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Should You Pay Sales Tax on Internet Purchases? South Dakota Law Could Be The Test (pcworld.com) 347

An anonymous reader shares a PCWorld report: A new South Dakota law may end up determining whether most U.S. residents are required to pay sales taxes on their Internet purchases. The South Dakota law, passed by the Legislature there in March, requires many out-of-state online and catalog retailers to collect the state's sales tax from customers. The law is shaping up to be a legal test case challenging a 25-year-old U.S. Supreme Court ruling that prohibits states from levying sales taxes on remote purchases. Unless courts overturn the South Dakota law, it will embolden other states to pass similar Internet sales tax rules, critics said. The law could "set the course for enormous tax and administrative burdens on businesses across the country," Steve DelBianco, executive director of e-commerce trade group NetChoice, said in a statement. If dozens of states adopt Internet sales taxes, online sellers could face audits and changing tax rules in thousands of taxing jurisdictions nationwide. Even with software that could make tax calculations easier, that would be a burden, NetChoice says. And online shoppers could end up paying up to 10 percent more for many products.
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Should You Pay Sales Tax on Internet Purchases? South Dakota Law Could Be The Test

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  • by digitalderbs ( 718388 ) on Tuesday May 03, 2016 @03:39PM (#52038233)
    Major retailers like Amazon already have to collect sales tax for out-of-state purchases in Illinois. I also live in Chicago, so I have to pay some sort of Cloud tax for Netflix and related services.
    • Re: (Score:3, Informative)

      by TWX ( 665546 )
      That's because Amazon has a business-presence in Illinois. When the selling agent has a presence in the state it's really not possible to justify the purchase as an out-of- state purchase.
      • by EvilSS ( 557649 )

        That's because Amazon has a business-presence in Illinois. When the selling agent has a presence in the state it's really not possible to justify the purchase as an out-of- state purchase.

        They did not have a presence at the time that this change went into effect. IIRC it was part of deal in return for some tax credits on a new warehouse they want to build or something and to get the state off their backs about it.

  • This has been in the back of everyone's mind for quite awhile. One of the big arguments made by online retailers was that sales tax regulation varied too wildly from state-to-state....which is why you see quite a few states getting on board with the Streamlined Sales Tax project. You can bet that once South Dakota can prove that it works, other States will follow.

    https://en.wikipedia.org/wiki/... [wikipedia.org]

    • by rahvin112 ( 446269 ) on Tuesday May 03, 2016 @04:26PM (#52038669)

      Supreme court precedent is that states can't do what south dakota just did. The first time SD tries to take an out of state retailer to court for non-payment of taxes they will lose and the law will be invalidated unless the SC is willing to review and undo the previous precedent. The SD legislature can't override the supreme court.

      There is a very valid reason that sales tax is too difficult to collect out of state, even with software. Louisiana has over 1000 sales tax districts and every single district has exceptions in place that tax some items and not others often at multiple different rates and just this year they revised the system almost completely by changing around which are taxed and which aren't. That's one state, this behavior isn't limited to that one state.

      My state has relatively simple sales tax rules with only half a dozen districts with consistent taxing polices between them only different rates but this isn't the norm. The complication here is immense and if the business doesn't have a presence in the state they shouldn't be taxed unless the hosting state joins these voluntary state efforts or the fed's pass a national sales tax harmonizing law for out of state purchases.

      Those are really the only two options IMO.

      • Louisiana has over 1000 sales tax districts

        I know, I live there :-) I worked on the State software for it, we probably know each other.

      • I don't see how any company without a national footprint could possibly handle keeping a database up to date of what items fall under what tax category and rate depending on the purchasers jurisdiction. I think it would truly be almost impossible.

        • For any business without sufficient revenue and sales to handle the massive tax attorney bills filing such paperwork would incur would essentially be bared from interstate commerce and that is exactly why the supreme court set this precedent in the first place.

        • That's a major reason that these laws are such a terrible idea. One thing many people forget in these cases is that the two obvious lookups, ZIP codes and the "city" field in your address, are set by the USPS for its own convenience; and do not necessarily correspond to the borders of any jurisdiction, tax or otherwise.. I actually used to live in a town that spanned parts of three ZIP codes and two counties. And because of the odd shapes of the borders and the location of the local post offices and thei

      • by Anguirel ( 58085 )

        Just saying "1000 different districts" doesn't even explain how bad this actually can get. I looked into some of this at one point when working QA on a web store back-end where they were possibly going to be required to collect taxes in some places, and it can get to be an absolutely insane nightmare to try and handle every possible case. IIRC, our worst edge-case scenario they liked to test against had a single block of a street where the houses had 5 different tax rates. Opposite sides of the street had d

        • The feds could pass a national internet sales tax harmonization bill. There's been one sitting in committee for about 12 years. It basically says collect the rate where the warehouse is or a minimum of 6% and remit that to the state of the purchaser. But it's never going to be passed by congress. It goes against Republican no-tax pledges and violates the idea that the internet should be tax free. It dies in committee every year because of this. And this is exactly why the supreme court precedent still appli

  • by nimbius ( 983462 ) on Tuesday May 03, 2016 @03:42PM (#52038267) Homepage
    instead of enforcing tax law to reap a trivial amount of tax from middle and lower class americans, how about eliminating tax holidays for major multinational corporations and reforming tax law for conglomerates that often pay no tax in the state through creative chicanery? I mean granted it means your political class is going to suffer underfunded elections, but it would be a refreshing change of pace to have a legislative body that didnt operate to serve the allmighty dollar.
  • They say that these days, smartphones and computer software can calculate sales tax easily, and that was apparently what was burdensome for a seller to have to calculate for every destination in '92, leading to the decision at the time to for online sellers to not have to bother with collecing sales tax. While obviously smartphones didn't exist at the time, I'm not sure what's change in the realm of computer software that it is somehow allegedly easier now than it used to be.
    • Nothing has changed. This is why the Feds have protected this so far. It is a burden for companies to figure out sales tax. Amazon has been fighting this for years - they [claim to be willing] happily collect sales tax if the States would standardize the tax formula.

      Shipping is way easier as it is a linear model. "shipping an item from zip to zip that is 1,000 miles apart, at $0.50 per mile per pounds gives....X"

      Not so for sales tax. For instance in my state there is a Sales tax, and then each Town is allo

      • by DogDude ( 805747 )
        It's no more of a burden then any other kind of taxes. Most small employers pay companies to help them calculate the correct payroll taxes taken out of everybody's paychecks, for example. It's a trivial service. This would also be trivial.

        Sure, it's a small burden, but why shouldn't there be ANY kind of burden to a company selling things in all 50 states?
        • If you're talking about a company with significant revenue and employees and such, perhaps they can handle the burden. What about the millions of people selling stuff on their own? What about people making maybe a few thousand a year selling stuff as a side business? Kill off all that economic activity with the burden of calculating and remitting all these different taxes and the economy would suffer considerably.

    • Tax calcs for this stuff has been handled by companies like Vertex since 1978 and before (API's and up to date calc systems). It wasn't really a problem in 92 in that the market already provided a solution that pretty much every non-mom and pop shop with interstate retail/catalog/online sales was already using.
      • Bullshit. It was enough of a burden in 1992 for the Supreme Court to say that it was. Back in '92 we had computers; now having smartphones doesn't change that fact. Retailers that set up a physical store in some location only have to know that ONE location's taxing structure. That's it. Having 50 states' worth of sales tax structures would be difficult enough, let alone tens of thousands of taxing districts.

        You also managed to ignore audits. When Butt, MT sends a you request for an audit, because you
    • OK. Let's say I'm some random guy on the Internet that wants to sell pieces of paper (let's keep it simple). Small company, two sales per week. How do I make my "computer" magically know about all the tax districts in the US and be able to calculate this?

      The answer is that I'd likely have to pay hundreds or thousands of dollars a year to a 3rd-party to do this for me, or it would be even MORE expensive doing the continual research and data entry myself. That's not just unfeasible, it wipes out entrepren

      • by mark-t ( 151149 )
        Which is not any different than it was in 1992, That's what I'm saying... what's supposedly changed?
  • If only we had some kind of calculating device that could reference a table of tax rates updated on a regular basis...

    It is, in any case, a considerably easier problem than calculating shipping costs and noone seems to have a problem with that.

    And if you look at the amount of money multinational businesses spend to avoid corporate taxes, the cost of handling sales tax is trivial.

    You can't have public services without taxation. The internet doesn't change that. In the end, people need schools more than

    • by plover ( 150551 ) on Tuesday May 03, 2016 @04:25PM (#52038647) Homepage Journal

      If only we had some kind of calculating device that could reference a table of tax rates updated on a regular basis...

      If that's all it took...

      Let's say you are shipping a fluorescent yellow vest from California to Minnesota. In Minnesota, clothing is not taxable, but safety equipment is. Do you collect tax on it? Does their state consider it clothing or safety equipment? Add a pair of reading glasses to their order. Minnesota taxes general merchandise at one rate, while medical devices are taxed at a much lower rate. Which rate do you choose? Or are glasses considered clothing, because you wear them? What about a boxed set of grill accessories that includes a fork, a spatula, an apron, and an oven mitt?

      Now ship a swimsuit to Pennsylvania. Clothing is taxable there, but sporting goods are not. Is swimwear taxable there? How does your cart service even know if it's a swimsuit when your online site only knows the product as Item#123456?

      Next, ship a bicycle fender to a Houston, Texas, address. The law says you pay a higher tax rate if there is a public bus stop on your block. What tax rate do you charge?

      Ship another fender to a Colorado address. They not only have sales taxes, but they have fees on some items, because some politician vowed not to raise taxes, but made no such promises about fees. Do you collect those fees on a fender? Do you charge sales taxes on those fees?

      Do you charge tax on the shipping? That depends on whether you are shipping as a service to the customer (services are taxable in some states), or if you're shipping it because you don't stock the product in their state (a business expense.). Do you charge shipping taxes at the rate of the point of origin, or at the rate of the destination? To which state do you send the money?

      In all these states, anyone doing business in their borders has to answer these questions because it's their law. Do I have to know every law in every town in America?

      The states are a mess of thousands of such stupid and incompatible laws, each passed on behalf of some corrupt politician's crony. Never think it's easy just because it seems like simple math.

      • It's interesting that when this was first looked at in 1992 the specific reasoning behind not levying a 'use tax' was that the burden would be too high. It seems so me that if that's the case then there's probably scope to allow levying use tax on outside purchases if a way can be found to make the burden reasonable. For instance, could the court decide that use tax could be levied if there was a flat rate of use tax that applied to all items, whatever their type, if purchased from an out-of-state supplier?

      • by DogDude ( 805747 )
        Spoken like somebody who has never run a business....

        NO taxes are simple. Payroll taxes are complicated. Local sales taxes are complicated. Corporate and personal taxes are INSANELY complicated. That doesn't mean it's a good idea to just not pay them. That means that as a business, you simply pay a service a small fee for taking care of all of this for you. Intuit does it for payroll stuff now, and that works just fine.
      • Next, ship a bicycle fender to a Houston, Texas, address. The law says you pay a higher tax rate if there is a public bus stop on your block. What tax rate do you charge?

        Are you sure that's sales tax and not property tax? That doesn't make sense. If I'm in Houston and I go into a McDonald's and buy a milkshake, will the cashier ask me if there's a bus stop on the street where I live and if so charge me a higher rate of tax on that milkshake? Or does it only apply to bicycle fenders?

        • For physical purchases, sales tax is based on where the sale happens, so the tax rate will (presumably) depend on whether or not the McDonald's has a bus stop on its block.

          But if I ship you a bicycle fender, do we base it on whether there's a Houston bus stop on your block, or on mine? The law has always been that you have an obligation to pay if there's one on yours; this new law is attempting to shift the burden to me (a seller in another state who probably doesn't even know how Houston sales taxes work)

    • by suutar ( 1860506 )

      if only we had a table of tax rates that was updated on a regular basis and covered every sales-tax-handling regional entity.

      • It's a little entertaining to see all of these comments from people that are completely unaware this problem was solved in the 70's and that most companies with sales tax calc requirements just use these services either via API or local software that is kept updated.
        • by suutar ( 1860506 )

          Awesome! Do you have a pointer? I'm curious how they keep up to date on county and city stuff everywhere.

    • It is, in any case, a considerably easier problem than calculating shipping costs and noone seems to have a problem with that.

      No it isn't, you fail to realize the scale of the problem. Louisiana has over 1000 separate sales tax districts and every single one has exceptions that exempt certain items from part of the taxes while the state has it's own list that exempts certain purchases. (the total rate has two components, one state, one local) This type of sales tax situation is not unique to a certain state

    • The U.S. Supreme Court ruling in Quill Corp. v. North Dakota [cornell.edu] had nothing to do with the difficulty of computing sales taxes across multiple jurisdictions and everything to do with the Commerce Clause of the Constitution of the United States.

      Some call the application of the Commerce Clause in this matter the "negative" or "dormant" Commerce Clause because it not only grants a specific power to the Congress but also prohibits certain actions by the states.

      From the ruling in Quill:

      ...the Commerce Clause is more than an affirmative grant of power; it has a negative sweep as well. The clause, in Justice Stone's phrasing, "by its own force" prohibits certain state actions that interfere with interstate commerce."

      One of those prohibited acti

    • by Ichijo ( 607641 )

      You can't have public services without taxation.

      When you don't make a distinction between taxes and user fees, it's easy to reach that conclusion.

      (Fines can also be used to pay for public services, but we won't go there.)

    • reference a table of tax rates updated on a regular basis

      OK, give me one.

  • Don't be unclear (Score:5, Informative)

    by gurps_npc ( 621217 ) on Tuesday May 03, 2016 @03:46PM (#52038299) Homepage

    Let's be clear about what is going on here.

    1) The laws already require you to pay sales taxes on EVERYTHING you buy. But the courts said that out of state sellers did not have to collect the sales tax - you were supposed to figure it out and send it to your state yourself.

    2) The laws being proposed are not new "internet taxes", but instead simply attempts to force out of state sellers to collect the sales tax you owe for living in your state. If you live in Oregon, your state has zero sales tax (and no local taxes either), so this won't affect you at all.

    This is about stopping people from failing to report taxes they owe on out of state purchases, not a new tax.

    • Re:Don't be unclear (Score:5, Informative)

      by twotacocombo ( 1529393 ) on Tuesday May 03, 2016 @04:00PM (#52038425)

      Let's be clear about what is going on here.

      1) The laws already require you to pay sales taxes on EVERYTHING you buy.

      False. Not everything is taxable. Here in California, they've even created an easy-to-use 45-page document that clearly outlines the exemptions and exclusions for sales and use taxes. Behold:

      http://www.boe.ca.gov/pdf/pub6... [ca.gov]

      So easy, even a caveman can do it! Now imagine having to go through that guide, comparing it to all of your out of state invoices and receipts collected through the year, and calculate your taxes due to the penny. Fuck that shit. When they can get corporations to pay their fair share, and quit pissing away all the tax revenue they do collect, then we can talk about the extra $12 grandma owes because she bought a box of beanie babies off eBay

    • States like the idea that you have to pay sales tax on things purchased from other states, but it is likely they can't actually do that. Section 8 of the US Constitution states:

      "[The Congress shall have Power] To regulate Commerce with foreign Nations, and among the several States"

      Likewise Section 10 states:

      "No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of a

  • Terrible description (Score:4, Informative)

    by jratcliffe ( 208809 ) on Tuesday May 03, 2016 @03:49PM (#52038333)

    "The law is shaping up to be a legal test case challenging a 25-year-old U.S. Supreme Court ruling that prohibits states from levying sales taxes on remote purchases."

    Actually, the law says that states can't require SELLERS to COLLECT sales taxes in states where the seller doesn't have a presence ("nexus"). Virtually all states that have a sales tax also have a use tax which requires people to (in effect) pay sales tax on items they purchase out of state. Few people actually pay this, since enforcement is very difficult, but that doesn't change the obligation.

    The question isn't whether you're obliged to pay tax on an out of state purchase - the question is whether the entity you're buying the product from is required to _collect_ that tax from you.

    • by fermion ( 181285 )
      This is the key, whether a retailer have to collect sales tax. Historically what would happen is that I work in MA by live in NH. Should the retailers in MA be required to collect additional sales tax because I am going to use the product in MA. What created the most problems was mail order, where I buy seeds from Iowa to plant my garden in Ca. The seeds are clearly going to be used in Ca so the retailer should collect tax and send it Ca. This is clearly a budersome process, so it was decided that reta
      • by Luthair ( 847766 )
        You do leave out the fact that you would be paying the Maine sale tax, whereas on the Internet you currently pay neither.
  • But why couldn't each state just create a single interstate commerce tax rate for this situation?
    That way the complexity businesses complain about is removed (look a table with only 50 -52 entries), then let a state figure out how to divvy up within itself.
    Simplifies for business, states get the some/most of the revenue they think/know they are currently denied.
    Well, sucks for the consumer - but puts the consumer in right legal standing, fulfilling the use tax laws.

    • But why couldn't each state just create a single interstate commerce tax rate for this situation?

      Because the Constitution exists? Interstate commerce is a federal issue.

    • But why couldn't each state just create a single interstate commerce tax rate for this situation?
      That way the complexity businesses complain about is removed (look a table with only 50 -52 entries), then let a state figure out how to divvy up within itself.
      Simplifies for business, states get the some/most of the revenue they think/know they are currently denied.
      Well, sucks for the consumer - but puts the consumer in right legal standing, fulfilling the use tax laws.

      Let me put a counterpoint to your argument.

      Why can't each state just drop sales tax altogether, and make up the difference by reducing collection costs and raising other taxes?

      NH total tax burden, the total amount of all taxes for the average person, is 7.9%. Of the 50 states, we are usually among the 3 lowest by this measure, and occasionally *the* lowest.

      New Hampshire has no sales tax and no income tax, and we do just fine with services per-person (state spending per person) higher than California.

      South Dakota tax burden is 7.1% (lower than us... this year) which is similar. They could easily dump their sales tax altogether and recover

  • What about people who cross state lines to get cheaper gas will they have to pay the difference?

  • This is one of those very rare occasions where I would agree with my Libertarian friends that taxation is theft. Taxing something, merely because you have the power to do so, does not justify the tax.

    At any rate, a sales tax on online purchases will not affect my buying habits. I usually buy things online because I can't get what I want locally.

    • Taxing something, merely because you have the power to do so, does not justify the tax.

      It seems to me that this describes pretty much all tax.

  • by Smidge204 ( 605297 ) on Tuesday May 03, 2016 @04:15PM (#52038549) Journal

    So here's my take on it:

    South Dakota is the fifth least populated state in the country, with roughly 860K people. It would be relatively low financial burden for retailers of any size to refuse services and sales billable to SD addresses.

    Let the SD legislators jump on this political grenade so the rest of the country gets to witness the public uproar that results. Should give politicians reason to reconsider.
    =Smidge=

    • There is no grenade because to actually force out of state retailers to collect the tax they would have to sue them and the supreme court precedent is they can't win those suits. The SD legislature can't override the supreme court. The state would sue, the case would be tossed on a summary judgement motion and the court would invalidate the law and enjoin future enforcement.

      Sucks for the first one they sue because they'll be on the hook for several thousand in legal fees but the law will be invalidated unle

  • by laie_techie ( 883464 ) on Tuesday May 03, 2016 @04:21PM (#52038607)

    Most states (and many counties and cities) have a sales tax for things sold within their borders. Many have a use tax for things to be consumed / used within their borders which were not purchased there. The seller is responsible for collecting sales tax, while the individual is legally obligated to pay the use tax (generally on state income tax return forms).

    Why do I believe that online merchants shouldn't collect use tax for buyers of different locales? Taxes are complicated. One needs to know the exact address in many cases (different cities within the same zip code code have different / additional taxes!). This would force most online merchants to use a 3rd party system for calculating taxes. Place of purchase isn't always place of use. Just because I live in Utah doesn't mean I will use the goods in Utah. I may ship the goods to a friend or family member (birthday present?) who lives elsewhere. I may use the good on a road trip to neighboring Nevada which doesn't have sales tax. This may lead to double taxes on the same purchase. I may legally be obligated to pay sales tax in one locale and use tax for another locale for the same purchase! Online merchants are outside the jurisdiction of locales where they don't have a physical presence. New York City can't force Hawaiian Host to collect taxes from New York City residents.

    • by DogDude ( 805747 )
      Why do I believe that online merchants shouldn't collect use tax for buyers of different locales? Taxes are complicated.

      I assume you don't pay any personal income taxes then, right?
  • There's a broad category of self-assessment taxes you're supposed to be paying : use tax [wikipedia.org] and their ilk.

    State laws almost always indicate that it is the responsibility of the purchaser to account for this. Generally, they require that you pay the taxable difference by percent between the point of purchase and the state of residence.

    Example 1: You purchase a good on the internet from out of state. You pay no (sales) tax on it at the time of purchase , but if you were to buy it in your state, you'd be assess

  • Taxation without representation apply here? Some may say shipping road use but over the road drivers already do pay fuel taxes for states they run through so they cant use that argument IMO.
  • A long time ago I placed an order with Amazon.com. Being a Washington state resident and Amazon being located
    in Washington State my finial payment read I was being charged tax on this item in the event Washington State
    began taxing them, in the event there was no tax involved they would just keep the money.

    I do all my purchasing at Newegg.com now and since.

  • The South Dakota law, passed by the Legislature there in March, requires many out-of-state online and catalog retailers to collect the state's sales tax from customers.

    Good for them, but I live in Texas and have no business presence in South Dakota.

    I'm not subject to the laws of South Dakota, so they are free to pass any law they like and I'm free to ignore it. I'm no more subject to South Dakota's laws than I am to China's laws.

    I sell online, I collect sales tax for Texas, no other states. I have no business presence in any other state.

  • I definitely do agree that figuring out sales tax for local regions and cities would overburden all but the largest businesses. Remember we are not just talking about 50 states here - we are talking cities! And those cities have different taxes depending on whom is being taxed and doing the purchasing. Look at the laws regarding fees on recyclable containers alone. Even with computers the only way to accurately do it all would be to run every purchase though a centralized government computer system; talk ab

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