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Buy Fresh, Buy Local, Pay Tax

May 17, 2009 · 9 comments

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?

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{ 7 comments… read them below or add one }

1 J G May 17, 2009 at 1:17 pm

Maybe Philadelphia, instead of charging a sales tax, should “compete” with Amazon etc by eliminating the sales tax (yes, I know it’s a state tax). The increase in sales, including those lost to Delaware, would increase the profits of Philadelphia businesses and cause them to hire more people to handle the increased business. These business would pay more income taxes and their employees would pay more wage taxes. It might be a wash or Philadelphia might even get more tax revenue.

The politicians are insane by the colloquial definition – doing the same thing over and over and expecting a different result. I.E. raising taxes and expecting some kind of prosperity to ensue.

2 Mo May 17, 2009 at 1:52 pm

As someone who conscientiously complies with the sales/use tax law in NY, I don’t save money by buying on-line. We keep our receipts from online purchases and figure out the sales/use tax due at the end of each year and report it on line 59 of our NYS income tax return, as the law requires us to do.

Most of our on-line purchases are from Amazon, so the fact that they collect taxes on our purchases saves us time and trouble at tax time. Since all our out-of-state purchases are made with credit cards, we look over our end of year credit card summaries to identify the on-line purchases. Knowing that Amazon charges NYS sales tax means we can skip over those transactions and just identify the few occasional transactions from other out-of-state on-line sellers to check on their tax status.

The on-line merchants that refuse to charge NYS sales tax are the ones that require us to waste our time adding up the amounts we spent on taxable purchases. New Egg was a special pain last year, since they collected sales taxes on purchases made in some months but not in other months. Under existing tax law, that is their prerogative if they have managed to organize themselves in such a way that they do not have a NYS “nexus,” but it’s also our prerogative to do most of our business with other merchants who simplify our burden of complying with the NYS sales/use tax law.

We recently ordered a sofa from a store in an adjoining state. The salesperson apologized to us for the fact that she would have to charge us sales tax because we were having it delivered to us. She seemed surprised when we reassured her that we would have to pay the tax in any case, and that her store was actually making life easier for us and simplifying our tax compliance burden by collecting it as part of the transaction.

3 Kelly May 18, 2009 at 7:48 am

I think the idea that folks flock to sales tax free states in order to escape sales tax is overstated. Philadelphia doesn’t lose that much revenue to Delaware due to sales tax. I know few Philadelphians who would bother to get into their cars (many of my friends and colleagues who live in Center City don’t even have cars) and drive to Delaware to save a few dollars – you’ve lost the savings in gas anyway.

In PA, a number of items are exempt from the tax including food from the grocery store, clothing and medicines. You can’t register a car in PA without showing proof of tax paid. Other big ticket items, like art, may be subject to various reporting agreements between the art houses and Revenue. So that leaves very little worth the drive – furniture, maybe? But I can’t fathom driving an hour to pick up my own furniture (on I-95, no less!) in exchange for the meager savings. Assuming you buy $1000 sofa (and make the decision not to pay use tax), you’ve “saved” $70, not including your time and cost of gas, by not paying sales tax.

People look to Delaware, much like they do to New Jersey, for other reasons… the most glaring being choices when it comes to alcoholic beverages. Our archaic alcoholic beverage laws may drive me to DE or NJ but not our tax laws. ;)

4 jennydecki May 18, 2009 at 10:47 am

Paying sales tax on an item I purchase online would be far less annoying than shipping charges I know are higher than they should be (to cover processing/handling/whatever).

5 JBruce May 18, 2009 at 2:56 pm

To me the biggest advantage of internet shopping is comparison shopping from the comfort of home — fast and easy. I can do it in my underwear, and I can do it whenever I want. Internet merchandise is delivered to my door. Shipping cost need not necessarily be a factor: a purchase of $25 or more can be shipped free from Amazon.com. Many other internet sellers offer free shipping in some circumstances (usually with a minimum purchase).
Yes, I very often can find a lower price on the internet than I can find locally, especially when no sales tax is factored in. So, the lack of sales tax does figure into the equation. But I also consider the convenience; even if I did have to pay sales tax on internet purchases, the fact that I needn’t leave my home to buy some things — and to receive them — is a huge advantage over buying those items locally.

6 Rainer May 19, 2009 at 9:31 am

In Massachusetts, Use Tax is reported on the income tax return. Everyone is expected to report and pay their fair share of Use Tax. To assist in this, there is a “Safe Harbor” estimate (based on income) of how much use tax one owes. Pay less than the safe harbor amount, and you are vulnerable to audit on this item. For reference, the safe harbor use tax number on an AGI of $100,000 is $50, which corresponds to $1,000 in internet purchases.

7 ObliviousInvestor May 21, 2009 at 10:29 am

Well, at least here in Chicago, I can tell you that I know that lots of people make efforts to buy as much as they can online. Saving 10% is nothing to laugh at.

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