Tinotopia (Logo)
TinotopiaLog → Please Tax Us, Say Retailers ( 7 Feb 2003)
Previous entry:
EU to airlines: Drop Dead!

Next entry:
Academic Cheating
Friday 07 February 2003

Please Tax Us, Say Retailers

Large retailers who do business online are anxious to have their customers pay about 5% more for everything they buy — and the retailers aren’t getting any of the money.

A story in the Washington Post today says that certain big retailers just can’t wait to have sales tax collected on their online sales. Retailers are usually strongly against sales taxes, but the Post makes it clear why they feel otherwise in this case:

Although the change will often mean higher total prices compared with those charged by online-only retailers that do not collect sales tax, Wal-Mart and the others are betting that their decision will help an effort to allow states to compel sales tax collections. The retailers that signed on to the deal have online operations that account for only a small proportion of their sales but say their stores have been hurt by online competitors that do not collect sales tax.

At the same time they’re using the government to put their competitors out of business, according to an earlier Post article, the retailers themselves will be cleaning up:

[A]ll of the participating states plan to entice online merchants to collect sales taxes voluntarily by sharing with them a portion of the tax revenues that they remit. Currently, one-third of all states share sales tax revenues with online retailers, with reimbursement rates ranging from a half percent to 1.75 percent of the total taxes collected.

Wal-Mart defends this whole business:

“Many states are struggling with tax-revenue shortages that affect funding for everything from schools to fire and rescue,” [Wal-Mart spokeswoman Cynthia Lin] said. “This is our effort to help customers and the states they live in.”

Which is, of course, why Wal-Mart squeezes governments for every bit of tax relief it can get when it builds a store. To help. And, of course, the solution to tax-revenue shortages is not to spend less, but to tax more. That certainly sounds like sound financial advice from one of America’s largest companies. What a bunch of hyper-cynical opportunists. They don’t have the foggiest idea what they’re doing, and they don’t care. From yet another Post article:

The process is intended to “fine-tune” an online sales tax plan approved last November, said R. Bruce Johnson, commissioner of the Utah State Tax Commission.

“Right now, we’re trying to figure out an appropriate way to deal with digital products and telecommunications services, but the industry is changing so fast that tax folks don’t understand what’s actually happening,” Johnson said.

So you definitely want to take action; doing things when you “don’t understand what’s actually happening” never results in a clusterfuck.

There might be good side-effects of charging sales tax on online purchases, by allowing merchants to end the fiction that their online operations and their physical stores are separate companies; it’ll allow returns of online purchases to physical stores, and it will enable the big retailers to use their stores as fulfillment centers of a sort. Wal-Mart, which sells virtually everything, will be able to have customers order things online for cheap same-day or next-day delivery by a guy in a truck who picks the things off the shelves of the nearest store. (Wal-Mart’s IT infrastructure is actually sophisticated enough to do this, too.)

Unfortunately, this isn’t about having prices raise by about 5% (sales tax is about that much in most places) in return for giving customers more options, it’s about making it harder to become an online merchant. It won’t be a problem for Wal-Mart et al. to deal with paying sales taxes to thousands of different jurisdictions, but it’ll be a serious challenge for the little guy. Services will spring up, I’m sure, that will allow merchants to pass to them an address and get back a tax rate; but these services will cost money, and that’ll make it harder for small operators to make a profit.

I can’t be too hard on the big wheels, though; they’re just doing what they can to make as much money as possible. The crime is that they’re being allowed to get away with it. I have a feeeling that R. Bruce Johnson’s comment about tax administrators not having an understanding of what’s going on will turn out to be prescient: sure, the states will collect a bit more in sales taxes, but in return they’ll lose a lot of the income taxes, property taxes, and economic activity that results from the little fish doing their thing. In the short run, this will probably pay off for the states, but at the cost of having a less diverse, less robust, less dynamic business environment.

Posted by tino at 11:49 7.02.03
This entry's TrackBack URL::

Links to weblogs that reference 'Please Tax Us, Say Retailers' from Tinotopia.

Actually it would seem to me that any number of business regularions (e.g. licenses building codes) are in place to increase the cost of entry into a market. Think about it….if you have local codes that require youto have X number of parking spaces per Y amount of store that means you need to buy/lease more land to open you business. Additionally you need to increase your overheard to pay for the upkeep of that parking lot.

I think this move is entirely about eliminating competetion for these large retailers.

Posted by: Paul Johnson at February 8, 2003 10:49 AM