The Seattle Times editorial board joins the unimaginative chorus of “responsible” politicians and business leaders calling for closing the “Internet sales-tax loophole.”
With the rise of Internet purchases, what used to be a small leak of should-be tax revenues has become a hemorrhage. A state Department of Revenue spokesman said about $794 million in state and local use tax goes unpaid every year. The Washington Legislature should plug the hole by changing a law so the state can become a full member of the multistate Streamlined Sales Tax project. Twenty-one states are participating so far, and about 1,000 retailers have agreed to collect sales taxes.
Yes, this loss of revenue is a huge problem which will only get worse as more commerce shifts to the Internet. And no, I’ve got absolutely nothing against forcing buyers to pay use tax on mail-order purchases.
But the system the Times is supporting would be an absolute disaster to hundreds of thousands of small business people nationwide, essentially making interstate commerce the exclusive realm of only the largest corporations.
I founded and operated a small mom-and-pop software company where the vast majority of our product shipped out of state. About $30,000 a year of that business, and the bulk of my profits, came in the form of individual sales of $50 or less, shipped directly to households in every state in the union. Had I not been able to sell direct to my customers, I couldn’t have stayed in business as long as I did. Had I been forced to file quarterly returns in every goddamn state with a sales tax, I couldn’t have afforded to sell direct.
The accounting burden imposed by the Times’ preferred solution is simply too great for truly small businesses to bear, and makes no workable provision for small businesses like mine. There were some states to which I might sell only a handful of units a year; tell me, how can I afford to file quarterly taxes — even a return with nothing due — over a stinking $14.95 upgrade? And the alternative, forcing us into the maws of some third-party fulfillment and/or tax accounting service would eat up too big a chunk of the revenues to make such small mail-order and Internet businesses worthwhile.
I never would have started my business had this burden been in place. This is a proposal that crushes innovation and entrepreneurship, and discourages the creation of home-based, Internet businesses.
And it completely ignores the real problem.
The real problem is not that WA residents aren’t paying sales tax. The problem is that WA state and local governments rely too heavily on sales taxes to produce revenues.
If WA had a balanced tax system that included an income tax, this would be a much less dire issue. But instead of addressing the real problem and responsibly talking about tax restructuring, our politicians and our state’s paper of record prefer to fiddle around the edges of our broken tax system, willfully oblivious to the unintended consequences of their actions. It’s not that most small Internet businesses don’t want to charge their customers sales tax — it’s that we simply can’t afford to turn ourselves into fulltime tax collecters.
We need bold action on tax restructuring, not cowardly avoidance of the real issues at hand.
Again, I want to emphasize that I’m not against states collecting sales tax on interstate sales at the point of delivery. I’m against forcing small businesses to shoulder the burden of the tax collection.
You want an innovative solution? How about this. Force the credit card companies to collect the sales tax, and have the state pay them a commission for their service. This would be the most efficient and reliable means of handling interstate sales tax… and the most fair.
Must you use the word stadia? You can say stadiums – they are equally correct.
It wouldn’t be so bad if this weren’t a hangout for degenerate Internet hoodla.
This should be a simple fix, but stupid people screwed it up. The “sale” takes place at the point of origin, not at the delivery destination.
As I keystroked that, it occurred to me the the Uniform Commercial Code has “stuff” on these issues, but my foggy memory can’t recall the material.
I think there may also be some complexities caused by the drop-ship operations in which the seller in WA directs a producer or distributor in CA to deliver product in OR (and all similar scenarios). It may take a state vs. state case before the US Supreme Court & they could land upon an easy definition that the sale closes in the state of the seller. Finis.
I don’t think you’ve done your homework on this, David. The issue you highlight was identified long ago and dealt with. Check out the Streamlined Sales Tax Project web site, especially the executive summary. You’ll find that one of the major activities of the project has been to make it extremely simple and low cost for businesses to collect and remit sales taxes to all jurisdictions nationwide, by outsourcing the collection, remittance, and reporting to Certified Service Providers. The coordination of definitions of taxable items and the establishment of consistent rules (such as the sourcing rule, so that the tax is paid at the point of delivery) were necessary to make this centralized system work.
Also note that while revenue is a portion of the motivation, another major motivation is protecting brick-and-mortar retailers within a state from competition from out-of-state sellers who are currently able to make tax-free sales and thereby have an automatic price advantage of as much as 9.2% (and still have a significant advantage even after shipping and handling is included).
whl, the states that collect sales tax would never agree to a sourcing rule that said the tax is collected based on the location of the seller. That would result in ALL online sales (be they catalogs, direct mail, web sites, whatever) moving to states without sales taxes, both to give a competitive advantage and to save administration costs. The result would be even larger loss of revenue to the states and more damage to local brick-and-mortar merchants. The only fair, workable rule is for the tax to apply at the point where the buyer takes possession of the goods.
Income tax for WA? No thanks!
Geez Goldy, you sould like a conservative. I knew you’d come around sooner or later.
So, lessee…when someone in California orders something from a Delaware corporation with its executive offices in Seattle, it’s processed through servers in Chicago and the goods are shipped from a warehouse in Utah, and the proceeds go into a bank in New York…where is the tax due? Betcha that whatever public lip service is being paid towards “streamlining”, you’ll still get a different answer from politicians in each of the states involved.
Toby @5,
With all due respect, I don’t think you and your former colleagues understand what a truly small business is, and how much it is going to cost us to comply with this proposal. I still have to collect the tax, I still have to do all the extra accounting, and I still have to submit it to a CSP… and forgive me if I lack the confidence that in its final form, I won’t be charged a fee for the privilege of outsourcing.
You are creating a wonderful market for a new business of Certified Service Providers… and my concern is that mom-and-pop shops like mine are going to pay for it. I could barely make a profit as it was.
Having been in the intellectual property business, the most infuriating thing was not the pirating, but how the entire market is set up so that the people who actually create the product are the last ones to be compensated. The last thing I want or need is another gatekeeper taking a piece of the pie. That’s the whole point of the Internet, to be able to reach my customers directly, and reap the benefits… not provide a cash cow for some government mandated CSP.
A small business is not a company with 99 employees. It’s a grandmother hand-knitting sweaters and selling them online. Or an artisan candlemaker. Or a mom-and-pop software company that never intended to get rich, but instead had a dream of making a decent middle-class living off a product no big software company thought was worth the investment.
But regardless, this is nothing but a bandaid on an antiquated tax structure that needs major restructuring, and as such is little more than a diversion from the debate we really need to have.
Isn’t it rather presumputuous of the The Seattle Times to pronounce on the state sales tax when their product is exempt? Let’s close the loophole further and impose the state sales tax on the customers of newspapers among others. Californians pay a state sales tax on their newspaper purchases.
Since most of the state legislatures are controlled by Democrats, David, if you lack confidence that the costs of processing sales through a CSP are actually going to be paid by the states as the SSTP agreement requires, you can take it up with your brethren. I represented the state House of Representatives on DOR’s SSTP advisory committee, and I’m confident that the commitment to making it work and not imposing these costs on small sellers is actually there.
So what do you think of SB 5150? Does it accomplish the reform you wish? If it’s such a good idea, why does it not have even one co-sponsor (not even Ken Jacobsen, and not even Adam Kline), and why is it moldering on the shelf and not scheduled for a hearing nearly two weeks after introduction? Is the third rail still energized?
Toby @12,
I would feel more assured if the enabling legislation absolutely required that the entire cost of tax collection be borne by the states. But regardless, you are still creating an accounting nightmare for the average very small business.
As to SB 5150, yes, of course… the third rail is still energized. But that’s a self-fulfilling prophesy. Sen. Franklin doesn’t expect the bill to pass. All she wants to do is start sparking some debate so that the public can eventually be educated as to the real issues involved.
I’m not shy about criticizing the Democrats on this. I think they are cowards when it comes to this issue.
Goldy at #10, “With all due respect, I don’t think you and your former colleagues understand what a truly small business is”
Do I see a light going on here? It’s refreshing to see a liberal begin to comprehend the difficulties small businesses face everywhere in the face of governmental restrictions.
Welcome to the other side.
Goldy,
How did you handle the taxes for the folks from WA that purchased your product? You collected those correct and thus reported them. What was the accounting overhead for doing this? Would a solution to this be a flat tax on any Internet purchases no matter of the buyers/receivers location and the taxes be remitted to the State the business is located in. Of course issues arise around those states that don’t have sales taxes so they do not have the tools for that (I assume), but this would be equitable for all and probably a nice revenue stream for those States that don’t have a sales tax. I would expect Oregon would like the revenue to spend on something.
As for a State income tax, not thanks. Maybe the WA Leg can learn to live within it’s means and actually prioritize and make hard decisions around what is needed and what is wanted…I know I can keep dreaming.
Well , I collect the sales tax for Wash state , I collect $15-20 of state sales tax a fiscal quarter . My sales descriptions says Wn. buyers must pay the sales tax . My sales went down from wash state residents , when I insisted on them paying the sales tax.
It takes a few hours of my small business time to collect , record and remit sales tax revenues to the state every quarter . I will quit if I am forced to collect taxes for all of the states that demand a sales tax . Small business’ have always had an unfair burden of the responsibility for collecting sales tax in this state , Just another anti-business aspect of Wash. state .
About 1% of my internet sales are instate , probably less
Right on, this state has needed an income tax for a long time. The sales tax is regressive and puts a greater burden on people who can least afford it. An income tax would be much more progressive. People need to top the reflexive rejection of the idea and take the time to learn just a little about how it works.
Bill @14,
In your black and white world, apparently one can’t be a liberal and understand the needs of small business. Welcome to the real world.
This wouldn’t be an issue if government reimbursed b business for the costs of collecting taxes. Collecting taxes is a cost of generating revenue, so why shouldn’t government bear that cost? Forcing businesses to collect taxes for government without compensation is itself a tax.
If you made Amazon’s customers pay Washington sales tax on everything they sell, Amazon would leave Seattle in an eye blink. They wouldn’t move far; only across the river to Portland.
@10 “how the entire market is set up so that the people who actually create the product are the last ones to be compensated”
Hell, Goldy, it works that way with everything — artists, writers, manufacturing, service industries …
goldy writes at #19, “In your black and white world, apparently one can’t be a liberal and understand the needs of small business. Welcome to the real world.”
If you’re a liberal and begin to understand the needs of small business, or business in general, you won’t be a liberal for long.
I’ve got a small internet business too, and we sell our products throughout the U.S., Canada, and we even have a few overseas sales. My hosting/merchant card processing program collects sales tax only on Washington State purchases.
I’m on annual reporting to the Dept. of Revenue, so once a year I download a spreadsheet showing all my sales, sort by state, and then add up the sales tax collected from Washington customers. When I fill out my Combined Excise Tax return, I report my total income, but I get to deduct “out-of-state sales”. I pay sales tax and B&O tax on only the sales to Washington state customers. It’s not much – by far most of my sales take place out-of-state.
Now, I kindof feel bad that most of my sales don’t generate any revenue for the State of Washington. But I didn’t set up this crazy system, they did. And Washington benefits when I take the profits out of my business and spend the money, thereby generating at least some sales tax.
But what if I have to program my system for a different tax rate for each locality? What tax rate would I use – each city might have a different rate. Now I just use the rate for where my business is located, in Everett. But if I’m taxing people based upon where the customer lives, that’s quite another thing.
I would probably close down the whole thing rather than try to handle any sort of interstate sales taxes. It’s just not worth the extra work for a few hundred dollars a month in profit.
I agree with Goldy. This just shows how the sales tax system (and especially the B&O tax) is truly antiquated when it applies to modern commerce. It’s time to do away with it and adopt a state income tax.
@15 “As for a State income tax, not thanks. Maybe the WA Leg can learn to live within it’s means and actually prioritize and make hard decisions around what is needed and what is wanted…I know I can keep dreaming.”
Yes, you’re dreaming. Wingnuts like you either think we should get government services for less than cost, or we don’t need government at all. Would you ask a business to sell its products for less than cost? How about if we just abolish business? That way, you don’t have to spend any money on anything. Funny how wingnuts have no problem with expecting customers to pay when they’re in the business of selling something, but expect government to do everything free.
The whole point of the income tax vs. sales tax/B&O tax argument, dipshit, is that our existing 19th century patchwork Rube Goldberg tax system taxes those least able to pay.
Bill at 23: Wrong conclusion. Try again.
@23 “If you’re a liberal and begin to understand the needs of small business, or business in general, you won’t be a liberal for long.”
Wanna bet?
Better watch out for that Bill guy there, Goldy. He’ll take a beating, thump his chest and declare victory. You’ll be sorry then!
23
As a co-owner of a small business, I have not found myself becoming more conservative. Not even close. Your conclusion, like any conservative conclusion, skips analysis. You start with an opinion, then draw your conclusion from the opinion. Facts, as always with conservatives, play no role in your thinking.
Show me “yer killin me” where I’ve taken a “beating” anywhere here from you liberals.
Jeez, show me where you libs even attempt a reasonable debate? Even in this thread the first thing goldy does in response to my tounge in cheek comment is a snotty “in your black and white world” comment. Sometimes I wonder if I’m back in grade school here.
29
That’s because facts have a well-known liberal bias!
Now if I could only learn how to spell “tongue”
My bad.
How does the state know how much money they are losing to internet sales? Are they tracking my purchases? A lot of online sellers (those with a business presence in Washington) charge sales tax for their state on my purchases.
This state desperately needs a state income tax. The burden placed on the poor and the working class is enormous and small business owners have it the worst. Homeowners are also paying a big burden, as are the smokers and drinkers among other sinners!
Bill at 30: The problem is that lots of us here have actually had our own small businesses over time in Washington state, and over time we became more liberal, rather than less so. It may be because our experiences taught us that despite what they say, Republicans don’t favor small business, but instead favor large ones. We realize that its not a level playing field, and that the longer the Republicans are in power, the more sloped it gets in favor of big business.
I have a quarter century of experience of operating a small business, or providing consulting for small businesses, as well as for the past dozen or so years working for (and with) some rather large companies. I may be a “Southern Democrat”, but I would say that over time and with experience, I am becoming more liberal, rather than less so.
Bill said:
“Do I see a light going on here? It’s refreshing to see a liberal begin to comprehend the difficulties small businesses face everywhere in the face of governmental restrictions.”
“Welcome to the other side. “
You were insincere, and it is an exaggeration, but is it witty? Not so much. You could just as well have said that Goldy was stupid, and saved several keystrokes.
Either way, you are regurgitating a tired old lie the Republic party shovels, that being that liberals want to tax small businesses out of existence and spend wildly.
Democrats for at least the past sixteen years have been the fiscally responsible politicians, and all the Republics want to do is give businesses favorable tax treatment at the expense of the middle-class. Why only today, the Bone-head-in-chief is suggesting that those lucky workers who have health insurance should pay taxes on the benefit.
What a guy.
You’d think a successful businessman like him would understand the plight of the worker.
Oh, I forgot, that successful part always gets in the way.
Mr. Nixon displays the ignorance of the Republics in matters of business. They don’t even think of the mon-and-pop business when making up tax policy. A 98 employee contractor was big deal competition to my Dad’s electrical business.
sgmmac at 33: The state knows the total sales of a Washington State based business because the B&O Tax returns require the business to report their total sales. It then has a line which allows them to deduct “Out-of-state” sales. Then they pay taxes (sales & B&O) only on the remaining In-State Sales.
So to come up with the figure of “sales lost”, they only have to take all the deductions for “out-of-state sales”, and add them up.
Trying to add up the “use tax” which Washington residents avoid by buying their products from out-of-state merchants over the internet is a more difficult number to estimate, and much more difficult to enforce.
But assuming that all those non-taxed sales would turn into taxed sales may not be an accurate assumption. People who want to avoid the tax will often do so, perhaps by shopping in Oregon and failing to report or pay the use tax, or deciding not to buy at all if the added tax puts the purchase price beyond their “price point”, or buying it under-the-counter somewhere else.
I do agree that there is a problem when a customer goes to a brick-and-morter retailer and spends a considerable amount of the salesman’s time in deciding exactly which product to purchase, and then leaves the store and goes home to order it over the internet. Sometimes for large-ticket items the sales tax is a motivator, but more often it is simply price competition – the online store doesn’t have to pay for salesmen, displays, or even for a large wherehouse full of inventory. No change in the tax law is going to change those economics.
Sorry sgmmac – no income tax for WA. I do not wish to have to deal with yet ANOTHER government agency prying into my affairs, thanks. Income tax in Wasington would be another chance for government bureacracy to expand, and I don’t support that. Government is already too big in WA.
rhp6033,
They can’t have it both ways. The sales to people out of state are exempt from sales tax, so those are NOT lost sales. That number the state is using is just a wild ass guess.
People shop in Oregon all the time. People in Oregon shop in Washington State. People shop on the internet all the time and pay Washington state tax – places like sears, penny’s. office dept, home depot and hundreds of others. It is convience………… not some burning desire to fuck the state out of taxes.
And then of course, we have eBay!
Libertarian,
Every time I say we need an income tax, you cry about your privacy being invaded.
WHAT ARE YOU TRYING TO HIDE?????????
sgmmac at 38: I agree that the state can’t have it both ways, by taxing transactions twice (once from the business, and once again from the customer). But that’s kind of what Goldy is pointing out, different states have different systems, and some expect a business to collect sales taxes on all sales regardless of location, and others require only the customers who live within the state to be taxed.
Currently we only tax residents who purchase products from elsewhere, requiring them to report for themselves the sales, and to pay a “use tax” which compensates for the loss of the sales tax. But what the state really wants to do is to put some teeth into this, by forcing out-of-state merchants to collect the tax and pay it to Washington State. By implication, Washington would have to agree to do the same – hence the burden on Washington’s small businesses.
But if another state requires their merchants to pay sales taxes based on all sales received from customers (no matter where the customer is located), and Washington requires a sales tax to be collected by the business in that other state and turned over to Washington (where the Customer is located), we have a conflict which could potentially result in double taxation. I agree its not rational, but tax law often isn’t rational, especially when dealing with competing tax systems among the various states. That’s the whole problem.
All teasing aside I really do agree with what goldy is saying here.
I’ve always maintained that I would be in favor of a state income tax if the sales tax were done away with entirely. My fear has always been that an income tax will be sold to the public with an accompaning promise of a reduced sales tax. Then eventually the sales tax would creep back up to present levels and we’d be saddled with an income tax and a sales tax. Not a pleasant thought.
Roger,
So you are calling for no sales tax & B&O tax and only a state income tax? OK, I’ll listen, if the tax less than 10%. Because if you not, shut the fuck up with your hurting those least able to pay shit. Are those least able to pay being taken care of in say California? They pay sales tax of 7%+ and an income tax of at least 1%. So double dipping them, great for them huh.
As for our government, they should pay for things, but should they pay for everything? No ass face. Cut off any benefits to non-citizens, that would save money and then we wouldn’t need to raise taxes as often. How about removing prevailing wage requirements, thus projects cost less. There are two ideas….there are lots and hopefully i-900 will start to show other areas where there is government waste so we can cut it out and not have to tax the shit out of the populace. Then again you can also just send in extra money to the government…nothing stopping you since you want to do more…..
42
Your point is lost in the morass of your butchered grammar. I’ll bet you are an “English only” supporter, yet you can’t even write a clear sentence in the Queen’s tongue. A person who cannot write clearly typically can’t think clearly. You, plainly, can do neither.
sgmmac says: How does the state know how much money they are losing to internet sales? Are they tracking my purchases? A lot of online sellers (those with a business presence in Washington) charge sales tax for their state on my purchases.
Sgm Mac: I went to Fred Meyer one day and asked what do you do with this data. “We track your purchases to know what to offer”. At least in QFC, Safeway and Albertson’s you get a nice discount. Who’s to say where this data goes. If you buy something unique in these bar code card stores where is that data going?
Second, the banks and their “tracking” of your credit card purchase history. Is WA state keeping track of “lost revenue” through bank transmissions to FUWA. Did you read Puget Sound Energy sent out 19K names illegally? Where is our personal purchasing data going? How does FUWA get their $$$ value? http://seattlepi.nwsource.com/.....e22ww.html
Most libtards call increasing $$$ for their pet funds an investment, so I guess you could argue they’re losing investment funds!
rhp6033 says: Bill at 30: The problem is that lots of us here have actually had our own small businesses over time in Washington state, and over time we became more liberal, rather than less so.
Not me. I went conservative long ago. I already described the event here in Goldyland! I hate paying B&O taxes every quarter!
I’m going to ask a question, a legitimate no bullshit question… please act responsibly.
I thought that companies collected tax from states where they PHYSICALLY do business.
Example: Caswell Massey formerly had a retail outlet in Seattle. When purchasing online, WA customers paid tax. Now, since the retail outlet is long gone, WA customers no longer pay that tax. That seems like a fair, non-complicated way of doing things. Why isn’t it?
sgmmac @ 39,
I’m not trying hide anything. I am so honest I make myself sick when it comes to doing my federal income taxes. In fact, I don’t do them myself, as I have a tax preparer do them for me. I’m quite capable of doing the return, but I hate the process. It’s pencil-necked geek work.
I can document every line in the return with a big book of financial data that I prepare. I despise the tax laws as being the most needlessly complicated mess on the planet. It’s a jobs program for accountants and attorneys and a tool for politicians to reward and punish.
I do not wish to have yet another set of stupid, idiotic, and self-serving bureacrats administering a bunch of inane and flightly government tax regulations. Better the Devil that we know than one we don’t. I say let’s stick to what we have in WA now rather than go off the deep end and institute a state income tax.
47: I do my own taxes, but I pick up the tax program at the store each year to help me with the math.
But a state income tax really doesn’t have to be complicated. It can be very simple:
(a) What is your Taxable Income (from line xxxxx on Federal Form 1040, or line yyyyy on 1040A, etc.).
(b) Multiply by the State Tax Rate (whatever rate is decided upon by the legislature).
(c) Total State Income Tax.
(d) Subtract withholding (see line zzzz in Federal W2)
(e) Balance Due (or Refund Owed).
It only gets complicated if the state legislature gives in to temptation to “adjust” the federal taxable income, or to target specific incentives through this tax policy. But with respect to state income taxes, those impulses should be resisted, because simpler is better.