Yesterday, the Lowe’s sale paper arrived at our house. The pictures of healthy plants on the front page convinced me to rush out and buy gardening stuff (granted, it doesn’t usually take much convincing). But instead of heading for the big box of Lowe’s, we went to Greensgrow Nursery, which I joke is my urban oasis. It is a wonderful place. In addition to plants and flowers, we bought fresh produce and yogurt.
We piled back into the car and drove a few short blocks to the Philadelphia Brewing Company where we picked up a case of their most popular brews. My husband noted that you could tell it was local beer because the time stamp for bottling was dated yesterday.
At both places, we bought fresh and we bought local. At both places, we paid sales tax.
So, you’re thinking, big deal. But it is a big deal. There was an interesting piece in the San Francisco Chronicle this morning about “state-sanctioned tax avoidance” of major online retailers – in other words, the reticence of California to collect sales tax on internet purchases from out of state retailers.
The reason that this is a hot button issue in California, a state really hit hard by economic woes and a massive deficit, is a proposal by Assemblywoman Nancy Skinner (D-Berkeley) to enforce the collection of sales tax on internet retailers with “sufficient presence.” Tops on her list? Amazon.com.
Perhaps Skinner is encouraged by New York’s ballsy – and to date, successful – move to enforce a similar statute. New York’s claim that having internet site based affiliates in their state is enough to establish nexus (the fancy legal term for presence) survived a debate in the legislature and a legal challenge by Amazon.com. I wondered, when the Amazon.com case was decided, whether other states would follow suit – most notably, California. At that time, I believed that other states would pursue a more vigorous enforcement of sales tax for purchases made over the internet but I have to say, California was near the bottom of the list of states that I thought would line up. Pending the outcome of AB178, I may have to say that I’m wrong. California may join a number of states vying to collect more sales tax from internet sales.
This is a tricky area of the law. And while states dance around trying to find a fix individually, I suspect that Congress will eventually step in and make a statement.
I’m not exactly sure what I want that statement to be. It is true that there are billions of dollars of sales that are escaping taxation by stretching the nexus argument. On the other hand, states, desperate for cash, look to be making a blind grab for revenue by expanding the definition of presence on their own. Who is right?
It seems that the real losers in this whole argument are the smaller land-based retailers, like Greensgrow and Philadelphia Brewing Company, that are clearly expected to collect sales tax. While it doesn’t really cost those retailers money (other than the cost of compliance), it does apparently cost them in lost sales – a concept that I will confess, I don’t really “get.” While I do love internet retailers (I’m waiting for my delivery from genuardis.com as I type this), including Amazon.com, I love shopping online for selection and convenience, not to save a few percentage points on sales tax. In many cases, the delivery or shipping costs far outweigh the sales tax, anyway.
That said, let’s be clear on this point: the consumer, not the retailer, pays sales tax. Amazon.com isn’t “saving” money (again, other than the compliance costs) by opting not to charge sales tax in all states – consumers are those that are avoiding the payment of sales tax. And, if you believe the press, including what readers have stated on this site, many claim to make the decision to buy online solely on the basis of whether sales tax is charged. I’m not even going to harp on the whole “you should be paying use tax anyway” bit because we know that’s really a nonstarter (when is the last time that any of you reported and paid use tax?).
What Assemblywoman Skinner’s bill is really saying is that your decision to shop at Greensgrow versus Amazon.com should be unaffected by the imposition of sales tax. Other factors, such as quality, cost, customer loyalty and convenience, should trigger the decision to buy at one over the other. While I struggle with some aspects of Skinner’s bill – and those like it – I will agree that the decision to buy one product over the other should be sales tax neutral.
But that’s not what’s happening. Bigger retailers are able to attract a bigger chunk of the consumer pie by not charging consumers sales tax when their “operations” are outside of the state borders. That means that the avoidance of sales tax – whether legitimate or not – is an added perk for online retailers in terms of enticing customers. But is it a fair perk?
I’ve heard a lot lately about “buy fresh, buy local.” There are a lot of theories about why we maybe aren’t doing that anymore. I wonder how much that would change if sales tax advantages for online retailers were taken out of the equation… What do you think?Want more taxgirl goodness? Pick your poison: You can receive posts by email, follow me on twitter (@taxgirl) hang out with me on Facebook and check out my YouTube channel.