US Sales Taxes

#1

So starting with the supreme court decision here: https://apnews.com/332abb7455cb4b60b2effc0852ff3c89

You’ve already got the first order reactions of people worried about how this will effect themselves directly. Obviously the courts making a decision that something might be possible isn’t the same as legislation or execution. It’s kinda “wait and see”, but I find it all interesting.

I live in one of the worst states for this, as I know well from writing a bunch of financial/tax software. The model is basically dated back to the brick and mortar era only. In 2017 they finally standardized some of the formatting to accommodate some of the exemptions for particular items. And there are a ton of districts. Like take this: https://dor.mo.gov/pdf/rates/2018/jul2018.pdf and then depending on the type of merchandise and the business (and holidays) you end up with several thousand lines on a return potentially. Weekly and Monthly payments and pre-payments (vs whatever other states do). Oh and to button it all up nobody talks about it but if you pay on time you get to keep 2% of the remittance on the sales tax… so technically you get paid slightly to collect it if your costs are lower.

I wrote software plugging into various APIs to attempt to pull this down and automate it. And other people handled any sort of licensing and actually paying amounts/accounting. That was at a mid-sized company (150+ employees). And we often had specific municipalities coming back to us with various specifics, because we obviously had a very complex return. Amazon on the other hand negotiated to only have to remit the state portion of sales tax after they agreed to build a facility here… which is also shady for different reasons.

Possibly 3rd party products will get you most of the way there, but what’s that going to cost? Better solutions would be for states to clean up and standardize their systems, maybe get a federal ID system for it instead of every state running it’s own thing… though I’m not sure how that butts up against the commerce clause.

Incredibly boring subject, but definitely on my mind today.

#2

For as much as people on the right say they hate taxes, they love sales tax. Even libertarians leaning people have frequently been in favor of flat sales taxes and such. Why?

Sales tax is a regressive tax. If you don’t have a lot of money, you tend to spend most of your money. If you spend 90% of your income buying things at a tax rate of 1%, that taxes your total income at 0.9%.

Now imagine you are rich. You invest or save most of your money. Only a small percentage of your money is used buying things. So if you only buy shit with 5% of your total money and the sales tax is 1%, you only pay 0.05% in sales tax.

The reason we have sales taxes in the US is because before the Internet, it was one of the best ways for states and cities to collect big revenues, especially on people passing through. Consider that NY taxes its residents for a bunch of money. But now consider how much more money they collect on all the sales taxes paid by people visiting NY, commuting to NY. The number of people who buy things in NY is much much greater than the number of people who live here. And the people who live here pay the tax also!

In a perfect world there would actually be no sales tax whatsoever, except perhaps a luxury tax on the most ridiculous of goods. We should tax a BMW, a Lexus or a Ferrari at 50% or even 100%, but tax a Honda Civic at 0%.

So this is actually one case where the fact that corporations having great political influence via corruption is actually helping. Amazon and other online retailers do not want sales tax. They don’t want to have to build a system that collects it and distributes it to every different locality. They don’t want to create situations where people start getting Delaware addresses to ship everything there and then relay the shipping to their actual homes because the extra shipping cost is lower than the tax. They don’t want to show different prices to different people on their site. They do want a competitive advantage over brick and mortar of having a lower price due to not collecting the tax.

That being said, when you do buy things online, and tax is not collected, you are supposed to be responsible for paying that tax yourself. You are supposed to keep track of how much you bought online that was untaxed, and then pay. Most people can’t and won’t do this, self included. That’s why they have a default use tax option. You just pay an average amount, and they let it slide. You have the option to choose to pay nothing, but I suspect that greatly increases your chances of being audited or failing an audit if you do get looked at.

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#3

Yeah, sales taxes, especially flat ones, are regressive and hilariously appealing to libertarian bent “already have their share” types. Oh and they’ll be the first ones to tell you “taxes are easy” or “sales taxes are easy”… as if they never actually had to deal with them, or if they did it was for a small number of brick and mortar type deals.

Only if there’s a use tax. I don’t know in NY, but in my state there is a use tax equal to the sales tax, but not for my county or my city. For that reason I went to Illinois to buy my first brand new car and paid 4.225% instead of 9.775% tax since I paid use instead of sales. It’s absolutely 100% legal in this case, you go down to the DMV to get the vehicle licensed in the state and pay the tax like anyone else.

Funny thing about my county, last year they tried to pass a use tax, but the republican/libertarian bent shot it down because “taxes bad”. But on the other hand I’m kinda amused they did because the county was being super shady and only added that bill to a special election all of a sudden trying to pass it under the radar like they did with a similar “Transportation Development District” sales tax a couple years ago.

These CIDs and TDDs (and the entertainment districts like Branson?) are especially egregious here because it’s often business owners are seeing them as ways to generate extra revenue to fix streets, sidewalks, lighting, etc around their businesses in a way that obfuscates the costs to themselves and the prices being raised. The first few TDDs were actually much more reasonable, like “let’s fix this highway between these four counties”, but obviously any tool can be used poorly.

#4

In NYC and other places the special district rules are usually used to create specific neighborhoods. For example, why is there a garment district in NYC? Why are all these fashion business all in the same area? It’s because they give landlords and businesses various tax breaks if they meet certain requirements. It’s tied into the zoning law.

Example:

That’s what special districts are supposed to be about. Controlling what kinds of things are in which neighborhoods. Give people bonuses for opening restaurants and bars in a certain place, and that will keep them from opening them near residential areas where it is too noisy. It also creates a touristy zone and such which can theoretically bring in more money than you gave up in the tax breaks.

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#5

That sounds more reasonable at least. In my area it’s almost always a very small number of businesses cutting deals in their favor then reneging on any responsibilities. There’s this one notorious business owner that always threatens to pull up stakes to get special exemptions or to not pay for things he agreed to pay for like sewer and water issues. In one case city lines were redrawn in a squiggly gerrymandering-esque way with his thought being that he’ll just get an agreement with a different city as a provider. Then things were under-engineered and water pressure was insufficient for the facilities and now everyone gets screwed on all sides.

#6

This could be pretty crazy for smaller businesses but I think there may be some light, Paypal and Stripe both provide an option to calculate the taxes for you. That might have to be the go to option for most smaller businesses. I know for the small storefront that the company I work for runs it’s what we’re looking to go forward with. It’s just too much of a hassle to keep track of yourself.

#7

That’s the answer.

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#8

Of course, some sales taxes are more regressive than others. In Massachusetts, for example, there is no sales tax on groceries or clothing that falls below a certain “luxury” threshold, which I believe is $200 per item of clothing.

So while you may pay sales tax on your Honda Civic, for example, you won’t pay it on your daily groceries or your new pair of jeans. However, you will pay it on your fur coat. If you’re going to have a sales tax, having items that are considered necessities of living being exempt is the only fair way to do it.

Some states, like Virginia, have a sales tax on all purchases. That is truly repugnant.

Of course, then comes the issue of what are necessities. Groceries and reasonably priced clothing are a no-brainer, but what about soap, feminine hygiene products, etc.? Granted, I’m not sure about the details of what is and isn’t taxable under Massachusetts sales tax law (ironically, alcoholic beverages currently aren’t taxable under sales tax laws, but there is a separate alcohol tax for them instead, so this is mostly moot).

#9

I’m of the mindset it can help to have some small nominal amount of taxation in multiple places just for certain tracking and informational purposes. I take that from the end of Capital in the 21st Century. In that case the author is talking about a wealth tax, but either way a small nominal tax can be helpful just to put the pieces in order to actually make an informed policy decision. Just one more reason legalizing drugs could help. Even tax exemptions can accomplish the same thing where taxes already exist and you want finer detail.

#10

Will tax be calculated based on the billing address or the shipping address? Thinking about the Secret Santa right now.

#11

I’m pretty down on sales tax in general, but it’s also pretty bullshit that it’s not included in the sticker price of things.

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#12

When you buy brick and mortar obviously the sales tax is calculated based on the building.

If the business has a presence in your state and they ship you something, it’s typically sales tax and it’s charged based on the location of that physical presence. So if there’s a walmart near you, they typically charge you based on that.

If you have something shipped to you from somewhere out of state, the use tax rate applies, and it’s actually a use tax against your physical location. So if you live in a certain county/city, you get charged the use tax rate. Not every city/county/state has a use tax, or they could technically vary them. The same is technically supposed to be true if you were to say cross state lines to buy something from a state where they have no sales tax, but that’s your own personal responsibility to track and file in most cases. And nobody really did for small purchases, though obviously businesses and large purchases (IE, that car I bought) you have to pay it and there’s more there to track it.

State laws vary, blah blah blah, the important federal stuff starts at the commerce clause in the constitution. https://en.wikipedia.org/wiki/Commerce_Clause

#13

I was thinking about the new SCOTUS ruling tho. If I have something shipped to California from a business in Illinois but I’m paying for it in Massachusetts, what tax is applicable?

#14

California use tax laws would apply.

Edit: Correction, unless you paid sales tax in Massachusetts when you bought it, depending on what you mean by “paying for it in Massachusetts.” Like if you bought something at PAX that will be shipped to your home by the company, they would charge you sales tax there most likely, but the rate then would be based on their Boston business license or whatever as a vendor. The key to all of that being “did you pay sales tax?” then your home state can’t charge you a use tax. But if you just mean like, “I was in Boston when I ordered something off this website” that’s entirely irrelevant to the exchange.

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#15

More like if I’m not ordering it for me. So the credit card is associated with a Boston address but the good is being sent directly to LA and never is in Massachusetts.

#16

https://blog.taxjar.com/use-billing-address-shipping-address-calculating-sales-tax/

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