Internet Sales Taxes A Hard Sell

Today’s Courier Herald Column:

Georgia and Arizona do not share many obvious similarities. There’s a distinct difference in climate and humidity.  You would be hard pressed to find Georgia pines or rolling hills of red clay in Phoenix.  The upside for the desert dwellers is that they probably aren’t having the annual battle between pollen and their sinuses. 

Politically, however, the two states that are a country apart are starting to look fairly similar.  They are bright red Republican bastions who don’t care much for the current politics and policies coming from Washington D.C.  Arizona’s immigration reform laws were the template for Georgia’s HB 87 from last year.  We even have our share of elected officials who bitterly cling to birtherism.

Arizona’s failure this week to extend sales taxes to purchases made online will likely be examined closely by Georgia leaders, who have been eyeing ways to close the loophole that allows those who buy goods from retailers such as Amazon.com to evade sales tax collection.  Georgia law currently requires residents to remit use taxes equivalent to sales taxes on these purchases.  Without an effective reporting or collection mechanism, however, the tax usually goes unpaid.

Arizona’s Senate rejected their bill on a vote of 20-8.  It was specifically designed to force sales taxes to be collected by Amazon and remitted to the Arizona treasury.  Despite Amazon having subsidiaries that operate three fulfillment centers in Arizona, those do not qualify as Amazon having a physical presence under state law.  Thus, Arizona is not required to collect sales taxes on sales to residents, despite having an infrastructure in place within the state.

Lawmakers across the country are battling the same issue.  Online sales are growing as a percentage of total consumer purchases, but remain largely exempt from state and local sales taxes.  Meanwhile, sales taxes are the one form of taxation that voters seem to continue to tolerate, with Georgia’s proliferation of HOST, MOST, E-SPLOST, and T-SPLOST taxes demonstrating the expanding importance of sales taxes.

As these taxes become the primary vehicle to fund local and regional projects, the discrepancy between prices of local retailers and online merchants continues to grow.  Should the Atlanta region pass the proposed T-SPLOST transit tax this summer, sales taxes within the city of Atlanta will be at 9%.  This will represent a significant incentive to shop for major purchases online, and an equal disincentive to shop at local merchants.

Those local merchants are the ones who invest in the community.  They produce local jobs and remit not only sales taxes but also property and income taxes.  They are also more likely to have a direct relationship with a state legislator who is feeling the pressure to begin collecting these taxes that are already legally due.

Consumers, however, see the collection as a new tax, and are letting legislators who advocate for mandatory collections hear that as such.  Complicating matters, the same voter who advocates for a national sales tax system such as the FairTax is equally likely to have identified with a movement that claims to be Taxed Enough Already.

Georgia lawmakers were openly discussing a measure similar to Arizona’s at the beginning of the legislative session.  While no standalone legislation requiring internet sales tax collection passed before last week’s “crossover day”, it is always possible that such a requirement could pop up as language within a bill that will pass both the House & Senate this year.  Possible, but not probable.

While most legislators know that a 9% dis-incentive for businesses to invest locally cannot survive, they are also keenly aware of an anti-incumbent mood within the electorate.  This is not only an election year, but a year when legislators will run in newly drawn districts.  Many will be asking new voters to be voting for them for the first time.  They are not keen on the idea of their first impression with these new voters to be that of trying to explain that collection of internet sales taxes isn’t a new tax, just a change in the collection system.

No, these are the discussions that are usually had in non-election years.  As such, the Arizona failure of internet sales tax collection is likely a good indicator of the idea’s fate in Georgia this year.  Legislators are much more interested in the regional T-SPLOST being enacted first.  Collecting that extra penny on internet sales will likely wait until next year.

43 comments

  1. fairnessforall says:

    Excellent article Charlie. I think you lay out the situation very well. As a conservative I am not a big fan of taxes however I do feel that we need to protect small businesses in our state. You rightly point out that local merchants invest in their community and collect sales tax as well as pay property and income tax. They also provide jobs to many of our citizens. I understand the popular perception out there is that this is a “new tax” when it is simply the more efficient and indeed more equitable collection of a current tax. I think its only fair to put online retailers who benefit from the services our state provides to them ( roads, police and fire, other civil services) on the same footing as traditional mom and pop operations. Why should Amazon get to own a large subsidiary in our state ( and yes they have a physical presence in GA.. look it up) and not remit sales tax for products it sales to Georgia citizens? I know small business owners who are getting hammered because they lose business to online retailers. They can compete on price.. but they can’t compete on price plus 6% for sales tax. When small businesses suffer they cut back and that usually means reducing employee’s hours or reducing employees altogether. Something needs to be done, its just not fair for small businesses in this state to be at a 6% disadvantage when they contribute so much to our community.

    • “online retailers who benefit from the services our state provides to them ( roads, police and fire, other civil services)”

      If I’m not mistaken, don’t FedEx and UPS pay plenty of taxes that contribute to those items? You know, since they do have a physical presence here and actually benefit from those services? I’m sure they don’t deliver those items from Amazon or anywhere else for free. Someone, somewhere… pays for it.

      • fairnessforall says:

        I am not sure what UPS or FedEx has to do with this… They are in the service industry and with a few exceptions they market a service ( delivering goods) as opposed to a finished product.. like a gas grill or tires. The people that largely pay for the services are the small businesses like your local home and garden store or local tire store and they are at a disadvantage right now because they have to charge 6% more for a product that say.. Amazon doesn’t.

        • Because UPS and FedEx pay fuel taxes, property taxes and income taxes. They deliver the products that Amazon and others sell. If you don’t think online retailers indirectly help pay for the services you mentioned, you need to spend a bit more time thinking about your position. 🙂

          • fairnessforall says:

            Indirectly perhaps… directly.. not at all. I guess if you want to argue online retailers use UPS, Fedex etc as a proxy to pay for the services I mentioned… That’s a reasonable argument but ultimately is one that misses the point…. and that is the law is the law.. the government shouldn’t be picking winners and losers by allowing a company like Amazon to not abide by the law while forcing mom and pop down the street to do so. Amazon.com etc… shouldn’t hide behind other companies to claim they contribute.

  2. ted in bed says:

    Someone might look at the situation and ask why are local businesses burdened with a 9% sales tax AND why aren’t Republicans working to reduce those taxes and make each tax dollar go further.

    We pay alot in gas taxes, but for some reason the Republicans want more …. 1% TSPLOST and toll roads. Republicans created SPLOST’s by claiming it was a temporary sales tax increases to fund school infrastructure. Instead its become a permanent tax renewed by government employees since the election is always on odd-ball days when productive citizens are working.

    The state portion of the Sales Tax needs to be reduced and each locality LIMITED to 1% for any SPLOST and SPLOST can not be renewed for another 5 years. That will do several things:

    1) Focus government on needs, not wants.
    2) Makes local business more competitive (although even if things were the same I’d still order from Amazon because of the cost of gas and Republican TOLL ROADS)
    3) Separate the current office holders from the tax-and-spend reputation of their predecessors. I guarantee their will be alot of lost offices if people wake up to how much Republicans are taking out of our wallets.

    Bring it on. I’m sure the Tea Party would like to win a bunch of seats in the Legislature.

    • fairnessforall says:

      Ted,

      Here is the thing. If we were to reduce or even say.. eliminate the sales tax here in GA.. what would replace the hole blown in state and local budgets? Thankfully we have a balanced budget amendment.. so the revenue would have to come from somewhere. Would you propose we increase the income tax or property taxes? Most people in the TEA party ( and I am a TEA party supporter) want to eliminate all income taxes and instead tax consumption instead of production.. ok fine… Not a bad idea at all…. But this is a whole different argument and completely different issue than the one you are making. The sales tax is going to remain… at least for the foreseeable future…. shouldn’t it be applied fairly to all? Why should small businesses which are the backbone of any economy, bear the burden alone as long as it is there? Why should we, in essence, subsidize online businesses who for the most part don’t hire a single Georgian?

    • “The state portion of the Sales Tax needs to be reduced and each locality LIMITED to 1% for any SPLOST and SPLOST can not be renewed for another 5 years.”

      That just means they’ll raise the income tax and various other taxes. It’s not so much a matter of *if* they’ll get the money… it’s *how*.

  3. Max Power says:

    As I’ve said before, sooner or later all states will tax internet sales. Georgia might as well get in on the action early. That being said my daughter attends ASU, so I’ve been examining Arizona politics. To put it gently they make the folks under the Georgia dome look like a well adjusted family.

  4. COBBPUNDIT says:

    I’m inclined to agree with fairnessforall. As long as we have something to offset the collection of online sales tax collection by companies like Amazon, like a holiday for school supplies then I could support it. I don’t like taxes.. any taxes… but if we are going to have to pay them then the burden shouldn’t be on local job creators to collect it alone. I don’t have a problem with companies who have a location or some sort of infrastructure in the state having to remit the tax as well… its only fair if they are going to enjoy what taxes pay for, ie police, roads etc. I didn’t even know I had to remit the tax when I file my taxes… I don’t want to be audited by the state, haha!

  5. NoTeabagging says:

    I love the twisted fact that potential legislators run from issues because they cannot imagine voters have the intellect to understand issues such as fair sales tax. The “Don’t talk about it in an election year,” mentality is insulting to me as a citizen and voter.This is why we have tabloid campaign reporting and public smackdowns instead of true political debate.

    I really need to look into that Amazon thing, didn’t realize I could save so much, thanks!

    • COBBPUNDIT says:

      The thing is with Amazon they should be charging sales tax. They have a physical presence in the Georgia, I believe in Cobb County. A truly fair sales tax is one that is charged and collected in a fair manner. I would think the fair tax people would be chomping at the bit to get this passed. More sales tax revenue means the state is less dependent on income and property taxes. Technically you are on the hook for the sales tax… shouldn’t Amazon be on the hook with the GA. Dept of Revenue instead of you?

      • ted in bed says:

        ” More sales tax revenue means the state is less dependent on income and property taxes.”

        We’ve seen more sales tax revenue. Have we seen lower income and property taxes? No.

        Didn’t Dekalb vote for a sales tax that was supposed to wipe out property taxes a couple years ago? Did that happen?

        • NoTeabagging says:

          Well Ted, while you were sleeping, Dekalb needlessly slashed thousands of home assessments last year. The result, reducing property taxes 50% or more for most of these homes. After a big “oops!” moment, the commissioners voted to raise the mileage rate to make up for that huge sucking sound coming from the Maloof building.

          Another great Dekalb moment, Vernon Teflon Jones stated at a public meeting Dekalb County would receive so much money from sales tax revenue on the new Wal-Mart, at the (non-mixed) reuse development of Avondale Mall, that all Dekalb property taxes would soon lower. BS alarms were heard going off county wide.

            • NoTeabagging says:

              Well Mike, I’ll enjoy my lower taxes along with (some) hundreds of my immediate neighbors. We are lucky to live in older homes that maintained their resale value despite the lower tax assessment. I have not heard any disparaging cries from neighbors unable to sell because a buyer (or bank) only wanted to pay a Dekalb assessed price.

              • If your resale value is still the same, but your appraised value went down, you’re the beneficiary of an error by the tax assessors, and you are paying too little in property taxes. In other words, my taxes are up because your taxes went down. You could at least pretend to be grateful.

                • NoTeabagging says:

                  Yes, Mike I am totally grateful. It is very possible that Dekalb assessment errors work both ways. Currently I benefit, but you lose. Seems rather stupid of Dekalb.

                  I could put on my tin hat and say they engineered this whole snafu with out of balance assessments so the majority of folks like me wouldn’t balk at a little millage increase. At least not until they re-evaluate assessments and make those OOOPS corrections.

                  Given all the crap I put up with from the county, I am loathe to say, “Excuse me I need to pay more taxes because my house really didn’t lose half its value last year.” Let’s just say, I didn’t fall of the turnip truck yesterday.

  6. fairnessforall says:

    You make a good point ted. But I have a little more faith ( and I emphasize little) in the people under the gold dome than those running Dekalb County. On the state level we will soon have eliminated the state portion of the property tax. It starts being phased out this year through 2017. So on the state level we are in the process of ending the property tax… the state will not be like Dekalb County in the sense we will have both taxes, by 2017 we will be property tax free on the state level.

  7. debbie0040 says:

    I purchase a great deal of merchandise online and it has zero to do with not having to pay sales tax. In fact, it usually costs more to buy online because I have to pay for shipping/handling. I buy online because I don’t have time to go from store to store to find what I want. If merchants had an online directory where I could see what store has the merchandise I want and not have to go from store to store, I would much rather purchase locally.

    I oppose taxing internet sales. It is just an attempt to raise taxes all in the name of fairness (Democrats favorite reason) and bring in new revenue that will be spent by elected officials. I guess many elected officals forgot they signed a pledge to oppose any and all tax increases..

    • “I guess many elected officals forgot they signed a pledge to oppose any and all tax increases..”

      I don’t think it’s so much that they forgot as that they don’t care.

    • fairnessforall says:

      Debbie.. this is not a tax increase. The law is already in place, no current tax rate will be raised, no new tax will be created. From what I have read, the tax collection would coincide with bringing back the sales tax holiday on energy efficient goods ( not so sure if i care since I hate those obama light bulbs and refuse to buy them!) and school supplies ( which is good since despite how much we spend on education teachers have to dip into their own pockets to buy supplies). I agree with your statement about merchants having an online directory, that is a great idea and would like to see that… maybe if we end the loophole for online retailers those merchants will have an uptick in sales and can invest that money in such a directory 🙂

      • debbie0040 says:

        It is absolutely a tax increase and claiming it is just closing a loophole won’t fly with voters. It is bringing in additional revenue. Legislators that vote for this will be voting for a tax increase . I remember a few years back when the Dems floated the idea of taxing internet sales, it caused an uproar with conservatives..

        • fairnessforall says:

          Could you please explain Debbie? How is collecting an EXISTING tax at EXISTING levels a tax increase? By your logic a tax cut would be a tax increase because in many instances tax cuts bring in additional revenue. I would agree with your argument if the tax wasn’t already in place and the legislature wanted to create it from scratch… not the case here.

          • debbie0040 says:

            Any elected official that supports this is supporting a tax increase and they should have to answer to the voters for it…You will be collecting taxes that are not collected now. You can attempt to spin it all you want to but voters will see through it…… I can just see the campaign ads that the Democrats will run if it passes….

            • COBBPUNDIT says:

              Debbie, with all due respect continuing to call it a tax increase doesn’t make it one.  Obviously I don’t agree with you  about this and that is fine. But I seriously doubt democrats are going to be running ads, especially in local races, hitting a GOP incumbent for voting for something that ultimately will  help get us off an income/ property tax model, bring back sales tax holidays for schools supplies ( which teachers and parents will like) and help mom and pop operations in the state that create local jobs. I am very concerned about what Chuck has mentioned on here though and that is the impact it could have on affiliate sellers in our state, hopefully any bill that comes out of the legislature will protect them as much as possible since they are small business owners. Probably setting some minimum threshold… say $50,000 to $75,000 a year before you have to start collecting the tax would help solve that problem.

  8. If you really want a quick education on what the proposal in front of GA legislators attempts to do and understand why it will not work, but will instead cost GA more in lost income & sales taxes than the new sales tax collections would bring in… I invite you to read this Fact Sheet I put together: http://www.backroomreport.com/GA_e-Fairness_Legislation.html

    Folks I have owned brick & mortar stores in this state and I agree the playing field needs to be leveled. I have served as chairman of my county board of education and I know how school systems and counties are struggling and the lost SPLOST/E-SPLOST revenue would be a huge help… and I know Gov. Deal is desperate to come up with enough new revenue to offset the manufacturers energy sales tax he wants to eliminate, but it is ridiculous to force legislators to put themselves on record as voting for what some may construe as a tax increase (easily demagouged) when what they are voting on won’t have the results advertised.

      • This is not a state issue… it is a federal issue that falls under the Interstate Commerce Clause… and the current law of the land has been upheld by the U.S. Supreme Court. A state cannot force an out of state merchant to collect sales taxes on catalog, mailorder, telemarketer, or Internet sales unless that out of state merchant has a physical location (store, warehouse, call center) in that state.

        Amazon and the other medium and large Internet merchants know that sales taxes will have to be collected at some point… so that is why they have signed onto two separate bills currently making their way through congress… this legislation has been supported by about 2 dozen states. My K-Street friends tell me there is a good chance of one of the bills finally passing in 2013. Instead of trying to do an end run around federal law with legislation that will not even work, Georgia legislators should instead pass a resolution supporting the federal solution and encourage our 2 U.S. senators and our congressional delegation to get behind it.

          • (1) Whether or not Fabric.com can be construed as physical nexus is a lawsuit waiting to happen. (2) This is much more than Amazon… there are several thousand Internet merchants with affiliate programs that have Georgia members. Almost none of them have physical nexus in this state, but under the legislative proposal they would now be deemed to have that nexus… thus they will cancel their agreements with all of their Georgia based affiliates in order to avoid this new definition of nexus…meaning Georgia will still not be able to force them to collect sales taxs. Instead over 6,000 Georgia based affiliates will be forced to shut down or move to a neighboring state. In 2010 these affiliates received $483 million in commissions/performance advertising fees. If this legislation passes that $483 million will disappear from Georgia’s economy… meaning lost state income taxes and lost sales taxes as most of that money would have been spent in Georgia.

        • Calypso says:

          Chuck, your argument about this being a federal issue is the crux of the situation. This must be dealt with on a federal/congressional level for it to be implemented successfully and equitable.

    • ted in bed says:

      I forgot about the manufacturers tax cut Gov. Deal wants. How is that going to look during a campaign …….

      We made taxation more fairer, by making you pay more in taxes so that our big corporate golfing buddies don’t have to pay any.

      ummmm ….. If that is the program, then the Tea Party needs to find 100 more candidates because this election is going to be their year to win control of a Legislature.

  9. saltycracker says:

    Consumption taxes are the preferred direction. The political reality is the tax code itself is never addressed as the direction is to layer more revenue into the public sector.

    As the public favors quality education and good roads & transportation these are areas to be exploited from every direction.

    Education takes up half or so of all property taxes, has a sales tax piece, has a tremendous lottery subsidy, has student loans (than exceed all credit card debt), has PTA fund raisers, gets state and federal assistance, is adding bond debt to biblical proportions, has one of the best early & increasing retirement & benefit programs among all workers and this year is being pandered by the casino crowd. And Georgia education is where ?

    Transportation has countless suckers of revenue sources while keeping the fuel tax one of the lowest in the U.S. The politically allocated money is poorly administered and utilized. The latest vampire chronicle is about toll roads.

    So when we tax Amazon we’ll discover the “fair competition” idea as well as the revenue “will be used to reduce …whatever” was a red herring.

    Overhauling the tax code toward consumption taxes and stop sorting out winners and loosers is not in the cards. But these little debates on internet taxes keep our attention diverted.

  10. elfiii says:

    The taxing of internet sales to “protect” local businesses is a strawman lie. The problem is not that internet sales aren’t taxed. The problem is the citizens of this state are overtaxed via sales taxes. The local merchants don’t pay the tax. They collect it from customers and pay it in to the state.

    All the taxpayers are doing is legally avoiding paying the tax. That is the advantage of consumption taxes. You have the choice to spend your money and thus pay the tax or practice avoidance measures and not pay the tax.

    The fact tax avoidance is increasing is a clear indication the rate of taxation is too high.

    • fairnessforall says:

      That’s specious reasoning. Tell it to the small business owners I know who are getting creamed. Tell them they are a “strawman” when they lose out business to an online outlet because of the sales tax, whether that be 6 percent, 7 percent etc. The local merchants might not pay the tax, but they pay the price of having to collect it when online merchants like amazon don’t. Shouldn’t they be on the same level playing field as an online merchant? And I don’t know how you “legally” avoid paying a tax. People don’t pay the tax because they want to avoid it… they honestly don’t know they are supposed to remit it.. but you are legally liable for not doing so.

      • elfiii says:

        No, it’s not specious reasoning. It is exactly what is going on. As I said, the increase in avoidance is an indication the rate of taxation is too high. If item X costs $10.60 in the store and $10 flat on the internet with the difference being the tax, where are you going to purchase item X?

        As for the local merchants, the buggy whip manufacturers can tell them all about it. Times change.

      • debbie0040 says:

        Fairnessforall, everytime the Dems want to raise taxes, they site fairness as an excuse. I am hearing the same thing from supporters of the internest sales tax.

        You still don’t get it. People don’t shop the internet because they don’t have to pay the tax in many cases. In fact, most of the time they end up paying more to purchase an item online because they have to pay shipping and handling which is far more than the tax they would have paid.

        • chefdavid says:

          Taxing the internet that is like saying Dekalb needs to send some of their sales tax revenue up here to Dade. By them having such goods malls people go shopping there and it hurts the local businesses in Dade. So those rich counties can help out us poor ones.

Comments are closed.