July 29th, 2012

Taxes

Last night, R. and I went out without the kids to one of our all time favorite restaurants, in Lowell. We did not realize we were going to be walking through the Lowell Folk Festival, which had both good and bad aspects to it. In any event, we had a lovely evening, followed by one last drink in Littleton because the volume of the music eventually drove us out after we ate.

Despite sharing everything we ate and drank (only real exceptions being I didn't taste his drink in Littleton, and he didn't eat any of the onions on the salad at the restaurant), and despite me being careful about food allergy issues, at 3 a.m., I was worshipping the porcelain. I'm still puzzled. At the time, I had enough which-way-is-up issues I thought perhaps I'd gotten drunker than I realized (how that would be possible when we split a pre-dinner drink, split a glass of wine, and then each had one after dinner drink, all between 8 and 11 p.m., and this was now 4 hours later. Depending on how you calculate it, I cannot imagine that was more than 3 drinks for me, right?). I hadn't taken any other meds. R. thinks perhaps it was viral, and a virus he'd already encountered. *shrug*

In the course of the evening, we got to talking about sales tax, and later on (last night after we got home and this morning after I was feeling better) I did a little research. The dollar volume of retail sales that the law says incurs sales or use tax but which those taxes are never paid on is now large in absolute terms and relative to retail sales which do pay taxes. It seems impossible that this could go on forever, particularly since it is a state of affairs largely resulting from a 1992 court case involving difficulty of figuring out what tax to pay and while it's still a complete pain, it is at least a possible complete pain.

We've all seen, at least in passing, various states jockeying with Amazon over this issue and then everyone learns how many states have sizable businesses which are Amazon affiliates and who are really upset at getting cut off from Amazon. More recently, Amazon has been engaging in state-by-state negotiations to get the kinds of tax breaks/credits/incentives that other businesses get by locating within a state (I bring jobs, you forgive millions of dollars of taxes, type of thing), when they are planning on builting a fulfillment/data/wtf center there. This is a change: previously they were trying to firewall a warehouse operation from the main corporation to argue that they didn't _really_ have a nexus and thus didn't _really_ have to collect/pay taxes (cf. Texas).

Whatever you might think of the affiliates, is it the same company, nexus, etc. issues, I kept coming back to the idea that this is a _lot_ of money flowing through tax unpaid involving states that are really desperate for revenue in the wake of the property tax crash. It turns out that because these are pre-existing taxes -- and _state_ taxes, to boot -- Republicans at all levels feel free to pursue their collection. But first, a digression.

Amazon's primary objection to collecting/paying state and local sales taxes is the complexity to implementation, and the liability issues associated with incorrect implementation that are inevitable. As an ordinary, non-retail business operator (or, say, if your business is in New Hampshire or Delaware), it can be difficult to wrap one's brain around just how insane sales taxes are. Sales taxes are like the federal income tax, only worse: they are the crufty result of millions of interactions at every level of state and below government trying to implement social policy through the tax code. Say something is sold at a grocery store and the store is in Washington state. In addition to needing to know the exact location of the store (because the rate has multiple, variable components), you need to know exactly what the item is to know whether and which tax to apply.

This internet sales thing isn't new. Back in 2000, according to wikipedia (http://en.wikipedia.org/wiki/Streamlined_Sales_Tax_Project), there was an effort started to address this issue. The compromise was: states voluntarily agree to simplify their sales taxes in order to be eligible to participate in the project; certified service providers (I'm assuming these are for-profit entities selling a business service, but I could be wrong -- there's a list on the wikipedia page) take on the responsibility for figuring out for a given sale what the tax should be; non-local retailers voluntarily use this service to pay up and everyone pretends the past failure to pay didn't happen.

The Main Street Fairness Act (at least in this incarnation: http://www.govtrack.us/congress/bills/112/s1452/text) would have incarnated the Streamlined Sales Tax Project, assuming some basic criterion were met (enough states with collectively enough population had signed on including getting their databases set up, the CSPs were up and running, and some other standards were met (Read Section 6. It'll give you an idea of why non-local retailers really hate paying taxes everywhere. It is _NOT_ about the money or the rate.) The Main Street Fairness Act retains some interesting characteristics of the Streamlined Sales Tax Project, including letting states drop out and the Act itself ceasing to be effective if the minimum criteria cease to be met. This Act was sponsored exclusively by Democrats.

The Republicans sponsored their own act, the Marketplace Equity Act of 2011. It requires an exemption for small sellers, and has its own simplification requirements which are, and I don't say this _only_ because I have contempt for contemporary Republican policy making, altho that certainly biases me, breathtaking in the degree to which they MISS THE POINT. The simplification requirements focus exclusively on rate. Which nobody, and I mean nobody, in this debates gives a shit about.

While the Streamlined Sales Tax Project already has major components of implementation already worked out and deployed, the various implementation components of the Marketplace Equity Act do not exist in any form that I can find.

When candidates for the Senate are interviewed about their opinion on this issue -- which doesn't happen often, but does happen -- their answers often reflect as much ignorance of this issue as I had last night. Actually, scratch that, MORE ignorance (unaware that the complexity derives from classification of product or service, not rate, and secondarily from finely defined local jurisdictions below the state level to charge different rates, thinking a new national sales tax with revenue to the federal level is being proposed, etc. -- and that's before the hoary chestnuts about no new taxes/let's reduce the existing taxes instead).

I do get that there are a lot of issues out there. But if we could fix this -- and it really looks like the Streamlined Sales Tax Project has gone a long ways towards fixing this, and is the basis for some of the state-by-state deals currently being negotiated by Amazon, which suggests it is a reasonable thing to build a Federal Act on top of -- we could do a lot to fix state budgets.

Which would do a lot to fix our faltering economy.

ETA: Worth looking at:

http://www.salestaxsupport.com/blogs/sales-use-tax/internet-tax-ecommerce/the-marketplace-equity-act-mea-comparison-main-street-fairness-act-msfa/

http://articles.boston.com/2012-07-25/business/32830786_1_main-street-fairness-act-streamlined-sales-sales-taxes

And a surprisingly insubstantial blog entry at The Hill:

http://thehill.com/blogs/congress-blog/economy-a-budget/239963-sales-tax-fairness-an-opportunity-for-bipartisan-cooperation

I _really_ don't get why people aren't looking at the really massive policy implications of the two different bills. But then, I also don't get why people are so focused on price competition and sales tax (which has zero impact on my shopping on Amazon when I lived in Washington state and paid sales tax at Amazon) and completely unaware of the implications for businesses. The real cost here is how freaking awful it is to implement the existing sales tax policy, a burden unfairly borne only by bricks and mortar, but is a ridiculous burden anyway that needs to be lightened not by reducing the rate, but by simplifying the structure.

ETAYA: WSJ coverage http://online.wsj.com/article/BT-CO-20120726-717603.html

ETA still more: Substantial, definitely not a liberal. I'm a little confused about why he specifically wants a state provided zip tool, given he also wants Streamlined Sales Tax Project with its CSPs. I suspect this makes sense, just not to me yet.

http://economics21.org/commentary/getting-internet-sales-tax-right

Weird Sentences

I try not to expect logic or anything to do with taxes. However, wtf?

http://www.forbes.com/sites/robertwood/2011/09/24/amazon-tax-good-bad-and-ugly/

"If the national Main Street Fairness Act passes it would impose a national tax standard but allow states abiding by the Streamlined Sales and Use Tax Agreement to force Internet sellers to collect tax."

[ETA: The author may have meant the Marketplace Fairness Act, which does have an alternative in place for states not participating in the project. There are two bills in each house, so it is confusing.]

_What_ national tax standard? This sentence should have said, "If the national Main Street Fairness Act passes it would authorize states abiding by the Streamlined Sales and Use Tax Agreement to require Internet sellers above a size set by the Governing Board to collect sales and use taxes."

_That_ would have accurately (altho inevitably incompletely) described the act. Also, Amazon, Home Depot and Wal-Mart is not an odd alliance. It is an extremely sensible alliance, all of whom stand to benefit from this arrangement, because it would drastically reduce (over the long haul) their tax compliance liabilities, in part through the project's amnesty provisions and in part through the indemnification provided by relying upon state supplied information and/or CSPs.

Still More About State Sales and Use Taxes

Here's the Senate Marketplace Fairness Act (bipartisan, for reelz):

http://www.marketplacefairness.org/bill-text/

As near as I can tell, the really beautifully thought out, comprehensive legislation that was the Main Street Fairness Act and the really pathetic and awful legislation that was the Marketplace Equity Act got spliced together, with the single paragraph Section 3 A being what is left of Main Street and the rest of it being Marketplace Equity. All of the stuff in Main Street devoted to how you take a voluntary organization and essentially make it an arm of the government (how do you appeal Governing Board decisions?) is gone. You just never know how anything works out in practice, but I'm sort of suspicious this thing was designed to provide cover for bipartisan consensus around the Streamlined Sales and Use Tax Agreement (sorry I wasn't using the correct term before) that had initially hit a wall over its introduction as a bill sponsored by Democrats. I have this feeling that the Republican Senators involved in this come from states that have recently inked deals with Amazon to collect taxes and give tax incentives and blah blah bleeping blah in exchange for job creation associated with fulfillment, data, etc. centers.

But that might just be paranoia on my part.