On-line purchases and sales tax - unfair?

Started Apr 26, 2012 | Discussions
andreben
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On-line purchases and sales tax - unfair?
Apr 26, 2012

Hi,

As a European living in SF, I must say I find the sales tax on on-line purchases out-of-state somewhat strange, and can't avoid feeling that this must greatly benefit the larger retailers (Amazon, B&H, Adorama etc) at the expense of local brick-and-mortar stores.

So, I understand that as a customer, one has to report such purchases on the Tax Statement later on, but judging from the comments on this forum (and others) it appears alot of people make their purchases on-line toa void paying sales tax (no genralization or judgement intended, I'm just amking a casual observation).

Now, my comment is as follow: Wouldn't removing this practice by having all retailers (on-line and physical) collecting sales tax to whatever state their offices is located be more fair towards the local retilers? I'm interested in what people think about this!

Regards,
Andreas

PS: For the record, my D800 pre-order is from B&H as well...

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tundracamper
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Re: On-line purchases and sales tax - unfair?
In reply to andreben, Apr 26, 2012

In taking that approach, would it not be beneficial for one state to then eliminate their sales tax? Then everyone would order from that state, thus hurting the local retailers in other states. States have these laws to protect their local merchants. The rule in my state is the tax is applicable wherever the product is delivered. As a result, if I ship to another county in my state, I am either supposed to collect the tax and then mail it to that county/city, or just collect the state portion and leave it up to the buyer to report the local county/city taxes. It's either a pain for the buyer or the seller. This applies to out of state purchases as well. However, if I sell to someone out of state, I don't have to collect the tax - but as you note, they are supposed to report it (at least for some states). The best approach would be just to eliminate sales tax all together.

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ScottnLaguna
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Re: On-line purchases and sales tax - unfair?
In reply to andreben, Apr 26, 2012

By law in CA we must report online purchases and pay the appropriate taxes, no matter where they come from. Many people do not do this, and hope the tax man doesn't find out. If you list the D800 as a business expense, deduction, the truth will come out.

If I sell artwork to someone who is not a resident of CA, I do not have to collect the sales tax for that transaction.(If I ship it to them out of state.)

Europe has VAT, which blanket covers everything and probably cost the consumer more. Do we want that here? No. Since you now live in San Francisco, you are as close to living in Europe as possible. Everyone wants to be "fair" there.

Hungry local governments want all the money they can get their hands on. The internet is really frustrating to them. Guess it's not a fair world after all.

As an aside, Amazon uses thousands of "local" retailers to "piggyback" into their site. If you are looking for a lightbulb, chances are a local lightbulb dealer resells it through Amazon. Sales are sales, eh?

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Biggs23
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Re: On-line purchases and sales tax - unfair?
In reply to andreben, Apr 26, 2012

andreben wrote:

Now, my comment is as follow: Wouldn't removing this practice by having all retailers (on-line and physical) collecting sales tax to whatever state their offices is located be more fair towards the local retilers? I'm interested in what people think about this!

So then does the company collect sales tax from the state their store is in? If so, states with lower sales taxes would benefit over those with higher sales tax. What about if the company has multiple stores in various states? Which tax rate gets collected and where does it go? What about when a state has many different counties that all have different tax rates? Which county's rate get enforced?

There are 10,000 problems with putting this on the company rather than on the consumer. Some/many/most consumers are tax cheats (based on comments I see online), but that's not the company's fault and they shouldn't be penalized for it. (And it would be a penalty because there would be a huge added burden of tax collection, record keeping, reporting, and paying.)

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henryp
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Re: On-line purchases and sales tax - unfair?
In reply to Biggs23, Apr 26, 2012

Biggs23 wrote:

So then does the company collect sales tax from the state their store is in?

If we ship an order to an address within NY state, we're obliged to collect sales tax. If a customer buys merchandise in our store, we're obliged to collect sales tax unless the customer has us ship toe merchandise to a location outside NY state.

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andreben
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Re: On-line purchases and sales tax - unfair?
In reply to tundracamper, Apr 26, 2012

Well, some states doesn't have sales tax already, right? And sales tax varies from state to state. If this influences competition I don't know, but I would assume that out-of-state business is not enough of a reason to lower sales tax, given that the majority of sales necesarrily comes from within a state...

Anyways, I don't know how the ssytem can be better, I just can't help think that this practice stears business towards the larger on-line retailers, and away from local stores.

Cheers,
Andreas

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ScottnLaguna
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Re: On-line purchases and sales tax - unfair?
In reply to andreben, Apr 26, 2012

There is nothing stopping local stores from marketing online,or using an Amazon type reseller except ambition and initiative. Times they are a-changing.

andreben wrote:

Anyways, I don't know how the ssytem can be better, I just can't help think that this practice stears business towards the larger on-line retailers, and away from local stores.

Cheers,
Andreas

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andreben
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Re: On-line purchases and sales tax - unfair?
In reply to henryp, Apr 26, 2012

henryp wrote:

Biggs23 wrote:

So then does the company collect sales tax from the state their store is in?

If we ship an order to an address within NY state, we're obliged to collect sales tax. If a customer buys merchandise in our store, we're obliged to collect sales tax unless the customer has us ship toe merchandise to a location outside NY state.

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Henry Posner
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Thanks for the clarification, Henry. This is obviously not meant as a political post, but as a comparison, if while in Europe I would buy online from another country I would either have to pay VAT where I purchase the item (if shipped to another EU country), or avoid haveing the VAT collected but pay import tax (essentially VAT, unless value is greater than a certain limit) at the border / after pick-up (if between non-EU coutries or Eu to non-EU).

I know VAT and sales tax isn't the same, but perhaps many would direct their business locally if sales tax was collected regardless of where they purchase?

Cheers,
Andreas

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kanefsky
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Re: On-line purchases and sales tax - unfair?
In reply to ScottnLaguna, Apr 26, 2012

ScottnLaguna wrote:

By law in CA we must report online purchases and pay the appropriate taxes, no matter where they come from.

Only for items over $1000. For everything else you can choose to pay 0.07% of your adjusted gross income instead of having to keep track of all your out-of-state purchases. I think that was new for 2011.

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Hughesnet
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Re: On-line purchases and sales tax - unfair?
In reply to andreben, Apr 26, 2012

That would be taxation without representation. You know. Kinda the founding no no of this country. To be taxed by a state you are not in and have no representative in.

They can't tax you unless they are in YOUR state.

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Hughesnet
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Re: On-line purchases and sales tax - unfair?
In reply to andreben, Apr 26, 2012

I am sure it does take business away from brick and mortar. So? What makes that something that needs to be fixed? Something you need to do something about? You know, store hours also hurts brick and mortar. Maybe we should insist they stay open 24/7 for their own good so we can buy from them at night if we want to.

And, distance also hurts them. Maybe they needs to make more stores so there are more near us.

Fact is, sales tax is only one reason they take business away from local stores. Get over it.

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eNo
eNo
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Actually, by law...
In reply to andreben, Apr 26, 2012

...if you buy a camera from a retailer that doesn't charge tax, in California, when you file your taxes, you have to report and pay sales taxes on those items. Sometimes, given the states you're buying from, it would've worked out better to pay their sales taxes than your California ones. So there it is. Quite "fair."

Now, as you've said, many simply don't report or pay those taxes. But if you're in business and get audited, someone will notice all these equipment expenses for year so-and-so, and no corresponding sales tax paid. Ooops.
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Hughesnet
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Re: On-line purchases and sales tax - unfair?
In reply to kanefsky, Apr 26, 2012

Or, you could just not live in CA. Glad I got out of that state.

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Hughesnet
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Re: On-line purchases and sales tax - unfair?
In reply to andreben, Apr 26, 2012

This country is a collection of states. You can not do what you say without a federal sales tax. And that is not going to happen.

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Robin Casady
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Re: On-line purchases and sales tax - unfair?
In reply to andreben, Apr 26, 2012

andreben wrote:

Now, my comment is as follow: Wouldn't removing this practice by having all retailers (on-line and physical) collecting sales tax to whatever state their offices is located be more fair towards the local retilers? I'm interested in what people think about this!

To be fair, it would have to be a federal tax with the same rate nationwide.

Sales taxes are only State, County, and/or City/Town taxes. In California local towns and counties can add to the tax. It is collected by the state, but the add-ons are distributed to the particular towns or counties.

http://www.boe.ca.gov/cgi-bin/rates.cgi

Sales taxes go to support local infrastructure, such as schools, roads, police, fire fighters, etc. If companies like B&H collected taxes from people in other states, then NY roads and schools would be paid for, in part, by people that got no use out of them. That's not really fair.

If B&H had to collect tax and pay it to the destination state, county, and city, it would kill internet sales. The collection and distribution of taxes for so many locations would be incredibly complex and time-consuming.

The states are eager to get their hands on taxes for cross-state internet sales, and there have been a few attempts, but there are no good solutions. It is difficult to enforce collection from the buyers. Those of use who have California resale licenses (for collecting taxes on things we sell) have to declare items we purchase from out of state. Failing to do so is tax evasion. So, if I purchase something from B&H or Amazon I will have to declare it and pay California sales tax on it.

Amazon is currently in a huge legal fight with California BOE (sales tax collection board) over whether they have to pay California sales tax.

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ScottnLaguna
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Re: On-line purchases and sales tax - unfair?
In reply to kanefsky, Apr 26, 2012

Steve, Luckily, I'm married to a tax expert. She does all that for me. We have to play by the rules in all things taxation. My job is to keep receipts in order and have them on demand. Taxes are very complicated and way over my head.

kanefsky wrote:

ScottnLaguna wrote:

By law in CA we must report online purchases and pay the appropriate taxes, no matter where they come from.

Only for items over $1000. For everything else you can choose to pay 0.07% of your adjusted gross income instead of having to keep track of all your out-of-state purchases. I think that was new for 2011.

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Steve

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ScottnLaguna
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Re: On-line purchases and sales tax - unfair?
In reply to Robin Casady, Apr 26, 2012

Well said, Robin. BTW, BOE is the California state tax board. They call themselves the Board of Equalization. Guess the goal is to make all things equal in CA?

Robin Casady wrote:

andreben wrote:

Now, my comment is as follow: Wouldn't removing this practice by having all retailers (on-line and physical) collecting sales tax to whatever state their offices is located be more fair towards the local retilers? I'm interested in what people think about this!

To be fair, it would have to be a federal tax with the same rate nationwide.

Sales taxes are only State, County, and/or City/Town taxes. In California local towns and counties can add to the tax. It is collected by the state, but the add-ons are distributed to the particular towns or counties.

http://www.boe.ca.gov/cgi-bin/rates.cgi

Sales taxes go to support local infrastructure, such as schools, roads, police, fire fighters, etc. If companies like B&H collected taxes from people in other states, then NY roads and schools would be paid for, in part, by people that got no use out of them. That's not really fair.

If B&H had to collect tax and pay it to the destination state, county, and city, it would kill internet sales. The collection and distribution of taxes for so many locations would be incredibly complex and time-consuming.

The states are eager to get their hands on taxes for cross-state internet sales, and there have been a few attempts, but there are no good solutions. It is difficult to enforce collection from the buyers. Those of use who have California resale licenses (for collecting taxes on things we sell) have to declare items we purchase from out of state. Failing to do so is tax evasion. So, if I purchase something from B&H or Amazon I will have to declare it and pay California sales tax on it.

Amazon is currently in a huge legal fight with California BOE (sales tax collection board) over whether they have to pay California sales tax.

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kanefsky
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Re: On-line purchases and sales tax - unfair?
In reply to ScottnLaguna, Apr 26, 2012

ScottnLaguna wrote:

Steve, Luckily, I'm married to a tax expert. She does all that for me. We have to play by the rules in all things taxation. My job is to keep receipts in order and have them on demand. Taxes are very complicated and way over my head.

The nice thing about the new rule is that you no longer have to keep all those receipts for items under $1000 and you don't have to keep track of which ones you paid sales tax on and which ones you didn't. Also if you order a lot of stuff online, the flat rate is much lower than paying actual sales tax on all those items. I saved a lot of money on my 2011 taxes because of that. It was a very pleasant surprise.

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Surefire Photo
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Re: On-line purchases and sales tax - unfair?
In reply to andreben, Apr 26, 2012

It's a poor system at the state & federal level, in that it depends on the honesty and education of the residents. For example, we are in Arizona. We pay the sales tax on all out of state purchases (called Use Tax in this case) on our monthly TPT-1 filing. No big deal, we're already filing it anyway, just add a line. But for a resident without a TPT License, the state expects them to apply for a (free) Use License and then pay those taxes on a TPT-1; that's a lot of work, all for money that most folks don't know they have to pay and 99.99% will never be caught for not paying. That is senseless - and most states with sales tax have very similar requirements to AZ.

The next question for reform: who should be responsible for these taxes? Do we expect a nationwide vendor to keep up with the tax laws, collections, and reporting for all 50 states? Keep the burden on the residents and keep hoping that they don't commit tax fraud? Add another government agency full of efficiency, ethics, and transparent operations to oversee such things?

Finally, this will be REALLY hard, if not impossible to solve at the federal level. The 10th Amendment would either have to be more abused than it already is...never a fun fight on the hill AND the lobbyists against the reform would be screaming "NEW TAXES!" from the rooftops...and most voters would agree.

So in the meantime, local stores lose customers who believe they are honestly saving money by shopping online. Perhaps an ad campaign driven by a collection of local brick & mortars? Doubt it would have much result, but at least the honest folk may look at things a bit differently.
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Arretose
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Re: On-line purchases and sales tax - unfair?
In reply to Robin Casady, Apr 26, 2012

The only reason California is now going after Amazon is because they are BROKE!! So they are looking at EVERY avenue possible at getting their greedy hands on any money that they can. Why are they BROKE? 40% of working Californian's pay tax. The rest are getting a free ride! How's that for the liberal agenda of "everyone being equal" ? Man up! But I am going on a tangent.

If people buy something out of state online and can avoid paying taxes, they will. Why? Because NOONE wants to pay more money than they need to, and they know that their local or state government wanting a piece of the pie is just another form of highway robbery, though there could be consequences for not doing so. As another example: The State of Oregon is trying to force a lawsuit between an Oregon resident and a company in Europe worth millions of dollars, to be held back in Oregon so that Oregon can get it's 40% of the settlement. The situation that started the lawsuit happened in Europe and the case is scheduled for hearing in Europe. Now please help me understand HOW Oregon has ANY right or jurisdiction to that settlement. and Oregon HAS NO SALES TAX!!!!! I imagine that there is some squinty eyed greedy fat little bald man holding public office sitting behind a desk that sees an opportunity to get a piece of the pie. It is sickening.

Robin Casady wrote:

Amazon is currently in a huge legal fight with California BOE (sales tax collection board) over whether they have to pay California sales tax.

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