The Taxman Has Designs on the Net
Pages: 1, 2, 3, 4
Pizzo: We have at least twenty-five states now that have joined onto this streamlined sales tax initiative. The governors of these states are not going to give up on this, that's very clear. They're going to try to find some way to tax the Internet and one of the ways that they're trying to make this acceptable and easier to administer is to come up with some sort of streamlined sales tax across all of these different states. Rick, how does your group feel about this?
Tyler: I find it very interesting, a lot of the language that's used. "Loss of revenue" -- you have to say, if there's a loss of revenue -- you have to ask yourself, whose money is it anyway? It's the taxpayer's money. It's not somehow the government's money that the taxpayers are cheating the government out of, but in fact, it's their own government. Then you have this scenario where you have the taxpayer versus the government. I think that what the governors have proposed, and they say that it's voluntary -- and it occurs to me that if it is voluntary, and the companies decide to participate in collection of the tax -- it seems to me that I would go on-line and ask the company before I purchase this product, are you voluntarily going to tax me, or not? Because if you aren't, then I'm likely to buy the product, and if you are, I'll just go to a competitor who is not voluntarily taxing.
So it seems to me that the scenario they have is flawed unless they make it compulsory. I'll just remind you of what happened in Europe when they decided to streamline taxes. They did in fact streamline taxes, and everybody's taxes uniformly went up.
Turner: Let's make no bones about it. The states have no interest in simplification for simplification's sake. The concept of the simplified sales tax system is a ruse. If you've seen any of the draft languages come out of their working group, they're expanding, not just taxes extra-territorially so that one state can implore someone in another state to collect taxes from another state on their behalf, but they're actually expanding the base of what's subject to taxation.
Pizzo: Now we've heard two positions against this tax. I'd like to hear some observations on the other side of this issue, and we have Hut Landon, an independent bookseller in Mill Valley, California, who supports the California law. Hut, do you want to talk a little bit about why?
Landon: Well, the particular part of the law that we support and would like to see enforced is the part of the law regarding retail nexus. I'm not speaking about expanding the Internet broadly.
In California we face a situation where existing tax code law in our opinion is not being enforced by the Board of Equalization. There's a bill on the Governor's desk that does clarify it, and we hope that it passes, because right now we have companies in California who are collecting sales tax because they believe that they do have nexus. They have a retail location, and they have a web site that is selling to California customers and is selling, under virtually the same name, the same products, and are cross-promoting -- all of which are characteristics of nexus to the state. We have some companies, notably two major bookstore chains which affect us, who are not collecting, and we feel that that's wrong -- and it's merely a fairness issue.
One of the things that bothers us is that some people have tried to characterize our bill as an expansion of taxes and of new taxes. In our view we're trying to plug the dam and recoup lost taxes that are being lost to these companies who are dodging the existing law.
Pizzo: And it's a competitive issue, right?
Landon: Well, certainly it is. Barnes and Noble and Borders have, right off the top, anywhere from, depending on where you live, six to eight or nine percent advantage right off the bat by not collecting those taxes.
Pizzo: You've got these existing brick and mortar businesses who've been good citizens, maintaining our streets and highways all these years, and you've got these new kids on the block who come sashaying in here with pockets full of EC money, and you give them a pass, giving them a competitive advantage over these established businesses. Where's the fairness in this issue?
Turner: I think that the question goes back to the one of jurisdiction. I think it ultimately gets back to the fact that we're working off of a sales tax system that was created in an industrial economy, in which borders meant something, in which people did not travel interstate that often, particularly to buy consumable goods, and we're working off of a Federal constitution that says that states can't tax those people who don't operate within their borders. We're struggling with trying to make those work.
I think it's an easy argument to make that the Internet sellers aren't subject to tax, but in fact, they really are. I mean, they are paying taxes. The simple question is whether or not they should be obligated to have to collect and remit a tax to a jurisdiction in which they really don't have any presence. And that's really what it really comes back to.
When you're talking about nexus or presence, you're talking about the commerce clause, the founding fathers' belief that the states shouldn't be permitted to tax those people who aren't within their borders or who aren't doing business in there.
Pizzo: But I just bought a book yesterday from Amazon.com. Now, I know that they ship them out of a California warehouse. ...
Turner: Actually, if you're in California, they ship out of a California warehouse. That person is considered a dropship. There's going to be some obligation on the dropshipper to pay that tax. Are you talking about who the warehouse is owned by? If it's owned by Amazon or not? And if it's owned by Amazon, I would think, in that circumstance they would have nexus.
Landon: Yes, they would, we believe, and that situation, the nexus law, right now is a little bit trickier with regard to warehouses as opposed to actual retail locations. But I have to say there is no way you can say that because barnesandnoble.com happens to have corporate offices elsewhere that they don't have a presence in California.
Turner: The tax code has long recognized that corporations exist in a myriad of different forms. They have recognized that one corporation, even though they may be related, is a separate entity for purposes of applying the tax code. Current says that, and we have a Court of Appeals decision that essentially, in California at least, says that exactly what the Migden Bill is doing is unconstitutional and violates the commerce clause, because you are essentially forcing a corporation that has no presence in California to collect and remit.
