It’s more efficient for the retailer than it is to do it any other way. And in fact - as your article pointed out, what retailers who act as portals for other businesses (as Amazon and WalMart.com both do) have to do now is determine who the vendor is <strong>and</strong> where the customer is and then collect sales tax (or not) based on those two facts. If WalMart.com sells you a WalMart labelled T-shirt they collect sales tax. If they sell you that same T-Shirt on behalf of CSN, they don’t collect that tax. This makes sense? </p>
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Uh - wouldn’t that then just become a surcharge on the state income tax? And wouldn’t that result in people who buy in-state paying more taxes than people who buy from online, out of state companies? Why would a state do that?</p>
<p>Look - this is a simple matter of making a level playing field for business and implementing efficient and fair tax collection practices. At one time it made sense to have a de facto subsidy of online retailing, to help that business get going. That time is past. We don’t need to - and shouldn’t - subsidize some mega-retailers at the expense of others.</p>
<p>(Incidentally, I’d note that California’s law has an exemption for small businesses, for whom the collection process might actually be burdensome.)</p>
<p>Why not just compute a sales tax amount on the income tax return. Wouldn’t
this be much easier for retailers? Or just collect electronic money gross
receipts by state.</p>
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<p>The only border tax case that I’m aware of involving a tire company is
a company in Manchester, NH where the MA DOR demanded their sales
records for all customers listing a MA address. This got tossed around
in the courts and in the end, they didn’t have to provide the
records. Shortly thereafter, the NH Legislature made it a crime to
provide such records to out-of-state agencies.</p>
<p>A lot of MA residents come up to NH to get dental work, cosmetic
surgery, auto work, etc. A lot of these places are pretty small and
probably don’t have a presence in MA. But I don’t know if it matters
if the service or product was provided in NH.</p>
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<p>Wouldn’t it be more efficient for everyone involved to just do a
computation or to just scan gross electronic money receipts?</p>
<p>It’s less efficient for the retailer than doing nothing.</p>
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<p>Yes.</p>
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<p>It’s a flat amount whether you buy stuff here or there. It would
replace in-state and out-of-state collections and payments. The
Federal Government did it about 30 years ago.</p>
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<p>I’d guess that the vast majority of internet businesses are very,
very small. The mega-retailers just get all of the attention.</p>
<p>BC- that NH law is not binding on Massachusetts ability to demand records from a NH company found to have nexus in Massachusetts. For example if a NH furniture store delivers, sets up and repairs furniture in Mass. they have nexus and if they do not turn over their records Mass. can assess an estimated or arbitrary assessment against them. That NH law means nothing.</p>
<p>I get a reminder and pay use tax annually. Amazon has a great software feature that lets you gather information on how much you spent, with and without paying taxes</p>
<p>We probably average more than one item a day.</p>
<p>There are states where Amazon has a legitimate business presence and is not required to collect sales tax. For example, Amazon has major distribution centers in Nevada and Arizona, yet doesn’t collect sales tax from customers in either state. It is asking California for the same deal.</p>
<p>Wal-Mart could spin off its website and thus not need to charge customers in states where its online support functions are not located despite having B&M locations in those states. The Sports Authority used to operate this way, but has since discontinued this arrangement.</p>
<p>Sea_ that is not necessarily true. If Wal-Mart would accept internet sales to be returned at their stores they would have to charge tax on the internet sales even if they spun it off.</p>
<p>Also what do you think a regular brick and mortar store located in Arizona or Nevada feel about Amazons arrangement?</p>
<p>Tom-I am glad you jumped into the fray with the voice of accounting.</p>
<p>This is a huge issues with states, mine included. Most all “income tax” audits I’ve seen in the last 5-7 years are thinly veiled sales tax audits. Auditors don’t even appear to be looking for hidden revenue/bogus expenses anymore–they go straight for the sales tax. I think if they are going to the expense of auditing, they should at least look for income as well as sales tax issues.</p>
<p>I’m not sure collecting it via the tax return is that difficult. My state has had the “use tax” line for at least 25 years. Posters are correct. Few if anyone uses it. However, I now see more and more other state returns that are computing it based on gross income. It is automatically added to everyone’s return. Many states also have adopted streamlined sales tax legislation to enable easier collection of tax on internet sales at some point in the future.</p>
<p>I haven’t read in-depth on Amazon, but it seems kind of weird that my state gave them all kinds of incentives to locate a huge new warehouse here, and them not having to charge sales tax was specifically addressed, and then the state is using huge amounts of resources to go after sales tax their state’s citizens didn’t pay.</p>
<p>“The new law prevents retailers from providing private consumer
information to another state seeking to impose a use tax. The bill
also puts the burden of proof on Massachusetts or other states on
whether a good or service purchased in New Hampshire is to be used,
stored or consumed in another state.”</p>
<p>Perhaps a conflict would be adjudicated at the Federal level.</p>
<p>The case made it all the way to the Supreme Court of Massachusetts
where the Massachusetts Commissioner of Revenue lost. It’s notable
that the retailer also has a substantial presence in Massachusetts.</p>
<p>TIR 10-2: Decision of the Massachusetts Supreme Judicial Court in Town Fair Tire Centers, Inc. v. Commissioner of Revenue</p>
<p>I. Introduction</p>
<p>The purpose of this Technical Information Release (TIR) is to clarify, following the decision of the Massachusetts Supreme Judicial Court (SJC) in Town Fair Tire Centers, Inc. vs. Commissioner of Revenue, 454 Mass. 601 (2009), the scope of the obligation of a registered out of state vendor to collect and remit Massachusetts use tax on the sale of tangible personal property to a Massachusetts resident where the sales transaction takes place entirely outside the Commonwealth. The Town Fair Tire decision considered the application of the use tax law to a particular factual situation. The Court concluded that the evidence presented in this case was insufficient to establish that the tangible personal property was used in Massachusetts. Accordingly, the vendor was not required to collect Massachusetts use tax in that case.</p>
<p>II. Background</p>
<p>General Laws chapter 64I, § 2 imposes an excise, at the rate of five per cent[1], on “the storage, use, or other consumption in the commonwealth of tangible personal property … purchased from any vendor . . . for storage, use, or other consumption within the commonwealth.” The use tax established by G.L. c. 64I, together with the sales tax in G.L. c. 64H, are complementary components of a unitary taxing program intended to “reach all transactions, except those expressly exempted, ‘in which tangible personal property is sold inside or outside the Commonwealth for . . . use . . . within the Commonwealth.’” Commissioner of Revenue v. J.C. Penney Company, Inc., 431 Mass. 684, 687 (2000), (internal cites omitted). The use tax is thus designed “to prevent the loss of sales tax revenue from out of state purchases,” and to protect local merchants from loss of business to merchants in other states with lower or nonexistent sales taxes. Id.</p>
<p>Liability for payment of the use tax generally falls upon the person using such property. G.L. c. 64I, § 3. However, G.L. c. 64I, § 4 imposes upon certain vendors an obligation to collect the use tax. It provides that:</p>
<pre><code>Every vendor engaged in business in the commonwealth and making sales of tangible personal property . . . for . . . use . . . in the commonwealth not exempt under this chapter, shall at the time of making the sales, or, if the . . . use . . . of the tangible personal property . . . is not then taxable hereunder, at the time the . . . use . . .becomes taxable, collect the tax from the purchaser.
</code></pre>
<p>Id. Pursuant to this statutory provision, a vendor with a physical presence in Massachusetts is required to collect and remit the Massachusetts use tax on sales of tangible personal property for use in Massachusetts. This obligation is consistent with the constitutional requirements set forth by the United States Supreme Court in Quill Corp. v. North Dakota, 504 U.S. 298, 311.</p>
<p>III. Town Fair Tire Decision</p>
<p>In the Town Fair Tire decision, the SJC considered whether a vendor who sells tangible personal property to a Massachusetts resident is obligated to collect and remit Massachusetts use tax where a Massachusetts resident purchases and takes possession of the merchandise outside the Commonwealth. In rendering its decision, the SJC considered the following facts.</p>
<p>In 2003, the Department of Revenue commenced a sales and use tax audit of Town Fair Tire, a Connecticut corporation engaged in the retail sale and installation of automobile tires. Town Fair Tire operated eighteen of its sixty stores in Massachusetts and three in New Hampshire. The company collected and remitted Massachusetts sales tax on tire sales made at its Massachusetts stores. It did not collect Massachusetts use tax in connection with the sales of tires made at its stores located outside of Massachusetts. During an audit of Town Fair Tire, an examination of the records from Town Fair Tire’s three New Hampshire stores identified invoices listing Massachusetts addresses beneath the name of the purchasers and certain purchasers who paid by check provided Massachusetts driver licenses.</p>
<p>Following the sales and use tax audit of Town Fair Tire, the Commissioner of Revenue, concluding that certain automobile tires had been sold at Town Fair Tire’s New Hampshire stores to Massachusetts residents and were installed on vehicles registered in Massachusetts, assessed use tax and related penalties against Town Fair Tire for failing to collect the Massachusetts use tax on those sales. Town Fair Tire appealed to the Appellate Tax Board (ATB), which ruled in favor of the Commissioner, finding that the automobile tires at issue were intended for use in Massachusetts. Town Fair Tire appealed the ATB decision and the appeal was transferred to the SJC on its own motion. The SJC reversed the ruling of the ATB, concluding that the use tax provisions do not permit Massachusetts to assess use taxes against a vendor under the circumstances presented.</p>
<p>In reaching its conclusion, the SJC noted that there was no evidence that any of the tires sold in the sales under review were actually stored or used in Massachusetts, and that the board made no such finding. The Court disagreed with the ATB that intent to use the tires in Massachusetts is sufficient to trigger the use tax. It reasoned that a vendor is liable for use tax under G.L. c. 64I, § 4, only if the tires “were actually stored, used or consumed in Massachusetts.” It rejected the Commissioner’s argument that “compelling circumstantial evidence” that the tires were sold to Massachusetts residents and installed on vehicles registered in Massachusetts leads “to a presumption” that the tires were indeed used in Massachusetts because there is no Massachusetts statutory presumption of use in the Commonwealth where personal property is sold and delivered to a Massachusetts resident outside the Commonwealth, even where the goods purchased out of state may be affixed to property registered in Massachusetts.</p>
<p>IV. Application of the Decision</p>
<p>Absent evidence of actual storage or use in the Commonwealth, the Commissioner will not assess a use tax against an out of state registered vendor on sales to a Massachusetts resident where a Massachusetts resident purchases and takes possession of tangible personal property entirely outside the Commonwealth. The Town Fair Tire facts are distinguishable from the SJC decision in Circuit City Stores, Inc. vs. Commissioner of Revenue, SJC-08888 (2003), where the retail customer purchased a taxable item at a Massachusetts store and later picked up that item at a New Hampshire branch of that chain store. The Circuit City decision was not overruled or changed by Town Fair Tire. Where a sale is consummated at a Massachusetts location, the vendor must collect Massachusetts tax unless another exemption applies, even if the item is picked up at an out-of-state location. Moreover, Town Fair Tire does not change the statutory rule that tangible personal property sold for delivery in the Commonwealth is presumed to be sold for storage, use or other consumption in the Commonwealth. G.L. c. 64I, § 8(a). This rule applies whether the vendor itself delivers the property into Massachusetts or arranges delivery of the property into Massachusetts by common carrier or otherwise.</p>
<p>V. Purchaser’s Use Tax Obligation</p>
<p>If an out of state vendor has not collected the applicable sales or use tax on the sale of tangible personal property, the purchaser using such property in Massachusetts owes use tax on the storage, use or consumption of tangible personal property in Massachusetts and must file a use tax return with the Commissioner and pay the tax imposed, subject to a credit for sales tax validly due the jurisdiction where the sale took place. G.L. c. 64I, §§ 2, 3. Massachusetts residents must file an Individual Use Tax Return, Form ST-11, and pay the tax due on such purchases on an annual basis. Alternatively, a Massachusetts resident may report and pay his or her use tax liability on Form 1, the Massachusetts Resident Income Tax Return. The Town Fair Tire decision does not exempt purchasers who purchase property elsewhere and bring it into Massachusetts from their use tax filing or payment obligation.</p>
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<p>Interestingly, after this decision, I noticed far more advertising from NH businesses touting low prices and no sales taxes. It appears that MA has decided not to pursue this avenue of revenue enhancement.</p>
<p>I agree with the court- it would be like if I went to Sears in Delaware and picked up a lawnmower I would not expect Sears to charge the tax even though they clearly have locations in NJ. If Sears delivered it to me in NJ they would charge the tax because they have locations in NJ even though I ordered the lawn mower in Delaware.</p>
<p>What would probably do a lot to help end this gamesmanship would be for the federal government to institute a national sales tax on all interstate and online sales, and then rebate to the states which impose sales taxes their share of the tax. It wouldn’t have to be a matching percentage, just enough to level the playing field. There really shouldn’t be a governmental incentive to buy goods in one state over the other, or online.</p>
<p>Massachusetts highest court has ruled the state cannot collect sales taxes from a New Hampshire retail store that sold tires to Bay State customers, ending a case some tax specialists saw as an effort to dramatically expand the states taxing authority.</p>
<p>The unanimous ruling by the Supreme Judicial Court found that the Department of Revenue, which initiated the case in 2003 while Mitt Romney was governor, overreached in its interpretation of state law, and failed to prove it had the right to collect taxes on tires sold by Connecticut-based Town Fair Tire Centers.</p>
<p>Some tax specialists saw the case as a way for Massachusetts to significantly broaden its taxing power, thus increasing costs for consumers and large retailers such as Best Buy and Sears, Roebuck and Co., that sell expensive appliances and other goods in New Hampshire.</p>
<p>“The court drew the line where it should be drawn,” said David Nagle, a tax partner for the law firm Sullivan & Worcester, which represented Town Fair. “Had the state won, it would have looked for other opportunities to deputize retailers to collect a use tax in situations where it could find a basis for doing so.”</p>
<p>But the Department of Revenue issued a statement yesterday saying it had always viewed the Town Fair case narrowly and does not intend to appeal.</p>
<p>The SJC decision is the end of the line for this case, since it does not involve constitutional issues that might require the attention of a higher court, the statement said.</p>
<p>How would they implement a national sales tax? Set up collections
bureaucracies in every state that deal with every retail business?
What do businesses in states without a sales tax do? Refit their
cash registers and recode their software?</p>
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<p>This is the basis for the economic war going on around the world for
the last 40 years. The mechanism is different between countries and
it usually involves weakening your own currency. Our Federal Reserve
is actively involved in that but hasn’t been able to succeed because
other countries weaken their currencies almost as fast as we weaken
ours. It’s called Beggar Thy Neighbor. Differential tax rates between
states is just a variation on this.</p>
<p>The way I see it if Amazon electrons can reach my computer and interact with me it has an effective presence in the state and any transaction should be taxed if my home state has a sales tax. The state of the law never caught up with technology and is just out of date. And Amazon will do whatever it can to keep it that way in order to keep their unfair advantage.</p>
<p>Wal-Mart’s internet business is integrated with their Bricks and Mortar
stores. You can order online and pick up your stuff at the local store
with no shipping costs. My guess is that they have ten times the number
of products for sales in their online store compared to their retail
stores so the benefit to the consumer is bigger selection with pickup
and return (if you don’t like it) at the local store. You don’t get
the savings of gasoline and travel time.</p>
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<p>Brick and mortar stores better provide really good service.</p>
<p>You can buy your mobile phones and accessories online or at our local
mall. There are about eight mobile phone stores in our local mall and
I’m amazed that they have enough business to keep them going.
Personally, I like to go into the store to buy phones or initiate
service because sometimes it’s a pain to do it myself. They do charge
more at the store than online - this for the same company.</p>
<p>The one difference I do note: I once made the mistake of buying a
phone in MA because I was at another mall and they had the store there
and I had some spare time. I was annoyed that I didn’t buy it back in
NH.</p>
<p>I have a customer in a California and I’m in Utah. They call me for help with my software and I tell them. Using the same logic I should be paying income tax to California because their electrons came all the way to Salt Lake City?</p>
<p>If we’re talking pure physical presence, sure, i.e. states have gone after pro athletes for playing in other states, but electrons?</p>
<p>What’s next, if I spend a couple hours of my work day thinking about my California customer’s problem while he’s out to lunch I get to pay California income tax on my California-related thoughts?</p>
<p>Amazon will simply consolidate in a few no-sales-tax states and that’s all she wrote after that, or work via subsidiaries.</p>
Every business files federal tax returns already. On all sales made online or to a customer in another state, remit the national sales tax to the federal government. A business that’s totally online pays X% of the gross. Seems pretty straightforward to me. Businesses in no-tax states that are poaching customers from nearby states would have to make some adjustments - but that’s OK with me.</p>
<p>The interesting thing is that this would probably have the effect of lowering sales taxes in some locations. Looking at a list of sales taxes in the various states, it looks like 6% or so is a pretty common level, but some can go up to 10%. If the national sales tax were set at 6%, states with taxes above that would be likely to drop to that level (and states with no sales tax would be likely to implement a 6% tax.) Eliminating differences in sales tax based upon location would go a long ay to remove some of the perverse incentives in the current setup.</p>
California is 1/8th of the national economy, and California has a state sales tax. Under California law, sales or use tax is due on all goods sold to California residents. What Amazon is fighting for is to perpetuate a means of ensuring that that law is not honored, so as to maintain an unfair advantage over other retailers. Not exactly the most noble quest. If Amazon wants to limit its sales to the residents of states which have no sales or use tax, that’s fine. Otherwise, they’re just chiselers.</p>
<p>Kluge this amounts to a new tax. This issue here is free markets and innovation. A new business model. This is nothing more than struggling parts of the economy going after a successful entity in order to bail themselves out of their own inefficiencies. The Internet marketplace is a whole new world, and look how successful it has been. The last thing we need is to apply policies which have screwed up the rest of the economy to companies like Amazon as well.</p>
<p>BTW, Amazon’s affiliates were paying taxes, and they are disappearing (along with that money).</p>
<p>If you keep changing the game on business, you DESTROY BUSINESS. This is why people don’t start or expand businesses in the current climate. They are afraid. They come up with a business model, and then the rules are changed. A lot of people are saying, “Why bother?”. This is the cancer in our economy, and it ends up producing a lot less taxes in the long run (and a heck of a lot less jobs).</p>
<p>So as I said, you would require those in non-tax states to retool.</p>
<p>How would you know if a customer is from another state? If I walk into
Kohls, are you going to ask to see my ID?</p>
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<p>What is the enforcement mechanism?</p>
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<p>Well, I guess it’s okay to impose higher costs on other from your
perspective. That’s not okay with me. I’d rather get rid of the
excess stuff that can be more efficiently handled otherwise.</p>
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<p>I think that the incentives are fine. They go a long ways towards
leveling the playing field in unbalanced communities.</p>