back to article US House okays making internet tax exemptions permanent

The US House of Representatives has approved a bill that will permanently bar states from collecting taxes on internet sales. The House on Friday gave its approval for HR 644, a trade bill that has been amended to include a permanent renewal of the Internet Tax Freedom Act. Part of the Trade Facilitation and Enforcement Act of …

  1. tom dial Silver badge

    Good for them in the sales tax matter. While I have sympathy for the operators of brick and mortar stores, it seems unreasonable to tax a company that has no physical presence to provide an implicit subsidy for local businesses. The states can collect taxes, and do, from the delivery services, so are not entirely deprived of income from interstate sales, and they can collect taxes from those internet businesses based in state, like in Utah from Overstock.com).

    1. Anonymous Coward
      Anonymous Coward

      "The states can collect taxes, and do, from the delivery services..."

      But which state(s) get(s) the service taxes from the carriers? The origin? The destination? Anywhere in between? Suppose a delivery point is made in a state with no B&M presence because it's carried from another state or (I know DHL and UPS do this for some of their services) because they turn it over to the Post Office for the final leg?

      1. tom dial Silver badge

        The states (and cities) where they have a physical presence, in the form of corporate taxes, fuel taxes, vehicle taxes and the like. Many states also collect employee personal income and other taxes from their residents. There is no scarcity of taxes.

        What taxes the USPS pays is a matter that states could raise with the federal government through their congressional delegations.

        1. Charles 9 Silver badge

          "What taxes the USPS pays is a matter that states could raise with the federal government through their congressional delegations."

          As a federal bureau, the USPS usually cannot be taxed except by the federal government. All Post Offices are officially US Government property (thus why state and local police cannot normally police a post office, the feds see to that themselves) so become exempt from state property taxes. I think refueling is usually done on-site with the fuel obtained by a federal supply chain so again the states don't get fuel taxes. As federal employees, state income taxes are questionable (depends on the laws), so state revenues from post offices are limited (the same is true of military installations and other federally-owned property).

          1. tom dial Silver badge

            What local taxes the USPS pays is a matter of law that the Congress can change.

            Whether federal employees or postal employees (a slightly different category) pay state income taxes depends entirely on the state laws. As a federal employee I was subject to income taxation by the US, the state of Ohio, Cleveland city (work location) and Lakewood city (residence). Active duty military pay may be exempt or partly exempt from income tax in some states; that also is a state option.

    2. a_yank_lurker Silver badge

      To me the sales tax was more about the states losing tax revenue. Amazon did two things very well. They basically put a catalog based business online with sharp discounts. Its the price combined with reasonably fast delivery that makes Amazon formidable. The discounts are often larger the sales tax

      Another problem for bricks and mortars in the US is retail space is overbuilt, there is more retail space available than can successfully filled. Amazon started with this was becoming a major problem and many retailers did not adjust to the changes. And that failed since Amazon failed mostly because of their own incompetence than because Amazon drove them out of business.

    3. td97402

      Totally Skewed Outlook!

      "it seems unreasonable to tax a company that has no physical presence to provide an implicit subsidy for local businesses"

      Really?!?!

      Look at it from this perspective. I can buy a widget locally and have to pay the price plus the sales tax or I can buy the same widget, at the same price, online but pay no sales tax. I go to the online merchant every time because I have to pay less. The online business is the one getting the tax-free subsidy here.

      1. Eddy Ito

        Re: Totally Skewed Outlook!

        The online business is the one getting the tax-free subsidy here.

        The online business also has to pay shipping at a per piece rate. The brick an mortar store pays shipping on a container or full trailer rate. If the brick and mortar store had to pay UPS, Fedex, etc. piece rates for everything then yes it would be a fair comparison but they don't. You get a rather nice break on shipping when a semi pulls up around back and disgorges its entire contents and the small franchise shops get the benefit of splitting that semi with others of the same shop in the area. Unfortunately it's often the small mom & pop operations that suffer because they aren't getting large shipments and don't get to split the cost of a truck with another business.

        One of the problems the larger chains face is themselves. The last time I went to Wally World was to buy a Wii Fit balance board accessory as a gift, which tells you how long ago it was, and after researching the price online I went down to the local Wally World and found the price for the unit on the shelf was higher. Ah, but they match online prices I thought but that proved wrong. If it was a competitors price they would have matched it. Since it was their own online price, they wouldn't match it but was told I could order it online and have it delivered to the very same store for pickup and it would probably only take a few hours for "delivery". Gobsmacked because I knew I'd be getting the very item that was on the shelf with the free "delivery" and pick-up at the store in a few hours instead of simply matching their own online price right then was enough for me to drive home and order it from Amazon albeit at a slightly higher price with free delivery to the intended recipients house in a few days. I even asked the sales clerk if management knew silly things like this were driving people to competitors and she chuckled saying that she tells her boss about it at least every other week and more often around the holidays. Sweet kid, I'm glad she wasn't paid on commission and I hope she found a better job.

        1. Anonymous Coward
          Anonymous Coward

          Re: Totally Skewed Outlook!

          The online shipper can usually gets around high shipping costs by cutting deals: clustering their shipments by region, saving the carrier some of the work. Think about how catalog sellers like Sears used to do it. And remember, ship-to-store means B&M sales taxes come into play.

          1. ratfox

            Re: Totally Skewed Outlook!

            What is skewed is that things sold online are technically also taxed. It is the buyer who is supposed to declare what they bought, and pay additional taxes (and of course nobody does that). Because in principle, it is the buyer who pays sales tax, not the business.

            I sympathize with the States. The lack of sales tax imposed on online sales is a true loophole in the principle that they are allowed to tax anything bought by a resident.

            1. Charles 9 Silver badge

              Re: Totally Skewed Outlook!

              "I sympathize with the States. The lack of sales tax imposed on online sales is a true loophole in the principle that they are allowed to tax anything bought by a resident."

              Ah, but here's the rub. The buyer normally pays B&M sales tax at the vendor's state. If a Virginian heads to DC on a trip and buys something in DC proper, he pays the DC sales tax (which is higher than Virginia's). So now ask, where is the buyer officially buying the goods? At the seller's state or at the buyer's state? How was this resolved back in the catalog-and-telephone days?

              1. Anonymous Coward
                Anonymous Coward

                Re: Totally Skewed Outlook!

                If you are physically somewhere, you pay that location's sales tax. Many states have local sales taxes, so you might pay less tax a few miles away.

                In my and other states, there is "use tax", which means that for out-of-state purchases on items that you bring back into the state, you must pay _at least_ your local tax rate in total taxes. If taxes paid in the other state are greater than your taxes you don't owe use tax. Generally that would just apply to _state_ taxes.

    4. Anonymous Coward
      Anonymous Coward

      No, not good for them. It's the House, which means that the majority hates any tax that isn't paying for the military or for their local pork. Since the majority hates tax, they'll vote for anything that involves reducing taxes, irrespective of any logic. The reason they can do this stupid, impractical grandstanding is that their stupid, impractical grandstanding doesn't get past the Senate or veto. And it's totally stupid and impractical, because it essentially breaks the system of taxation. Take two states A and B. Imagine everybody in state A buys online from B, everybody in B buys online from A, then no-one pays any sales tax. Stupid and impractical.

      The annoying thing is that technically speaking determining how much sales tax to charge is really easy:

      - Item has item type

      - Item has cost

      - Address has tax locations

      - Tax location has tax office

      - Item type + location has rate

      - Sum( item.cost x rate( item.item_type, address.location ) )

      - Update look-up information periodically.

      - Package look-up database for easy mirroring.

      - Provide web service for use by small businesses.

      - Provide web service for payment of taxes.

      There's already a national address database.

      Businesses already have to encode items for sales tax.

      The major effort would be in agreeing common tax coding.

      1. Anonymous Coward
        Anonymous Coward

        It could have been defined that the seller is responsible for paying sales tax in the recipient's locale. It would be no different to opening one store in each of the 50 states. And it could be simplified with a central brokerage scheme.

        1. Charles 9 Silver badge

          No state can enforce interstate commerce because the Constitution (via the Interstate Commerce Clause found in Article I) explicitly makes it a federal matter (which also means the Tenth Amendment can't be used as it's an enumerated power). And the feds aren't interested in helping the states in this matter because it means giving away power, so they're basically SOL unless they can push a compelling case before Congress. And who runs such a brokerage? A private firm would gain power that can corrupt it, and too many people distrust the government to get it done right, either.

    5. Ian Michael Gumby

      @Tom No, this is bad, really bad.

      First, the trend is to shop online, less at local retailers. So this means less tax revenue.

      Second, companies are taxed in state if they have a business presence.

      This gets confusing if a store has an Amazon site, but fulfills the orders directly themselves. Who's responsible for collecting the Tax? (Hint: Amazon could do this with very little effort.)

      Amazon will still have Red and Green States... ones where they pay taxes because they have warehouses and ones where they don't and won't offer any local services so that they don't get caught in the tax issue.

      In terms of paying state taxes... Its very easy, trivial actually, for the government to set up a web service that will tell you the percentage of tax owed by a ship to address. Of course buying online may still be cheaper than buying something down the street due to city taxes if they offer free shipping.

      The US doesn't have any concept of VAT other than sales tax. So there's no pressure on over consumption.

      1. Charles 9 Silver badge

        Re: @Tom No, this is bad, really bad.

        Not so easy. Taxes have three or four tiers (federal, state, county/region, and usually municipal), and these tiers usually don't talk to each other. And even within each tier, taxes may be assessed differently for different things. Take Virginia. Each locality has a different tobacco tax on top of the state sales tax, then you get areas that charge an additional tax for hot-served food, there's confusion over whether or not energy drink count as grocery or merchandise (merchandise has twice the tax rate), and then there's the sales tax exemption for medicine and the tax holiday in August for school supplies. And all it takes to change these again is for a legislature to pass another Act or a city council to pass an Ordinance.

        AND the federal government is notoriously inefficient. So do you still believe keeping track of such a complicated tax structure (which is necessarily complicated because the country is complicated) can be "trivially" done?

  2. redneck

    USE tax

    Some states, like CA and TX, have a USE tax. Eg, if no sales tax is applied to the purchase by the company, then the individual making the purchase must pay a 'use' tax at the same rate as a sales tax. In Texas, the way to pay the 'use' tax is quite antiquated: print off a form, fill it out, attach a check, and mail it in. It is so onerous that I go out of my way to find a company with a presence in TX so I don't have to pay the use tax.

    But lots of my friends to out of their way to find a company that doesn't pay the sales tax. Of course, they are all tax dodging Repubicans.

    1. a_yank_lurker Silver badge

      Re: USE tax

      Which is largely not paid because it is a pain to deal with.

    2. Anonymous Coward
      Anonymous Coward

      Re: USE tax

      Virginia has it, too, but it's unenforceable unless you're audited and keep receipts.

    3. NotBob

      Re: USE tax

      Then there's the relationship between different taxes. Florida, for instance, does not levy a state income tax (IIRC). That is offset by having a higher sales tax (tax when money is spent instead of when it is earned).

      Diminishing the sales tax capacity will likely eventually lead to higher taxes on income tax instead of sales tax. Some see this as a bad thing.

    4. Anonymous Coward
      Anonymous Coward

      Legal limits

      There are legal limits to what they are allowed to tax in the first place. Th 16th Amendment indicates they may collect taxes on forms of INCOME, but this is not an income.

      Additionally, many Americans do not recognize any government claim to authority over the Internet, so people ignore all claims to taxes.

      1. Charles 9 Silver badge

        Re: Legal limits

        "Additionally, many Americans do not recognize any government claim to authority over the Internet, so people ignore all claims to taxes."

        But the governments and ISPs can counter that the Internet runs on their pipes, airwaves, and sovereign territory. It's like with oil: you have to get it from point A to point B somehow, which means transport is as essential as the commodity itself. And data does have a physical form in the electrons. So like it or not, data that flows through privately-owned cables or through government-regulated airwaves is subject to regulation.

  3. Anonymous Coward
    Anonymous Coward

    Somewhat Irrelevant

    I've given up trying to keep track of who collects sales tax, how much the tax is, and on what. There is a reason why the merchant does this, and while that is mostly so that evasion is reduced, the other part is that every single state, locality, and taxing district seems to have a different idea of what they have sales tax on and what the amount of the sales tax is.

    The argument is that I should pay sales tax on my residence location, which is bogus-- there are no businesses here, I always buy somewhere else (which have 3 different sales tax rates within 20km of each other); if a vendor provides a service at my residence I pay the tax rate of the vendor's location. The politicians want more money, but are unwilling to regularize the sales tax structure.

    Now I just buy online and expect that the seller collects the proper sales tax, whatever that might be. And no, I don't check that the seller remits the sales tax to the proper authorities, I presume they manage that through some kind of vendor (or simply keep the cash, not like I'd be able to find out). (think about that: if I am the only person that buys something online (in a quarter) from a tax district that collects 0.1% sales tax, and my purchase is 20 dollars, is it realistic to expect that seller to do the paperwork to remit 2 cents to that district? How many 2 cent checks would it take for a district to go bankrupt on the check processing fees?)

  4. RikC

    It appears strange to me that a ban on taxing of internet services (the access to) and a ban on tax on sales made via that internet is treated as being one inseperable package?

    1. Anonymous Coward
      Anonymous Coward

      Shhh...

      They were hoping no one noticed.

    2. graeme leggett

      It does seem strange to an outside to conflate two aspects of internet use.

      Now what happens in future if they want to change rules on sales taxes, do they have to repeal the whole act?

      I note the voting was very close - so quite a lot of those voting where not happy with the bill as set out.

      1. Charles 9 Silver badge

        "Now what happens in future if they want to change rules on sales taxes, do they have to repeal the whole act?"

        No, all it takes is another Act to amend any Act that existed before. Happens all the time, such as with the DMCA, which amended the last Copyright Act, which IIRC was about 1995, which in turn amended other Copyright Acts from before.

    3. Suricou Raven

      It's fairly common in politics for unrelated issues to get roped together. Especially in America, as the rules government amendments to bills in the Senate are very lax - it's a very frequent practice to stick an unpopular provision into a law that is overwhelmingly popular. This was not one of these cases though: It's just that whoever wrote it figured that both are internet-related taxes, and that means they should go under one law.

      One of the most famous examples of recent years was a law to block the FCC from enforcing net neutrality regulations - as part of a bill relating to medical benefits for veterans.

      Law and sausages, as the expression goes.

      1. Anonymous Coward
        Anonymous Coward

        I propose...

        A bill to prevent you from being squashed by this piano, suspended by a rope that is being held by my personal masseur.

        PS, figure out what may happen should you decide to fire my staff!

  5. Suricou Raven

    I see a problem:

    What happens when almost all sales are online? How do the states collect any sales tax at all?

    Perhaps this is the idea - many politicians have an ideological opposition to the existence of more than the minimal level of government, and consider it a good tactic to starve the government of funding in order to force the closure of all those social services programs and regulations they decry as communism.

    1. Anonymous Coward
      Anonymous Coward

      Re: I see a problem:

      They collect it where the business is?

      1. DavCrav

        Re: I see a problem:

        "They collect it where the business is?"

        How does that help Oklahoma when all the businesses are in California, etc.?

        1. Charles 9 Silver badge

          Re: I see a problem:

          "How does that help Oklahoma when all the businesses are in California, etc.?"

          Then Oklahoma has to find a way to encourage physical presence, as by law that's the only way Oklahoma can enforce this.

          1. tom dial Silver badge

            Re: I see a problem:

            The citizens of Oklahoma (for example) remain free, through their elected representatives, to tax themselves as they see fit. Additionally, like all other states, they participate in various federal tax revenue sharing programs.

            The ability of states to raise revenue probably will not be affected seriously by this change. Sales taxes are not the only source of state revenues and the part due to internet (or mail order) sales is unlikely to be large.

    2. Charles 9 Silver badge

      Re: I see a problem:

      Any state where the business has a physical presence (like California and New York where Amazon keeps warehouses) can assess sales taxes against that physical presence. Anywhere beyond that is beyond their scope due to the Interstate Commerce Clause, which by default makes cross-border commerce a federal matter. That means things like store pickup (which require a B&M presence) still get taxed.

      1. Emmeran

        Re: I see a problem:

        Nope, dive deeper.

    3. NotBob

      Re: I see a problem:

      many politicians have an ideological opposition to the existence of more than the minimal level of government, and consider it a good tactic to starve the government of funding in order to force the closure of all those social services programs and regulations they decry as communism

      Not sure where you got that.

      The Democrats love spending. They want to increase those "communist" benefits so people get hooked and keep voting for the people who support it.

      The Republicans love spending. They just love spending it on defense, military, and companies they count as "friends."

  6. Swiss Anton

    What's so wrong with tax?

    In the US, and all other civilised places, taxes pay for many of the things that make them great places to live. Civilisation could not happen without taxes. Taxes are good!

    I'd hazard a guess that the vast majority of internet purchases are discretionary rather than essential. If so then that would suggest that those buying stuff on the internet have more money than they need. In my opinion this means that they are fair game for the tax collectors.

    If bricks & mortar taxes are down then the required taxes will need to be raised elsewhere if public services aren't to suffer. An internet sales tax would, in general, be a fair place to raise taxes to offset other tax loses.

    All in all this decision by the US House of Representatives just proves that politicians are more interested in getting re-elected than in making the world a better place.

    1. Steve Davies 3 Silver badge

      It is not only Tax

      Quote

      All in all this decision by the US House of Representatives just proves that politicians are more interested in getting re-elected than in making the world a better place.

      Just like the GOP saying that ANY deal negociated in Paris on Climate Change will be vetoed by the Republicans in the Senate and Congress.

      These twats must be getting might big re-election contributions from big-oil and coal.

      Time to introduce sanctions on the USA until the come kicking and screaming into the real world. But hey, Bubba and Cletus won't like it. The rest of the world has agreed to clean up its act but there is a very good chance that the USA won't.

    2. Anonymous Coward
      Anonymous Coward

      Re: What's so wrong with tax?

      There's nothing wrong with being taxed.

      My problem is with being taxed dozens of times: federal, state, local, sales (varies per county and type of business), gas (varies per state), car license, and fees for doing just about anything from hunting/fishing to business licenses. I'd prefer paying federal and state taxes that were higher (with no deductions after a certain income has been reached) to eliminate all the wasted labor/time collecting everything else.

      My other problem is states giving companies tax breaks (10 years or so) to set up in their state. These companies have basically been given a building + moving costs check once the tax break expires. Local taxpayers cover the costs of creating and maintaining the public infrastructure for the company. I don't blame the company for this, as they're entire purpose is to create MONEY (not products, services or jobs as those are a consequence of the pursuit of money creation).

      I shop both locally and online. If I had to pay sales tax for online purchases (my state has a use tax), then the online stores are almost all cheaper with a wider variety of products to choose from. I dislike the fact that I'm the one required to file the tax. I'd rather have the federal government mandate a flat tax to be collected (per payers address) and the business is responsible for paying the correct proportion to the states, coupled with the states inability to hassle me about more online tax. Everyone would be taxed and the business would only have to keep track of the sales per buyer location.

      1. Richard 12 Silver badge

        Re: What's so wrong with tax?

        You mean like VAT in the EU?

        The idea of that is every member state must charge VAT on the final transaction where the product goes to a consumer, for most goods and services.

        Businesses (above a certain size) don't pay VAT, but must collect it from their customers and give it to their state.

        So they pay it when they buy stuff and claim it back, by offsetting against the VAT they collected.

        The rules get pretty complicated once a business is buying from another member state and selling to a third.

        1. Tom 38 Silver badge
          Headmaster

          Re: What's so wrong with tax?

          Businesses (above a certain size) don't pay VAT, but must collect it from their customers and give it to their state.

          Everyone pays VAT - sole traders, small companies, private individuals, VAT registered companies, mega-corporations. Anyone VAT registered is also obliged to charge VAT on goods and services that are rated for VAT, but they only have to remit to the taxman the difference between what they paid in VAT and what they received in VAT.

          They do also get a rebate if they pay more in VAT than they received in VAT, but businesses that pay more in VAT than they receive don't tend to be around for very long.

      2. Charles 9 Silver badge

        Re: What's so wrong with tax?

        "I dislike the fact that I'm the one required to file the tax. I'd rather have the federal government mandate a flat tax to be collected (per payers address) and the business is responsible for paying the correct proportion to the states,"

        The problem being they'll never agree on what that rate will be because states have different strategies for taxation, and a "one tax fits all" solution doesn't accommodate this. There are tourism-heavy states like Florida and Nevada that use sales taxes to draw the most money from tourists who they wouldn't get any other way. Other states are "live-in" states where people or businesses tend to settle down (Oregon and Delaware spring to mind). Instead of sales taxes, income and related taxes are the norm for raising revenue. Then you have odd states like Alaska (rural, sparse, and extremely rugged) where simplicity is the best solution (seeing as reaching everyone in the middle of nowhere is a challenge), so they use alternative methods like property tax.

  7. Boris the Cockroach Silver badge
    IT Angle

    Hows did Sears

    and the other mail order companies pay sales tax then?

    You live in say Ruralville, Idaho and order a christmas tree from Sears, Sears Chicago HQ processes the order and ship it to you from a central warehouse in Nevada.

    Where would the sales tax be paid?

    1. Charles 9 Silver badge

      Re: Hows did Sears

      I vaguely remember the order forms from those catalogs with the blanks for items numbers and so on. Many of them keep a blank for "(Insert State Here) residents add (Insert Percentage Here)% Sales Tax". Pretty sure that was because that was there the order forms went and therefore where the taxmen of that state could demand documentation.

  8. ecofeco Silver badge

    Amazing

    Truly amazing. In a good way.

  9. channel extended

    A tax by any other name.....

    Here locally, Mobile Alabama, they have what is known as a peddlers licence, $120/year . This is required to sell items on the street, hot dogs, cold drinks ... etc. Also the pavement pretty much rolls up at 5pm. So to increase downtown business they created an 'Art Walk' night. Second friday of every month allowing anyone to setup and sell thier art to the public with no license requirement. This went on until it was noticed that it was a huge success and the area was crowded. My girl friend and I went often and noticed the growth.Then local polititions saw untaxed money and had to have it. She averaged 60 to 100 dollars a night as profit after spending almost 45 in various ways at the local shops. When word came down that they were now going to enforce the peddlers licence we stopped going. After three or four months I went back just to see the effect. How depressing from bustling crowds to ghost town.

    It wasn't so much the tax/licence as the feeling of betrayal by the city. So why go. Face it an untaxed internet keeps all prices down. Taxes increase the cost and decrease business for all not just those who seem to bear it the most. The lost trade from someone eating,drinking, buying trinkets easly matched the expected revenue. So double loss.

    1. Richard 12 Silver badge

      Re: A tax by any other name.....

      As Worstall said - anything you tax will be harmed.

      That has to be balanced against the need for tax revenue to pay for the things everyone needs to exist (physical infrastructure, law and order etc)

      So you should tax in such a way as to do the least harm to things considered "good".

  10. Ernie Mercer

    I shop locally when I can, and enjoy the instant gratification of bringing stuff home with me.

    But a lot of what I want, especially computer hardware and clothing in styles and sizes I wear, isn't available locally. Brick and mortar establishments just don't offer the variety available online. That's when local establishments lose my business.

    Sales taxes aren't the issue for me, and many online businesses collect them anyway. New Jersey has a line on their tax return for use taxes on out-of-state purchases. I haven't had to pay anything for a couple of years.

  11. Tree
    Go

    Pros and cons

    In the U.S., federal government does not raise funds through general sales taxes, but most states and a few localities make it a major source of funds. Pro: it provides an incentive for state and local governments to hold taxes down. Con: It unfairly favors the central govenment and also certain forms of distribution. Another way Amazon is subsidized. The "book rate" or "media mail" postal rates are exceedingly low and should be raised to the standard parcel rates.

  12. Anonymous Coward
    Anonymous Coward

    Hidden Stuff

    "Tax Freedom Act"

    Nice sounding name. It fits right in with

    Affordable Care Act

    Patriot Act

    Freedom Act

    Citizens United

    Safe Act.

    So what ELSE is in this bill? I have no doubt they are screwing us over somehow, and just to be clear. We don't recognize any governments claim of authority over any aspect of the Internet, and we will actively obstruct any corporate or government actions that we believe to be an infringement on our rights or freedoms.

    1. Charles 9 Silver badge

      Re: Hidden Stuff

      "We don't recognize any governments claim of authority over any aspect of the Internet, and we will actively obstruct any corporate or government actions that we believe to be an infringement on our rights or freedoms."

      Good luck. What's the Internet without bandwidth? ISPs own the landlines and the governments both own the airwaves and hold sovereign power over any landlines in their territory.

POST COMMENT House rules

Not a member of The Register? Create a new account here.

  • Enter your comment

  • Add an icon

Anonymous cowards cannot choose their icon

Other stories you might like

Biting the hand that feeds IT © 1998–2022