by | ARTICLES, BLOG, CONSTITUTION, ECONOMY, FREEDOM, GOVERNMENT, SCOTUS, TAXES
This week, the Supreme Court ruled in favor of taxation for businesses that lack a physical nexus. Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch, writing for the majority opinion, believed that the emergence of the internet as a mainstream medium for interstate commerce caused the physical presence rule to become further removed from economic reality and resulted in significant revenue losses to states.
The revenue loss argument is nonsense; it is a back-door way for states to add additional levies on their citizens under the guise of leveling the playing field . For years now, we’ve been hearing the protestations that there is dearth of tax revenue from which states are suffering terribly.
But this is simply and patently untrue. State legislatures have always set their tax rates with the full understanding that they would not actually collect that supposed billions of internet “slippage”. It’s not like there is a line item in state budgets that lists “uncollected online tax” or “tax cheats” with a number attached. Sales tax is merely one of many levies whose revenues positively fund government spending. This online tax will now just be yet another tax (and therefore revenue) for the coffers. Higher marginal rates exists because state-government spending levels are higher — not because of some “absence of tax” nonsense that forces states to raise rates.
In our states’ budgets, current taxes rates (income + sales, if applicable) are set at levels appropriate to cover the calculations of state spending. 49 out of 50 states require a balanced budget. These states are fully aware that taxes are “avoided” (internet and out-of-state) and therefore don’t even count them in their budget calculations. So there is no concrete “absence of revenue”. Instead, by passing this new internet tax, states are now given free reign to add a tax without taking the political heat for it, under the guise of “fairness”.
Looked at it another way, it is unconscionable for this ruling to stand without Congressional action that requires states to lower their marginal rates so that the new tax makes everything revenue neutral. Higher marginal rates as they are already burden taxpayers. This internet tax doesn’t fix anything — because there is nothing in their budgets to be “fixed”. True tax reform (a true “fix”) always means broadening the base and thereby reducing the overall burden of taxes. Instead of that, what we have with ruling will be a revenue grab.
Another fallacy for supporters is that including the internet tax in transactions is simply a matter of adding a quick, little tax line where there was none before. But it is highly irrational for legislators to believe that compliance with multiple tax jurisdictions for vendors will be an easy and unburdensome process. The recordkeeping will be excruciating. From an accountant’s perspective, here’s how:
The effect of distressing our businesses to comply with this online tax collection will be a drag on the economy. Can you imagine vendors needing to figure such things as whether marshmallows are a taxable food/candy in some jurisdictions while it might be a non-taxable food in others? To think that software can seamlessly make this distinction is ludicrous (especially software run by the government.) When has the government ever actually streamlined anything?
Internet tax collection for 10,000 local tax jurisdictions or even just 50 states is too much. If such a tax is to be implemented, it should be either a tax in which every state accepts one set of rules OR a tax payable to the state-of-sale only — which would ultimately be better for tax competition overall. Without a fix, compliance will certainly be massive and burdensome — which will hurt this economy that is slowing but surely recovering from the last ten years.
Arthur Laffer observed that “the principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems”. But a hodge-podge “internet tax” doesn’t do that. Without a solid Congressional solution for correctly calculating and remitting sales tax in 10,000+ jurisdictions, we will have a nightmare for accountants and businesses — at the cost of grabbing another revenue stream for our bloated, overspending government.
by | ARTICLES, BUSINESS, ECONOMY, FREEDOM, GOVERNMENT, OBAMA, POLITICS, TAXES
Discussion began heating up again about the “internet tax” last week when lawmakers pushed back the moratorium on Internet access taxes — set to expire on Nov. 1 — until mid-December during the lame-duck session. In the meantime, let’s call it out for what it really is: a revenue grabber masquerading as “fairness”.
Last year the Senate passed the online sales tax bill, formally known as the “Marketplace Fairness Act”. There is nothing fair about this act. It is a back-door way for states to add additional levies on their citizens under the guise of leveling the playing field . From an accountant’s perspective, here’s how:
Most proponents of the bill suggest that there is somehow a dearth of tax revenue from which states are suffering terribly. This sentiment was echoed at the time in the pages of the WSJ by Arthur Laffer. He wrote that “the exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes”.
But this is simply and patently untrue. State legislatures have always set their tax rates with the full understanding that they would not actually collect that supposed $23.3 billion of internet “slippage”. It’s not like there is a line item in state budgets that lists “uncollected online tax” or “tax cheats” with a number attached. Sales tax is one of many levies whose revenues positively fund government spending. This online tax, if passed by the House next and signed into law, will just be yet another tax (and therefore revenue) for the coffers. Higher marginal rates exists because state-government spending levels are higher, not because of some “absence of tax” nonsense that forces states to raise rates.
In our states’ budgets, current taxes rates (income + sales, if applicable) are set at levels appropriate to cover the calculations of state spending. 49 out of 50 states require a balanced budget. These states are fully aware that taxes are “avoided” (internet and out-of-state) and therefore don’t even count them in their budget calculations. So there is no concrete “absence of revenue”. Instead, by passing this new internet tax, you are merely giving the states a free reign to add a tax without taking the political heat for it, under the guise of “fairness”.
Looked at it another way, it is unconscionable for Congress to pass this legislation without requiring that states lower their marginal rates so that the new tax makes everything revenue neutral. Higher marginal rates as they are already burden taxpayers. This internet tax doesn’t fix anything — because there is nothing in their budgets to be “fixed”. True tax reform (a true “fix”) always means broadening the base and thereby reducing the overall burden of taxes. Instead of that, what we have with this bill is a revenue grab.
Another fallacy for supporters is that including the internet tax in transactions is simply a matter of adding a quick, little tax line where there was none before. But it is highly irrational for legislators to believe that compliance with multiple tax jurisdictions for vendors will be an easy and unburdensome process. The recordkeeping will be excruciating.
This tax nightmare is similar to the 1099 fiasco originally included in Obamacare a couple of years ago, which expanded the reporting requirements to include all payments from businesses aggregating $600 or more in a calendar year to a single payee. Because of the insurmountable amount of reporting and paperwork that would have been associated with it, that provision was highly protested and swiftly and subsequently repealed.
The effect of distressing our businesses to comply with this online tax collection will be a drag on the economy. Can you imagine vendors needing to figure such things as whether marshmallows are a taxable food/candy in some jurisdictions while it might be a non-taxable food in others? To think that software can seamlessly make this distinction is ludicrous, especially software run by the government. When has the government ever actually streamlined anything? And implementing such a convoluted tax while businesses are already having to deal with sorting out the egregious complexities of Obamacare compliance will certainly hurt businesses even more.
Internet tax collection for 9,600 local tax jurisdictions or even just 50 states is too much. If such a tax is to be passed, it should be either a tax in which every state accepts one set of rules OR a tax payable to the state-of-sale only — which would ultimately be better for tax competition overall.
The economy is suffering enough. Adding yet another tax for citizens, which also requires burdensome compliance for businesses, is not the way to do it.
Laffer was correct regarding taxes when he observed that “the principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems”. But the “internet tax” doesn’t do that. In its current form, it is just another revenue stream for our bloated, overspending government.
This is no “Marketplace Fairness Act”. It is an atrocity.
by | ARTICLES, BLOG, BUSINESS, ECONOMY, FREEDOM, OBAMA, POLITICS, TAXES
State and local governments have been forbidden from taxing Internet access — apparently forever — according to a bill passed in the House on July 15. This measure was a response to updating the Internet Tax Freedom Act of 1996, which had a extension passed in 2007 and was on the verge of expiration.
House Judiciary Chairman Rep. Bob Goodlatte explained that the bill “prevents a surprise tax hike on Americans’ critical services this fall. It also maintains unfettered access to one of the most unique gateways to knowledge and engine of self-improvement in all of human history.
Unfortunately, it is expected to be joined with the Marketplace Fairness Act when it heads to the Senate. That abominable piece of legislation was passed in May 2013; it’s merely a back-door way for states to add additional levies on their citizens under the guise of leveling the playing field, while simultaneously adding undo burden to businesses by expecting compliance with multiple tax jurisdictions. Read more about the Marketplace Fairness Act here.
As for the Internet Tax, it’s a bill to keep track of as it moves through Congress
