I'm a small government, anti-tax guy, but discrimination against bricks & mortar businesses seems quite unfair. Why should the tax I pay on a new computer vary based on how it is delivered to my home? Also, a sales tax is probably the fairest known model of taxation and is least susceptible to manipulation. To further the "Amazon should tax" argument, one could also make the case that the sales tax becomes quite regressive when upper-income people shop online but poor people (because they don't have credit cards, etc.) primarily buy from a local store.
Certainly, Amazon must resist collecting sales taxes until all online/catalog retailers are required to collect them -- anything less would lead to a shareholder revolt.
Why should the tax I pay on a new computer vary based on how it is delivered to my home?
Sales taxes are a tax on the merchant. If the merchant is not located in a state, the state has no jurisdiction over the merchant.
Do you really want the nuts in charge of {Texas, California} (depending on your political views) to have the power to pass laws binding on your state? Besides, if a state really wants the money they can simply tax their citizens (which many states do).
Sales taxes are paid by the customer, not the merchant. The merchants are required to collect and report the taxes, their customers are the ones who pay.
In fact, in many states the merchant must explicitly charge the tax to the customer, he cannot legally just include the tax in the price he charges for the item.
Also, a sales tax is probably the fairest known model of taxation
My understanding is that it is one of the most unfair. Poorer people will lose a greater percentage of their income to sales tax than richer people because certain consumptions aren't elastic to increasing income. Now some states won't collect sales tax on items deemed "necessities" but the classifications can get tricky and imo just leads to inefficiency.
I am guessing that the parent was suggesting that while it is regressive it taxes consumption and this seemed to be a fairer mechanism in his/her view. The fair/unfair distinction can be sliced in a lot of different ways, but there are some benefits that can be claimed for a tax that is applied to consumption regardless of whether or not that consumer is rich or poor.
You are right that it tends to be slightly regressive w.r.t annual income. However, every dollar earned that is eventually converted into something tangible must be taxed. So, it's eventually flat if earnings are ever enjoyed.
Is flat fair? There's nothing inherently "fair" about a zero second derivative. I'm actually ok with some sort of government rebate for the first N dollars of taxation to reduce the burden on America's (relatively) poor people.
Except that the rich or even moderately well-off never convert even close to all their money into something tangible while the poor almost always must immediately. The rich don't live paycheck to paycheck. They save, invest, go on vacation, etc. They defer the second taxation (sales/use) to a later date or place -- they have choices where the poor do not. So while it might seem flat theoretically, it becomes regressive quickly.
But we probably agree on more than we disagree. I actually agree that flat isn't fair and that the current situation isn't fair to b&m stores either. I just don't think the solution is to interfere with interstate commerce. States need to enforce use taxes, or if that turns out to be unenforceable, which I suspect it might, rethink their taxation strategy.
By the way, not sure why you were downvoted. I upvoted to correct that. Thanks for the discussion -- it got me thinking about this situation quite a bit.
Sales taxes are paid by the customer, not the merchant. I'm sure your state requires you to pay the tax on that laptop. It is you that are depriving your state of income, not the out-of-state merchant.
" discrimination against bricks & mortar businesses seems quite unfair."
One rationale is that the Company in Nevada isn't using any services in California, so they shouldn't pay taxes for services they aren't receiving. I think that's ingenuine - it's a good reason not to pay _property taxes_ in California - but Sales Taxes are supposed to paid, they are called "Use Taxes" - and most larger business pay them, but individuals either don't bother or don't know.
The debate is over anyways - Amazon will be collecting sales taxes in all states within two years. In the meantime, their behavior has been both ethical and legal - and they enjoyed a competitive advantage - for a while.
On what do you base the proposition that "a sales tax is probably the fairest known model of taxation?"
I would counter that sales tax is probably the most regressive known model of taxation, aside perhaps from the notion of a "flat tax."
The poorer you are, the heavier the burden a sales tax imposes. When you're living hand to mouth, you're spending all of your income to survive, and so essentially a sales tax is like an income tax for you. As you rise on the scale of wealth, you tend to buy much less in proportion to your income, and so you are taxed a smaller percentage.
Sorry tax happy states, probably because it's an unconstitutional violation of the commerce clause. Perhaps it's time to cut worthless social programs.
We'll, I'm not sure we should be spending $12B on higher education. Let's convert that to freely available online courses. If people want the full in-person college experience, then maybe they should pay for it themselves?
We aren't getting our money's worth out of the $4.6B for the Legislative, Judicial, and Executive line item.
$32B for Health and Human Services is full of charges to cover illegal aliens that the Fed can't (or won't) keep out of the country, but California has to (or chooses to?) cover the bill. We can't afford it. Tort reform would help too, if there is anything California can do on its own about that, I'm not sure.
And finally, I'm certain every other line item not mentioned has the usual government overhead, most of which could be privatized to save more money or simply cut to a certain extent.
We'll, I'm not sure we should be spending $12B on higher education. Let's convert that to freely available online courses. If people want the full in-person college experience, then maybe they should pay for it themselves?
Isn't that a bit simplistic? Sure, one might make the argument that a Literature or History major might be okay with only online courses but there are any number of fields (engineering among them) where a hands-on approach is essential to understanding the material. "Pay for it themselves" just means that only the rich will be able to afford college. It's in the state and national interest for us to be able to train engineers, so certainly the state should be supporting higher ed. As for the amount, $12b divided by 132k positions = $92k/position (which also includes energy costs, rent, etc). You think it's too much?
We aren't getting our money's worth out of the $4.6B for the Legislative, Judicial, and Executive line item.
How much should a body that governs the worlds eighth largest economy cost?
$32B for Health and Human Services is full of charges to cover illegal aliens that the Fed can't (or won't) keep out of the country, but California has to (or chooses to?) cover the bill.
$12b divided by 132k positions = $92k/position (which also includes energy costs, rent, etc). You think it's too much?
Those 132k positions also include support staff as well as junior colleges. Yes, $92k/position average is too much. I also highly doubt it includes any form of rent, since the gov't probably owns all of the land it uses for schools and would have made a killing on it.
How much should a body that governs the worlds eighth largest economy cost?
I suppose that would depend on what that body does. We're currently spending 3.8% of the budget on this governing body, which seems awful high to me. Drill into the line item, it'll blow your mind:
Judicial Branch: 2,001 people, $2.2 Billion budget. That's over a million dollars per person, per year, average!!!
Specifics?
My mistake for touching this political hotbed, but if you haven't heard of illegal aliens obtaining free health care in emergency rooms, there is plenty of info on the net about it.
Tort reform. Specifics? And what would this involve cutting?
Basically, malpractice insurance is a huge cost, some doctors pay more for that than they take home in pay. Not to mention unnecessary tests that are performed simply for protection against lawsuits. Tort reform ultimately cuts payments to lawyers. But, congress (both state and federal) is full of lawyers.
I'm not hopeful for tort reform. Congress doesn't have a history of passing laws that negatively impact themselves personally. They've even exempted themselves from the "universal healthcare" legislation: http://online.wsj.com/article/SB124536864955329439.html
Sigh, why should amazon do anything wrt taxes except minimize costs to their customers, maximize profits, and be legal? What they are doing is legal. Their competition is doing the same thing.
Why do reporters continue to blast big companies for "not paying taxes" instead of blasting the government for not requiring that the companies do?
Sadly, this isn't even your average reporter. The author, Randall Stross, is a Professor of Business at San Jose State.
What I don't get is why he's angry at Amazon. Sales tax is levied against consumption on a buyer. It's just that states can force sellers in their own jurisdiction to collect it at the point of sale. For purchases made out-of-state, states already have a mechanism for collection: use tax. I find it a bit disingenuous that he doesn't even mention this. Why force the burden on companies when it's a tax against people that they're not paying.
Shouldn't he be angry at all the shoppers who aren't helping "avert layoffs of schoolteachers and firefighters and, yes, professors at state universities" by not filing their use taxes?
Tax policy is often designed to allocate tax burdens where they are easy to measure and enforce, rather than where they 'theoretically' should be triggered. Requiring millions of shoppers to record and pay their 'Use Taxes' would be an onerous requirement; requiring merchants to collect 'Sales Taxes' is relatively easy and indeed already traditionally done, even by Amazon.
So it makes perfect sense to focus on bringing cross-state retailing into the sales tax regime, rather than scolding shoppers about use taxes.
Of course it is. If governments didn't force employers to withhold income, I doubt income tax revenue would be nearly the same. And paying use tax is pretty much a joke.
My point is that he's using vitriolic language to accuse Amazon unfairly (who are abiding by the current commerce laws) when the same could be said about the shoppers (who are not). Attacking either won't lead to an acceptable solution.
I don't think we should interfere in interstate commerce at a federal level. Rather the states that care will need to form a solution for all out-of-state commerce taxes, something that's happening anyways.
"For purchases made out-of-state, states already have a mechanism for collection: use tax. I find it a bit disingenuous that he doesn't even mention this."
Mention: "In California, the State Board of Equalization estimates annual tax revenue losses of $1.085 billion from unpaid 'use taxes,' which are supposed to be paid for out-of-state purchases."
But you're right, he spends very little text on this idea.
Why shouldn't they write about big companies, and why can't they do both? Without taking sides, you can't place the blame squarely on anyone here. Lawmakers make mistakes and corporations choose to exploit those mistakes. Lawmakers obviously need to take corrective action when they identify problems, but these things take time.
There's a difference between what is legal and what is ethical. Surely if there were some loophole that allowed corporations to murder their competitors they wouldn't do so. Corporations, like people, choose ethical behavior over legal behavior all the time. Not only is it reasonable for editorialists to call out those companies who make decisions that could be considered unethical, it is exactly what the press is supposed to do.
Until the last two paragraphs, I didn't read this as an argument that Amazon should voluntarily pay more -- rather that the loopholes allowing Amazon (and their competitors) to do this should be closed. That's the stronger case.
Still, I think it's legitimate for Stross to call out Amazon for special attention, and leadership, given their size and emblematic association with cross-state e-commerce. Amazon gets the largest advantage from the current loopholes; if and when they relent in their opposition, the issue can be resolved in a way that treats all businesses equally.
So despite the ostensible call at the end for Amazon to unilaterally start collecting sales taxes, it's still really an argument for updated treatment of all such businesses.
If the complexities that its retail competitors have mastered really are an insuperable difficulty for Amazon, it could contract with a commercial vendor that specializes in these calculations, like Vertex, as Netflix does.
What the hell is Stross's point here? If Amazon has deliberately masterminded an enormous sales tax loophole they undoubtedly are not confused or unwilling to deal with the complexities of tax law. By ignoring the obvious subtext with which the Amazon spokesperson suggested "simple" and "fair" taxing schemes for all business models Stross is only making a fool of himself while undermining the entire shoddy article.
Stross only has <1000 words here, so he leaves out other parts of the case for Amazon paying sales taxes. These include:
- Amazon has commissioned retail sales staff -- via their Associates program -- in every state
- if distant sellers have a cost advantage from arbitrary tax loopholes, then real non-replenishable resources (like fossil fuels, clean air) will be consumed chasing those advantages. If prices indicate the real inputs to a sale, resources are better allocated.
- a broader base for the sales tax would mean less pressure for the rate to rise to make up shortfalls (partially due to commerce moving online). Yes, governments are voracious and irresponsible but dynamically in the long run, more entities paying means a lower rate, and a larger constituency to lobby against rate hikes. Currently, Amazon could secretly be cheering every rise in California sales taxes. (That is, we should prefer to have Amazon on the "pro low taxes for everyone" team, rather than the "pro low taxes just for those with intricate interstate legal arrangements" team.)
As others point out, what Amazon does is probably legal. It's also probably required; as a publicly held company they're required to pursue the best return possible to investors. Stepping up to pay a tax that's not legally required would violate that duty.
I think the states can make a good case for requiring mail order consumer businesses to pay sales tax. Bezos says that his employees and business don't receive services from states, but they do. Without functional streets it would be impossible for Amazon to have their products delivered, at the prices they currently charge. Less directly, police and fire services ensure that their customers and contractors can operate safely and with minimal disruption. More abstractly, a functioning economy and legal system promotes the economic well being of its citizens, without which Amazon could not function. At all.
> as a publicly held company they're required to pursue the best return possible to investors. Stepping up to pay a tax that's not legally required would violate that duty.
There are lots of circumstances where paying extra taxes could boost long-term shareholder returns, so your conclusion doesn't follow. The classic example is where there's the threat of onerous legislation being introduced unless a 'voluntary' code of conduct is adopted.
33 comments
[ 3.1 ms ] story [ 76.0 ms ] threadCertainly, Amazon must resist collecting sales taxes until all online/catalog retailers are required to collect them -- anything less would lead to a shareholder revolt.
Sales taxes are a tax on the merchant. If the merchant is not located in a state, the state has no jurisdiction over the merchant.
Do you really want the nuts in charge of {Texas, California} (depending on your political views) to have the power to pass laws binding on your state? Besides, if a state really wants the money they can simply tax their citizens (which many states do).
My understanding is that it is one of the most unfair. Poorer people will lose a greater percentage of their income to sales tax than richer people because certain consumptions aren't elastic to increasing income. Now some states won't collect sales tax on items deemed "necessities" but the classifications can get tricky and imo just leads to inefficiency.
Like you said, sales tax can be considered a form of regressive tax: http://en.wikipedia.org/wiki/Regressive_tax. How is that then fair?
Is flat fair? There's nothing inherently "fair" about a zero second derivative. I'm actually ok with some sort of government rebate for the first N dollars of taxation to reduce the burden on America's (relatively) poor people.
But we probably agree on more than we disagree. I actually agree that flat isn't fair and that the current situation isn't fair to b&m stores either. I just don't think the solution is to interfere with interstate commerce. States need to enforce use taxes, or if that turns out to be unenforceable, which I suspect it might, rethink their taxation strategy.
By the way, not sure why you were downvoted. I upvoted to correct that. Thanks for the discussion -- it got me thinking about this situation quite a bit.
One rationale is that the Company in Nevada isn't using any services in California, so they shouldn't pay taxes for services they aren't receiving. I think that's ingenuine - it's a good reason not to pay _property taxes_ in California - but Sales Taxes are supposed to paid, they are called "Use Taxes" - and most larger business pay them, but individuals either don't bother or don't know.
The debate is over anyways - Amazon will be collecting sales taxes in all states within two years. In the meantime, their behavior has been both ethical and legal - and they enjoyed a competitive advantage - for a while.
I would counter that sales tax is probably the most regressive known model of taxation, aside perhaps from the notion of a "flat tax."
The poorer you are, the heavier the burden a sales tax imposes. When you're living hand to mouth, you're spending all of your income to survive, and so essentially a sales tax is like an income tax for you. As you rise on the scale of wealth, you tend to buy much less in proportion to your income, and so you are taxed a smaller percentage.
Poverty is not a failing. Greed is not a virtue.
The tax you are legally required to pay does not vary. You simply choose not to pay whats required at the end of the year.
A bricks and mortars biz in CA gets benefits from taxes paid to CA. Amazon doesn't.
Which worthless social programs should be cut?
We'll, I'm not sure we should be spending $12B on higher education. Let's convert that to freely available online courses. If people want the full in-person college experience, then maybe they should pay for it themselves?
We aren't getting our money's worth out of the $4.6B for the Legislative, Judicial, and Executive line item.
$32B for Health and Human Services is full of charges to cover illegal aliens that the Fed can't (or won't) keep out of the country, but California has to (or chooses to?) cover the bill. We can't afford it. Tort reform would help too, if there is anything California can do on its own about that, I'm not sure.
And finally, I'm certain every other line item not mentioned has the usual government overhead, most of which could be privatized to save more money or simply cut to a certain extent.
Isn't that a bit simplistic? Sure, one might make the argument that a Literature or History major might be okay with only online courses but there are any number of fields (engineering among them) where a hands-on approach is essential to understanding the material. "Pay for it themselves" just means that only the rich will be able to afford college. It's in the state and national interest for us to be able to train engineers, so certainly the state should be supporting higher ed. As for the amount, $12b divided by 132k positions = $92k/position (which also includes energy costs, rent, etc). You think it's too much?
We aren't getting our money's worth out of the $4.6B for the Legislative, Judicial, and Executive line item.
How much should a body that governs the worlds eighth largest economy cost?
$32B for Health and Human Services is full of charges to cover illegal aliens that the Fed can't (or won't) keep out of the country, but California has to (or chooses to?) cover the bill.
Specifics?
* Tort reform would help too*
Specifics? And what would this involve cutting?
Those 132k positions also include support staff as well as junior colleges. Yes, $92k/position average is too much. I also highly doubt it includes any form of rent, since the gov't probably owns all of the land it uses for schools and would have made a killing on it.
How much should a body that governs the worlds eighth largest economy cost?
I suppose that would depend on what that body does. We're currently spending 3.8% of the budget on this governing body, which seems awful high to me. Drill into the line item, it'll blow your mind:
Judicial Branch: 2,001 people, $2.2 Billion budget. That's over a million dollars per person, per year, average!!!
Specifics?
My mistake for touching this political hotbed, but if you haven't heard of illegal aliens obtaining free health care in emergency rooms, there is plenty of info on the net about it.
Tort reform. Specifics? And what would this involve cutting?
http://en.wikipedia.org/wiki/Tort_reform
Basically, malpractice insurance is a huge cost, some doctors pay more for that than they take home in pay. Not to mention unnecessary tests that are performed simply for protection against lawsuits. Tort reform ultimately cuts payments to lawyers. But, congress (both state and federal) is full of lawyers.
I'm not hopeful for tort reform. Congress doesn't have a history of passing laws that negatively impact themselves personally. They've even exempted themselves from the "universal healthcare" legislation: http://online.wsj.com/article/SB124536864955329439.html
Why do reporters continue to blast big companies for "not paying taxes" instead of blasting the government for not requiring that the companies do?
What I don't get is why he's angry at Amazon. Sales tax is levied against consumption on a buyer. It's just that states can force sellers in their own jurisdiction to collect it at the point of sale. For purchases made out-of-state, states already have a mechanism for collection: use tax. I find it a bit disingenuous that he doesn't even mention this. Why force the burden on companies when it's a tax against people that they're not paying.
Shouldn't he be angry at all the shoppers who aren't helping "avert layoffs of schoolteachers and firefighters and, yes, professors at state universities" by not filing their use taxes?
He might as well be angry at rainclouds.
Tax policy is often designed to allocate tax burdens where they are easy to measure and enforce, rather than where they 'theoretically' should be triggered. Requiring millions of shoppers to record and pay their 'Use Taxes' would be an onerous requirement; requiring merchants to collect 'Sales Taxes' is relatively easy and indeed already traditionally done, even by Amazon.
So it makes perfect sense to focus on bringing cross-state retailing into the sales tax regime, rather than scolding shoppers about use taxes.
My point is that he's using vitriolic language to accuse Amazon unfairly (who are abiding by the current commerce laws) when the same could be said about the shoppers (who are not). Attacking either won't lead to an acceptable solution.
I don't think we should interfere in interstate commerce at a federal level. Rather the states that care will need to form a solution for all out-of-state commerce taxes, something that's happening anyways.
Mention: "In California, the State Board of Equalization estimates annual tax revenue losses of $1.085 billion from unpaid 'use taxes,' which are supposed to be paid for out-of-state purchases."
But you're right, he spends very little text on this idea.
There's a difference between what is legal and what is ethical. Surely if there were some loophole that allowed corporations to murder their competitors they wouldn't do so. Corporations, like people, choose ethical behavior over legal behavior all the time. Not only is it reasonable for editorialists to call out those companies who make decisions that could be considered unethical, it is exactly what the press is supposed to do.
Still, I think it's legitimate for Stross to call out Amazon for special attention, and leadership, given their size and emblematic association with cross-state e-commerce. Amazon gets the largest advantage from the current loopholes; if and when they relent in their opposition, the issue can be resolved in a way that treats all businesses equally.
So despite the ostensible call at the end for Amazon to unilaterally start collecting sales taxes, it's still really an argument for updated treatment of all such businesses.
If the complexities that its retail competitors have mastered really are an insuperable difficulty for Amazon, it could contract with a commercial vendor that specializes in these calculations, like Vertex, as Netflix does.
What the hell is Stross's point here? If Amazon has deliberately masterminded an enormous sales tax loophole they undoubtedly are not confused or unwilling to deal with the complexities of tax law. By ignoring the obvious subtext with which the Amazon spokesperson suggested "simple" and "fair" taxing schemes for all business models Stross is only making a fool of himself while undermining the entire shoddy article.
- Amazon has commissioned retail sales staff -- via their Associates program -- in every state
- if distant sellers have a cost advantage from arbitrary tax loopholes, then real non-replenishable resources (like fossil fuels, clean air) will be consumed chasing those advantages. If prices indicate the real inputs to a sale, resources are better allocated.
- a broader base for the sales tax would mean less pressure for the rate to rise to make up shortfalls (partially due to commerce moving online). Yes, governments are voracious and irresponsible but dynamically in the long run, more entities paying means a lower rate, and a larger constituency to lobby against rate hikes. Currently, Amazon could secretly be cheering every rise in California sales taxes. (That is, we should prefer to have Amazon on the "pro low taxes for everyone" team, rather than the "pro low taxes just for those with intricate interstate legal arrangements" team.)
I think the states can make a good case for requiring mail order consumer businesses to pay sales tax. Bezos says that his employees and business don't receive services from states, but they do. Without functional streets it would be impossible for Amazon to have their products delivered, at the prices they currently charge. Less directly, police and fire services ensure that their customers and contractors can operate safely and with minimal disruption. More abstractly, a functioning economy and legal system promotes the economic well being of its citizens, without which Amazon could not function. At all.
There are lots of circumstances where paying extra taxes could boost long-term shareholder returns, so your conclusion doesn't follow. The classic example is where there's the threat of onerous legislation being introduced unless a 'voluntary' code of conduct is adopted.