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The Almighty Buck Government Technology

State Technology Taxes Face Stiff Resistance 167

SonicSpike writes "As the nation moves from a tangible goods-based economy to a service-based economy, a few states are trying to keep revenues robust by taxing technological services such as software upgrades and cloud computing. But a backlash from the high-tech industry has quashed most efforts. As a result, the U.S. has a patchwork quilt of state taxes on technological services. Some states that have tried to impose such taxes have failed spectacularly, and most have not tried at all. According to the Tax Foundation, a nonpartisan think tank that studies taxes, only 10 states (Connecticut, New Mexico, Hawaii, South Dakota, Mississippi, Missouri, Nebraska, Tennessee, Texas and West Virginia) and the District of Columbia tax all writing or updating of software. Only New Mexico, Hawaii and South Dakota levy their general sales taxes on all software services. States with sales taxes do, however, levy those taxes on software that is sold on CDs or other hard storage materials. About half the states also tax 'canned' (non-altered) software that can be downloaded, according to the Tax Foundation. Elia Peterson, an analyst with the foundation, said in a recent paper that states are reluctant to tax computer services in large part because it 'is an especially mobile industry and could easily move to a lower tax state.'"
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State Technology Taxes Face Stiff Resistance

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  • by Anonymous Coward on Thursday October 31, 2013 @07:22AM (#45289467)

    There ain't no such animal, Jim.

  • Nonpartisan? (Score:4, Informative)

    by Sponge Bath ( 413667 ) on Thursday October 31, 2013 @07:22AM (#45289471)
    The Tax Foundation is nonpartisan in the sense they are against taxes and regulation and are run by representatives from Koch Industries, Exxon, former Bush-Cheney campaign advisers and Republican politicians. That kind of nonpartisan "think tank".
  • In Canada (Score:4, Informative)

    by msobkow ( 48369 ) on Thursday October 31, 2013 @07:23AM (#45289473) Homepage Journal

    In Canada, all goods and services are subject to the GST (Goods and Services Tax.) In many provinces, they're subject to HST (Harmonized Service Tax), which basically takes the rules of GST and adds on a provincial percentage.

    It hasn't caused our software industry to implode because the taxes are applied across the board throughout the country.

    Unlike the US, you can't just lobby your way to a tax exemption here. The goobermint is gonna get their share come hell or high water.

    • In the US, we just buy our products & services via venues like Amazon and simply forget about those troublesome taxes.
      • by bjwest ( 14070 )
        I purchase from venues like Amazon because I live in a town of ~10,000 with a Wal*Mart Supercenter, Walgreens and two grocery stores, not to avoid taxes. There is nothing else within 30 miles of me.
      • by stymy ( 1223496 )
        I live in Ontario, and when I buy from Amazon, I still have to pay HST.
    • In Australia and New Zealand we also have a GST system just like Canada. And Simgapore.

      It's what a sensible country does. Your state based tax system is pretty brain damaged and only going to cause more and more problems as time goes on..... goodluck with that.

      • Simgapore

        Is that your latest creation in Sim City?

      • by cdrudge ( 68377 )

        Your state based tax system is pretty brain damaged

        It would be a great improvement if it was just state-based. There's nearly 10,000 sales tax jurisdictions in the US, and each jurisdiction can have multiple categories for taxable goods based on product or service type. Taxes can be flat rate or progressive. It's a nightmare.

        • Re:In Canada (Score:5, Insightful)

          by Entropius ( 188861 ) on Thursday October 31, 2013 @09:34AM (#45290325)

          I live in Washington DC and went to go buy some soup at a Vietnamese takeout place the other day.

          The sales tax is 6% here, but it's 10% on food. (It's an "entertainment tax"). Fine, I knew about that. But the check didn't add up.

          There's a nickel tax on plastic bags: the city claims that it's to protect the Anacostia River from being polluted with bags. (Nobody has ever considered trying to get the folks who live by the river in Southeast from throwing their damned bags into the streets.) But I knew about that too, and the check still didn't add up.

          Turns out there is also a quarter tax on to-go containers of any kind, including the little thing my soup came in.

          Meanwhile, the last time Massachusetts Ave. was paved, it was paved by Barney Rubble. So these soup taxes sure aren't going to anything useful.

          Urban tax codes are ridiculous.

      • by geekoid ( 135745 )

        Just because you don't understand how somehting works, or it's the way it is doesn't make it brain damaged.

        • by AK Marc ( 707885 )
          Nobody understands how it works. Most places with an income tax have a formula similar to state income taxes. "take metric A, send us XX% of it" The US has multiple classes of income, piles of deductions and exceptions, almost as many rebates, progressive tiers with regressive caps, and many other contradictory schemes.
      • In Australia and New Zealand we also have a GST system just like Canada. And Simgapore.

        It's what a sensible country does. Your state based tax system is pretty brain damaged and only going to cause more and more problems as time goes on..... goodluck with that.

        State taxes (or provincial ones in Canada) are bad enough but manageable due to limited numbers, and you usually know if you're in one state/province or another.

        But the US goes even further and has county/district sales and use taxes, adding thousands of slightly different tax rates across the country. Check out California's [ca.gov]... and that's just for locations starting with "A"! Texas has an an equally ridiculous long list of slightly different rates [state.tx.us].

        This means that the shop down the street, but in a different

      • It's what a sensible country does. Your state based tax system is pretty brain damaged...

        It might be sensible from some perspectives but not others. The Australian Federal Govt. collects the GST but the total take must be returned to the States and Territories (part of a deal for notionally retiring a bunch of State taxes, duties etc.). Australia has just six States and two Territories but still manages a serious pile of bullshit, petty squabbles when dividing up the GST take. States have still managed to hold onto some of the so-called retired taxes and introduce new ones as well. Using

    • by gl4ss ( 559668 )

      that's how it is in most of the world, unless you're dodging taxes.

      I mean, surely haircuts are taxed in USA? and plumbers? manicures, makeup sessions and cosmetic surgery surely is taxed under services taxes.. soooo what the fuck is so hard about enforcing the tax laws?

    • by rossdee ( 243626 )

      "It hasn't caused our software industry to implode because the taxes are applied across the board throughout the country.:

      The thing is that software, and other stuff that is data,(Ebooks, game downloads, music etc) can be purchased outside a country or state, and delivered via the internet. The country or state doesn't have jurisdiction to tax the transaction.

      Of course if the purchase is of something that thte buyer is going to claim as a business expense, then they may have to pay taxes on it. If its somet

      • by geekoid ( 135745 )

        "The country or state doesn't have jurisdiction to tax the transaction."
        Actually they don't tax the company, the tax is paid by the individual, so the individual is required to pay.
        Of course, people are cheap whiny short sighted bastards, so they don't pay their share if they can save some pennies.

        And there is not reason a country can't create a treaty with other countries in that the country of origin collects taxes and then send it to the country.

  • Make your mind up (Score:5, Insightful)

    by PhilHibbs ( 4537 ) <snarks@gmail.com> on Thursday October 31, 2013 @07:27AM (#45289493) Journal

    Are you a country, or are you a federation of states? If you are a country, then get your taxes sorted out. Your states seem to be willing to deprive another state of $100 in order to get $10 themselves, that way has just led to a crisis in state finances.

    • by PhilHibbs ( 4537 )

      And yes, we have something of the same problem over here in Europe, we've removed the trade borders without harmonizing taxes. So a company operating out of Ireland into the UK pays no corporation tax in either. We need to sort that out too.

      • We've more or less harmonised VAT, which is equivalent of sales tax. It's not the same in every state, but it's slowly getting that way, and member states need EU permission to change it (as happened when the UK lowered it to 15% and then brought it up to 20%).
    • Re: (Score:2, Insightful)

      by Anonymous Coward

      It was originally a federation of states (or a United States), however, our current majority political party is working to eliminate that distinction and centralize power in a single federal government (when you hear about that other party trying to "defund" this and "defund" that, they're really trying to get the heck out of business that should be handled at the state and local level - it's not like they think nobody should get healthcare or kids shouldn't go to school).

      One of the few powers explicitly gr

      • by jythie ( 914043 )
        Well, that is pretty well established history. The expansion of the use of the Commerce Clause is pretty well documented. What is less clear and often debated is if this was a good or bad thing on the whole. There are advantages and disadvantages in having a strong or weak federal system, and most of them are related to a specific culture and economic situation.
        • by bondsbw ( 888959 )

          It's not about strong vs. weak federal system. It's about checks and balances. In this case, the states and the federal government were meant to balance each other and provide a system of checks against each other.

          It's about making it so that one small group of people (politicians) don't have total control over the nation, its economy, its military, etc. Imagine what a madman could do with that kind of power today.

          Well, that was the intent, but now I fear we have given the group in D.C. irrevocable contr

          • Waiting for a madman to step into office?

          • by jythie ( 914043 )
            Well, yes and no. The checks and balances that were put in place primarily addressed power sharing within the federal government and state's ability to disproportionally control the federal level. However in terms of weak vs strong, we have always had a 'strong' federal government (weak was tried in a limited form and the delegates agreed it did not work well), it has just been a matter of how strong.
      • The federations of states has become less and less popular as people stopped identifying themselves as belonging to a state. Mobility and migration has made the states meaningless. People identify more with sports teams than they do with state goverements. I spent my childhood in OH, college in KY, and now work in IL. I have family in IN, KY, FL, TN, and TX. State law only covers a fraction of the places I care about.
      • by AK Marc ( 707885 )
        The "other" party is interested in corporate welfare and increasing spending. The only practical difference is one party is willing to pay for what they spend (through taxes) and the other is willing to irresponsibly borrow all they spend (through deficit spending).
    • Half of us want to turn us into a European-style country, the other half prefers a loose federation of states.

      Europe and the EU haven't gotten this sorted out either.

  • by barlevg ( 2111272 ) on Thursday October 31, 2013 @07:33AM (#45289513)

    As the nation moves from a tangible goods-based economy to a service-based economy

    Because in the future, we will all move out of our houses to live in the cloud, we'll forego food in favor of HTTP cookies and email spam, and we will transport ourselves to our destinations not with cars but with through internet traffic.

    Now, I know what you're thinking--we'll still need to buy computers to make this magic happen. But, you see, in the future, all of our computers will be virtual machines.

    • You are being sarcastic, but isn't it pretty much taken for granted that we will all become wandering self sufficient nomads powered by nanoassemblers and fusion reactors in place of lungs and intestines? Space-adapted of course since we will eventually disassemble the Earth for raw materials.
  • I wasn't aware that "as" meant "three decades after".

  • Sales tax (Score:4, Insightful)

    by Charliemopps ( 1157495 ) on Thursday October 31, 2013 @07:53AM (#45289603)

    There should be only a single tax. Sales tax. It should apply to all sales equally. There should be no loopholes and it shout not be "progressive" (i.e. higher rate for the rich) There should be no deductions or tax deadlines. It would be very simple and fair. Lastly it would encourage savings rather than consumption which is something we need desperately right now. Our current "progressive" system results in the rich paying less than the poor in many cases because they are better equipped to use the system in their favor. In a sales tax only system they would naturally pay more in taxes because they have more discretionary income.

    There is absolutely no reason we need separate little "mini" taxes on every product, sales event, and service there is. The sole purpose of all of our tax mess is to obfuscate the real percentage we're all paying in taxes.

    • Re:Sales tax (Score:5, Insightful)

      by MozeeToby ( 1163751 ) on Thursday October 31, 2013 @08:12AM (#45289699)

      You can have your flat tax when you have a guaranteed minimum income for every man, woman, and child in the country. Until then, all you're doing is massively, massively increasing the burden on the poor. There are basic requirements to live, levying a 25% sales tax (more realistic would be 40% or more to maintain current funding levels) on poor people who already don't meet those requirements is just incredibly stupid.

      • by Entropius ( 188861 ) on Thursday October 31, 2013 @09:44AM (#45290411)

        What would you say to a flat sales tax (or VAT or goods+services tax or similar) combined with a national income?

        25% tax (or whatever) on everything, everyone gets a check for $thousands per year, which they can spend on ice cream, rent, food, or whatever else they please, replacing all other handout/welfare programs. It's been proposed by quite a few people.

        • I would say that the wealthy don't need another tax break. Only a tiny proportion of their money would ever go towards tax, since only a tiny proportion of their money ever gets spent on taxable goods or services.

          They're already rich enough. I don't think it's in society's best interest to further increase the current disparity in wealth distribution. If you feel that greater disparity in wealth distribution is better for society, feel free to explain the basis for that belief.
      • I was about to post a mathematical rejection of that idea, but you know, the numbers aren't really that crazy. Someone correct me if I've made a big mistake somewhere, but I've used the poverty level income from here: http://aspe.hhs.gov/poverty/13poverty.cfm [hhs.gov], used the GDP as roughly the total spending we can tax (found here: http://www.tradingeconomics.com/united-states/gdp [tradingeconomics.com]) and used the 2012 budget figures from here: http://en.wikipedia.org/wiki/2012_United_States_federal_budget [wikipedia.org]

        Basically, if you want to p

        • They promised us that the money would be collected federally, and returned to the states, with the states cutting all of their sales taxes/stamp duty/other crap. As you might imagine, the federal government used their new power to put pressure on the states, so the states couldn't afford to get rid of all their taxes and we're left with a big mess. I don't have any hopes that the US would do better...

          That is a very interesting comment, and a very good point. I never thought about that, but it would almost certainly be a huge problem in the US as well. It would have to be collected at the state level. Thanks

    • I'm not quite sure sales tax is simple and fair to begin with. The Fed and State already get their cut of my income when I make my money, then they take another cut when I spend it, and another cut from the company that got the sale on those same dollars. Seems to me that a flat cut on income and corporate earnings would be enough, without the hand in the middle as well.
      • There are some big advantages to replacing the income tax with a sales tax: Cost of compliance and Personal Privacy. Your personal cost to comply now would be zero. You are no longer have to send a report to the government every year. Because it is none of their business how much you make.
        Yes if you are in a business which sells things, you have to pay the tax, but in most states you are doing that already. And your burden to report everyone's income is gone so you are saving time and money there.

      • by geekoid ( 135745 )

        Tax work best when the tax happens when the money moves.
        The only time money has value is at the moment it changes hands.
        Everything else it point scoring and project potential.

        • There's that idea, though, that if you tax something you get less of it.

          It's more correct to say that money only creates value when it changes hands; the point of a medium of exchange is to enable barter-by-proxy where everyone comes out better in the end. Since exchange of money for goods and services is the key activity that creates value in an economy, taxing it puts a damper on economic activity. (Suppose someone has a business idea that runs at a margin of 5%: I can make a widget for $10 that people wo

        • by Wildclaw ( 15718 )

          Tax work best when the tax happens when the money moves.

          Not really. Taxes works best when they target production directly at the source as it is being produced.

          Targeting the sale means that you are targeting the wealth production way too late in the chain. In any sufficiently advanced society you end up with large amounts of wasted production capacity.

          • I don't follow your logic. Does a factory lay off its workers just because the final consumer is going to pay 7% on top?

        • by AK Marc ( 707885 )
          The most economically efficient tax is taxing wealth. That's hard, so we tax income instead. The least economically efficient is taxing consumption. When I say "economically efficient" I mean greatest burden on those with the most means and greatest benefit from government services. Hoarding wealth doesn't benefit the economy, moving it does, which is why taxing moving wealth is economically inefficient. Taxing stationary wealth will incent moving it, improving the economy.
    • There should be only a single tax. Sales tax. It should apply to all sales equally. There should be no loopholes and it shout not be "progressive" (i.e. higher rate for the rich) There should be no deductions or tax deadlines.

      So, based on the size of the US economy and the US governments, you like the idea of a 20-25% sales tax? Because that's what it would take to pay the various government's bills...

      Just curious.

      • So, based on the size of the US economy and the US governments, you like the idea of a 20-25% sales tax? Because that's what it would take to pay the various government's bills... .

        No opinion here........The theory, as it goes, is that if you do away with income and corporate taxes, the price of an individual item would drop by some amount before that 20% or more sales tax is added. So if, for example, 20% of the 'delivery cost' of an item is due to corporate and income taxes, and you added 20% sales tax, the end cost would be the same. I think most would predict that the item would probably wind up costing some amount more to the consumer. Some folks would have more money to spend s

        • The theory, as it goes, is that if you do away with income and corporate taxes, the price of an individual item would drop by some amount before that 20% or more sales tax is added.

          The theory seems to ignore the fact that corporations buy things too, and thus would be paying the sales tax as well. Which will offset (to an unknown degree) the savings from lack of income/corp taxes.

          Ultimately, it should be a wash, since you're just replacing the revenue from many taxes with one tax.

          On the other hand, I've

          • The theory, as it goes, is that if you do away with income and corporate taxes, the price of an individual item would drop by some amount before that 20% or more sales tax is added..

            No, the theory actually includes that, but I did fail to mention it.

            Some worry about the lower income folks paying more than they are now, but that would be easy to remedy with refunds, exemptions, or other means. A bigger challenge I think would be to deal with out of country purchases, and things that are used f or incentives, whereas before you would get tax break, under flat sales tax, you would almost have to finance things the government wanted to incentive.

            The greatest challenge might simply be

            • Oh, I forgot to mention that a FST would also likely spur a large amount of black market sales.

              PS: Sorry, I quoted the wrong sentence above.
    • Re:Sales tax (Score:5, Insightful)

      by aralin ( 107264 ) on Thursday October 31, 2013 @08:21AM (#45289749)

      Sales Tax is actually a reverse progressive tax. Depending on the percentage of your income spent each month, you are taxed more or less. The most at 100% income spent, which is poor and lower middle class. Then middle class gets to about 95% spending, upper middle class 85% spending and then you get the rich, which spend generally at 10% or less. So their tax burden is 10 times lower than the poor and middle class. There is nothing fair about a sales tax.

      • There is nothing fair about a sales tax.

        I agree 100% that sales taxes are inversely progressive as a percent of income. I don't agree that there is nothing fair about sales tax. In the sense that everyone pays the same tax for the same purchase, they are completely fair. Progressive taxes are necessary and I believe they are good in proper balance, but it really doesn't have much to do with "fair". I don't like the term 'fair' because it means different things to different folks. Most people agree 'fair' is good.

        • by geekoid ( 135745 )

          y fair, he doesn't mean money, he means impact to the persons actual life.
          A millionaire is still likely to eat, cloths and get around with a 10% sales tax. The lower the income the more it restricts the person.

          Frankly, the first thing I would like to see done is removal of dedication from donations/tithing.
          Then I want the tax on the wealthiest to go back to 1999 rates.
          Then I want a .5% tax on all 'wall street' trades trades.
          Then I want interest deductions removed.

          Than I want a blessings of unicorns for my d

        • by aralin ( 107264 )

          But they don't pay the same tax for the same purchase. The only REAL commodity we have in this life is our time. Money is just a mental construct. If you paid the same amount of time in tax for the same purchase, we could talk about some fairness. But you don't. You pay same amount of some made up number, which for one person could mean a day, for another an hour and for another just a fraction of a second.

      • There is nothing fair about any tax as it will always affect some more than others depending on what metric chosen. The proper question is what form of taxation are we as a society willing to accept to pay for the services provided by government?
    • Your assertion only works in a completely fair society. So maybe it would work in Sparta where they everyone grew up in a barracks. Here in the real world it's not 'fair' because the playing field isn't level. That's why the best way to guess the income of a child growing up is to look at the income his parents had.
    • It would be very simple and fair. Lastly it would encourage savings rather than consumption which is something we need desperately right now.

      Because a recession is not bad enough already, let's discourage economic activity and turn it into Greater Depression!

      Then again, much of the country can't save up because they're already living paycheck to paycheck, so I guess they'd end up paying more taxes and going into deeper debt. But I guess kicking people who are already down is some people's idea of "fair". W

    • by geekoid ( 135745 )

      This, again?
      It' been complete destroyed. There are many reason why.

      Assuming your goal is ACTUALLY to maintain tiered class system with ways to move between the classes.
      If you want 2 classes, Workers and the wealthy, then go right ahead, it would work extremely well.

      Are system can be adjusted, loopholes can be removed. Over all it's a good system, just get involved to make change happen.

      " The sole purpose of all of our tax mess is to obfuscate the real percentage we're all paying in taxes.
      false.

    • by rossdee ( 243626 )

      "Lastly it would encourage savings rather than consumption"

      No it wouldn't, since you would have to pay the tax when you seventually take the money out of the bank and spend it.

      A new or increase in sales tax encourages you to spend the money before the tax comes into force, rather than saving the money up to buy something later.

      I think that only the following items should have sales applied

      Tobacco and other smoking substances (Some of the money go to fund healthcare and quit smoking programs
      Alcohol for recre

    • by C0R1D4N ( 970153 )
      Better yet, only have income tax, since poorer people have to spend a greater percentage of their income.
    • There should be only a single tax. Sales tax. It should apply to all sales equally. There should be no loopholes and it shout not be "progressive" (i.e. higher rate for the rich)

      Actually, the best single tax would really be a tax on land. It has pretty much all of the properties you want a fair tax system to have, and it ensures that land is put to the best use.

  • by jythie ( 914043 ) on Thursday October 31, 2013 @08:11AM (#45289689)
    Given how easy it is for tech companies to uproot and move their entire operation elsewhere, we might be looking at a slow end to the effectiveness of state level taxes. Over the last few decades we have been seeing a 'race to the bottom' in some industries, with regions dropping corporate taxes to near nothing or even investing public money in encouraging companies to move there, while shifting the burden of paying for it onto the middle/low end workers. If a state tries to stand up and tax an industry, companies move to another state. The net result is a steady decrease in state's ability to fund themselves and an increasing reliance on federal money (since companies have a harder time escaping those taxes easily).

    Long term we might simply be looking at a situation where it is pointless to even try to tax some industries at a local level.
  • by EngineeringStudent ( 3003337 ) on Thursday October 31, 2013 @09:14AM (#45290157)

    Read "Wealth of Nations" by Adam Smith and take microeconomics 101.

    Service economy is a transitionary state where you have no creation of value, and the money hasn't yet been drained, and poverty. People pass around the same dollar bills, but only a tiny minority actually create value. Given the natural system perturbations that must come - that is an unsustainable model. It is the glass vase on the top of the wobbly table. It must crash.

  • As it stands every little thing seems to attract a tax. We even do things that are counter to our announced intentions just to find a new source to tax. For example some states now apply a special tax to electric vehicles under the excuse that they don't pay gasoline taxes. You can bet that some governmental idiot is thinking about taxing bicycles as they also pay no gasoline taxes. That makes as much sense as taxing people who walk rather than drive as they also do not pay gasoline taxes and afte

    • Bicyclists ought to pay for all the bike lanes they are forcing on us. Those are expensive to build!

      The cost for sidewalks for pedestrians is hopefully already covered by a property tax.

      I think we should tax home owners with a luxury tax if they have a car or boat in their driveway. As I'm sick of looking these toys on every suburban street.

      Electric vehicles should pay an EV tax or agree to a GPS recorder and millage tax to pay for public roads. I would be OK with suspending the gas tax entirely and switchi

  • So, in the states that have sales tax on sales of software on CDs or other tangible media, does this mean we can forego the "license" fiction and consider the purchase to be an actual sale?
  • What are they even talking about? You buy ANYTHING in the state, it's taxed. Buy ANYTHING from outside the state, it's not taxed. Unless the product is classified specifically as tax exempt, it gets taxed. I know this, as I run a computer repair and accessories store. If I sell a copy of Malwarebytes, it's subject to sales tax because it is a thing and I'm selling it in the state. So saying they might start taxing software sales is idiotic. They either already do or it's interstate so it's against Fe
    • by AK Marc ( 707885 )
      Most states with a sales tax *do* tax interstate sales, they just don't force the merchant to collect it, as they do for in-state sales.

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