather than big companies. They know that consumers will "shop the sales tax" and look for sellers who don't charge it and thus the sales tax dodgers end up getting rewarded with more sales.
Also for everyone else, you might not see this as an issue but what often happens is when revenue start to decline then the politicians either have to cut services or more likely what they do is raise rates for other taxes. The only people who benefit are those who buy from the companies and don't pay use tax.
The idea that a state is entitled to some cut of a purchase just because the purchaser lives in the state is absurd to me. If I can walk across state lines and buy something in a brick-and-mortar store and be charged that state's sales tax, why should I be taxed according to my own state's sales tax if I instead buy something online that's physically located in another state? Or, to make it less "techy", if I order something over the phone or by mail order, why should my state feel they deserve a cut of that?
I think it makes more sense for all purchases to be taxed at the rate where the seller resides, regardless of where the buyer is. So if I live in CA and buy something from a seller in NJ, I pay NJ tax, to NJ, even if the seller has no presence in CA. This has what I consider to be the nice effect of making this detail a part of the reason why you might want to move your operations to a particular state. State governments can offer businesses incentives to move/stay in-state if they do have a higher sales tax rate: they can offer other tax breaks to a company that will allow them to reduce prices so they can remain competitive, or states can just lower sales taxes to be more competitive. I'm not 100% sold on that latter bit, since I like the idea of taxing consumption (encourages saving and/or investment), but I like some of its other properties. This does get more complicated when a business has a presence in multiple states, but I'm sure someone can figure that out[0].
I don't find your argument about sellers moving out of the country to be persuasive. That sort of thing can be fixed with shipping taxes and/or import duties. If states or the US aren't implementing those sorts of things, that's the thing that should be fixed.
[0] Note that I'm looking at all this from the perspective of a "user" of the system. I don't know or care how complicated it is to implement by businesses or the states (as long as the complexity is limited such that compliance doesn't add undue costs); what I do care about is what seems fair and reasonable to purchasers who are subject to the taxes.
> but what often happens is when revenue start to decline then the politicians either have to cut services or more likely what they do is raise rates for other taxes.
I don't see that as an issue. Raising rates for other taxes is a perfectly reasonable action to take to keep state revenue stable and predictable. This is already a problem with sales taxes: recessions and booms affect sales taxes in ways that require states to adjust budget already.
States would get into a race to the bottom in for this effect, which is not what the states wants to do with its own tax collection. That would basically be pulling the amazon tax bargaining with every single state for every single sales tax.
I'm all for it, but that system is likely to not survive.
Corporate income taxes by state would seem to deny a race to the bottom. Very few (6?) have no corporate income tax and not all business are located in those states.
While states like business there, they also like taxes. Not allowing them to tax out of state sales would seem to be a good brake on their greed.
Is it on consumption or production + transfer? If I continually consume something that I've always had, I'm not paying recurring sales tax. But if I produce something new and sell it, I am, making the GP's point more sound.
It's obvious that this does get abused by some sellers.
It's also obvious that states don't have the authority to enforce their sales tax law on out-of-state sellers. Their options are either to switch to a tax structure that they are capable of enforcing or to lobby the federal government to regulate the collection of sales tax by out-of-state sellers.
But how do they receive the credit card payments? What company is the one that actually receives the credit card payments from the consumer? Is it the "authorized distributors"? Or is the bank account that receives the CC payment linked to the parent company? It seems that states could go after the location that actually receives the credit card payment (if it's not a Caribbean corporation).
I’m pretty sure this is already the case everywhere, but enforcement is impossible unless you already have some other registration requirement (like cars or boats) that lets the state know you’ve acquired something.
If you really have this information have you submitted it to the IRS? You would get a percentage of the taxes they retrieve if you actually have credible and specific information.
Sales and use taxes are purely creatures of state or local law.in the US, excluding a few specialized federal taxes on products like alcohol and gasoline. The federal IRS has nothing to do with that. And if the structure is defensible in court, neither would the many state or local tax authorities.
Sales tax seems like it's just obsolete (and it's regressive, to boot). They should just make up any shortfall via property tax or income tax, rather than clinging to this thing they can no longer control.
They're not stealing from you, it's what's been decided by our elected representatives. You're free to try to elect people who agree that taxation is theft (you won't be the only one).
Or you can always move to a state that already agreed with you and tries to minimize your tax burden.
>the use tax is rarely paid by small consumers since it is way too complex to comply with
How so? From my understanding, all you have to do is add up all your purchases that did not have sales tax charged and multiply by the sales tax percentage.
If the government really wanted to fix it, all they have to do is slap a 50% penalty on unpaid use tax, and audit the crap out of everyone. Since it's all recorded on credit card statements, it's very easy to prove. At least it seems like that to me on the surface, but I'd love to know why that solution isn't possible.
In most states you can't just add up everything you bought online all year and multiply, because there are different sales taxes for different categories of goods, and some items in an order might be exempt or taxed at special rates, while others aren't. So you need to at least group the items into the different categories.
For example, when I lived in Atlanta, there were four categories. Some items were exempt from sales/use tax entirely. Others were exempt from the statewide component of sales/use tax, but still subject to local option tax (groceries were in this category, so they were taxed at 2.2% or something like that). Most of the remaining items were subject to the regular statewide and local-option taxes. Finally, a handful of things (like cigarettes) had an additional excise tax added on top. To make matters worse, you pretty much need a database to determine which items go into which category; the rules around what counts as "prepared food" (fully taxed) vs. "groceries" (partially taxed) aren't entirely intuitive. Another example is that in many states (but not GA), textbooks are sales-tax-exempt, but other books aren't, so if you order from an online bookstore, you need to treat those separately when computing your use tax. The value of the individual items can also make a difference: individual clothing items under $110 are tax-exempt in NY, while those over $110 are taxable.
> How so? From my understanding, all you have to do is add up all your purchases that did not have sales tax charged and multiply by the sales tax percentage.
You seriously keep receipts for every purchase you made online for the past 12 months and spend the time to add it up for your 1040? You honestly don't just check the box that says, "Meh, it was like $1,000 or so," and they take $20 or whatever?
I don't, and I also don't really purchase anything from a vendor that doesn't already charge sales tax, but I guess it could be a problem for businesses. But it is the law, and enforcing it would probably bring about solutions.
"when revenue start to decline then the politicians either have to cut services or more likely what they do is raise rates for other taxes"
This is something Americans will never get. There is a political obsession with lowering taxes. The only thing that keeps the US from crashing is US Treasury bonds.
These guys aren't even aware of how badly the current nexus statues are being abused. The current trend I've seen is companies move abroad (usually to south america or the Caribbean) and then ship goods into the USA to all 50 states. All sales are routed through this entity and thus since it is a foreign entity they are not required to collect any sales tax at all. This actual entity is most likely just a letter box company as well.
For the actual shipment of goods they have another company that acts as a drop shipper. Most states have exemption rules that make drop shipment transactions exempt from sales tax collection which gets abused since the duty to collect falls to the foreign entity but the foreign entity has no duty to collect either. Also due to these exemption rules, this structure is 100% defensible in court as well!
If they need sales agents in the state then they use a network of "authorized distributors" to do the soliciting. If you audit one of these authorized distributors then all of them have the same defense: we do not own or ship the goods being sold. We simply act as a sales agent (and only collect a commission). If you want to do the audit you need to go to the company that owns the products which of course is the foreign entity which does not have nexus.
See how elaborate this stuff gets? To make matters worse, the use tax is rarely paid by small consumers since it is way too complex to comply with and to be frank the odds of you getting personally audited for sales tax are pretty much 0% unless you are a high net worth person. It is no surprise that the companies that setup these elaborate schemes often sell the majority of their goods to small individual consumers rather than big companies. They know that consumers will "shop the sales tax" and look for sellers who don't charge it and thus the sales tax dodgers end up getting rewarded with more sales.
Also for everyone else, you might not see this as an issue but what often happens is when revenue start to decline then the politicians either have to cut services or more likely what they do is raise rates for other taxes. The only people who benefit are those who buy from the companies and don't pay use tax.