Should online purchases by subject to sales taxes?
Since a 1992 U.S. Supreme Court ruling (Quill v North Dakota) online sales have largely been exempt for state sales taxes. In Quill, SCOTUS ruled that sellers did not have to collect sales taxes unless they had a physical presence in the home state of the buyer.
Consumers in many states, including New Jersey, are required to pay the sales taxes on online purchases themselves. Few do and few states do anything to enforce the tax.
In 1992 online sales were not such a big deal. However 20 years later, America makes $200 billion per year in online retail purchases and states are losing out on $23 billion in sales tax revenue, according to a Washington Post report.
Large “brick and motar” retailers complain that the online exemption creates a pricing disadvantage for them and a cost, as consumers shop for items in their show rooms but then purchase items online at the lower price, often from smart phones while still in the retail show room.
Local retailer Vic Scudiery, owner Hazlet electronics seller IEI and the former Chairman of the Monmouth County Democratic Party, has long held that the state is losing out by not taxing online sales. Scudiery told MMM that IEI’s monthly sales tax paid to New Jersey was over $20 thousand before the majority of its sales shifted from store visits to the Internet. Now, Scudiery says his store generates less than $8000 per month in sales tax for New Jersey while overall revenues continue to grow.
Mega online retailer Amazon had long been opposed to collecting sales taxes, in part because the process of collecting and reporting sales taxes for thousand of jurisdictions is too cumbersome and confusing. But Amazon has abandoned that argument as it has changed its business model. As the company aggressively opening new distribution centers in many states, including New Jersey, to reduce the time and cost of its shipping of consumer products, it is cutting deals with states that would allow it avoid collecting sales tax for a year or two and get state income tax credits if they build and hire. In New Jersey, Amazon will build two huge distribution centers, create 1500 jobs. The company will start collecting New Jersey’s 7% sales tax from Jersey residents in July of next year under a voluntary agreement with the Christie administration.
NetChoice, a trade association lobbyist, who’s members clients include eBay, facebook, Overstock.com and Internet wine sellers, are continuing to fight sales taxes based on the complicated and cumbersome argument.
Bi-partisan federal legislation, The Marketplace Equality Act, would authorize states to collect sales tax from online retailers shipping products into their jurisdictions and require, that if the states choice to impose that tax collection on retailers, that they simplify the process and, in some circumstances, provide software to the sellers that would calculate the appropriate tax.
Republican governors, lead by Gov. Chris Christie, have dropped their long term opposition to taxing online sales and endorsed the Marketplace Equality Act, according to the Wall Street Journal.
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And why is it a bad thing that the government collected $23 billion less in taxes? Why is it bad that that money was left in the private sector? Why not write the article to read that “the lack of a sales tax saved consumers $23 billion”, making them better able to afford their homes, and living expenses, and college tuition, etc., etc., etc? Why is it almost uniformly considered superior for the government to have the money instead of the people?
And why is it a bad thing that the government collected $23 billion less in taxes?
Jordan,
I didn’t say it was a bad as thing. I reported what is happening, the arguments pro and con, and the proposed federal legislation.
But I do see some problems with the status quo, especially with online retail sales growing while brick and motar sales are declining.
1) Online sales are subject to sales tax. Taxpayers are supposed to be reporting their purchases and voluntarily submitting the tax as part of their annual income tax return. Few do. The current system encourages cheating. Pretty much guarantees cheating. If there was no cheating, there would be no $23 billion lost.
2) The current system penalizes brick and motar retailers, who are also property tax payers.
Cheaters go to the retail stores to view and evaluate a product and then purchase it online.
If we are going to continue to tax retail sales, such taxation should be equitable. I would favor expanding the base to include online retailers and lowering the tax rates. Not that I expect that to happen.
I work with a guy that just bought a new truck. He paid for that truck in cash and it cost him about $40,000.
He lives in New Jersey. His sister lives in New Hampshire, a state that has no income tax and no sales tax. He traded in his NJ drivers license for a NH license. He bought the truck at a dealership in New Hampshire instead of buying it from a New Jersey car dealer. He saved $2,800 in sales tax that New Jersey would have charged him. His truck now has NH plates on it. He also pays less to insure that vehicle than he would if he used his New Jersey address.
New Jersey lost out on sales tax revenue because its sales tax is unreasonable. A New Jersey car dealership lost a $40,000 sale because state taxes are too high. I congratulate my co-worker. Don’t feed the beast. Avoid paying the sales tax whenever possible.
So thanks to Chris Christie, I am paying more in tolls and soon I will be paying more in sales taxes. Some conservative this guy turned out to be.
Along the lines of what “Cheat” says… I know a fella who bought a $160,000 new car a few years ago, and who paid 7% sales tax on it. That fella got tired of the car and sold it. Another fella paid about $110,000 for the same car and also paid 7% sales tax, for the same car, that had already been taxed. I then went on to buy that car a year later… paid my 7% sales tax for it too. Between the previous two owners and myself, over $25,000 in sales taxes paid, on the same car. Enough to buy a new Toyota Camry, which would have been a job for a few auto-workers in Georgetown, Ky., and Lafayette, Ind. All not to mention that the previous owner paid a $74 fee (tax) to register the car with the state of NJ **for 1 year**, then when I bought the car, later in the same year, you guessed it, $74+ to register the car… that was already registered for the year. The other guy didn’t get a pro-rated refund for his unused part of the year.
Regarding Vic’s complaint about his retail store, despite his D-association I’ve tried to shop in his store a few times. His store doesn’t offer me reviews from previous buyers like Amazon, his sales staff aren’t as knowledge as the endless internet resources of Amazon and often the box is all of the info one can get. His hours aren’t 24/7 like Amazon which doesn’t work well with my shopping schedule and his location/parking is not ideal for parking my nice car (see above) not to mention, I just don’t want to put some of the things I’m likely to buy on my nice leather seats, and well Vic doesn’t offer me free two-day shipping on every purchase, nor does he make good, personal shopping recommendations to me when I walk in the door or send me emails when the price drops on an item I’ve been eye-balling. In fact, I don’t think he even has a “Wish List” like feature to his store plus I’ve tried to send my mom to IEI to buy something for me and she always came home with the wrong parts but with Amazon I just send her a link, she orders and it’s the right thing, every time. Not to mention that Vic always seems to have last week’s model, not the shiny new model that just went on sale this week and he’s not even going to carry the new model until those old clunkers sell to some sucker, like my mom, who doesn’t know they are buying last week’s story (reviews would help, see)… Should I continue or is my point made that, for me, B&M retail electronics stores stink?
Just as the newspaper/TV media industries need to figure out how to operate in modern, technology driven times, so do the retail stores. Vic and other Ds begging the state to tax consumers into their favor is just another way for Democratics to spread their message of tax tax tax. Five other states get by with no sales taxes, our neighbor to the south being one of them, and business seems to be doing well down in Delaware.
Actually the consumer is required to pay the sales tax even if the vendor does not collect it. To not pay the tax is a crime.
Tthat being said I will buy my books somewhere other then Amazon once they start collecting sales tax.
This is the first step or inroad toward government regulation of the Internet.
Mark the date, and say goodbye to The WorldWide WildWest Web.
Once again, this is the government is trying to save a shrinking industry – brick and mortar stores. This is the free market at work. Online businesses are able to operate at a lower cost (in most cases) than a brick and mortar store. This cost advantage is passed on to the consumer. Also, some consumers prefer the convenience of shopping at home.
There are consumers who prefer to shop at a brick and mortar store. These stores need to modify their strategies to attract more shoppers. Take Best Buy for example. Their new strategy is to scale down their stores in terms of size, number of stores and product offerings (less overhead) and to increase on-line sales. They are doing this to maintain market share and survive. This is the free market at work.
Is it up to government to save brick and mortar stores like the did with GM? Perhaps another bailout is needed?
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