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More Discussion on Internet Sales Tax and Coming to a Consensus

It is an amazing thing to be part of an intelligent conversation with intelligent people who have no political agenda.  Lowell Peabody, Bob Canter, Peter Morris and I have been discussing the pros & cons of taxing internet sales.  We all started with differing initial perspectives.  Bob is basically anti-tax, and Lowell is not in favor of taxes but, perhaps, should I say, better appreciates the need for taxes. Through the discussion, it looks like we are coming up with a, seemingly, good compromise, one in which congress should take note of.  The direction of that solution I mention in my previous posts, Sale Tax Moratorium coupled with Employment Tax Credit to Help Brick & Mortar Retailers. The following is more on our conversations on LinkedIn.  To read earlier comments, click on Taxing Internet Sales, Part Deux – Differing OpinionsHow about a Moratorium on Sales Tax to Help Brick & Mortar Sales? and Should Internet Sales be Taxed and Will That Save Brick & Mortar?

Lowell argues that……

"With the advent of on-line shopping we are nor adding another tax we are simply putting back the tax revenue we would have otherwise had. The internet simply cross circuited the tax we would have paid had we gone to the bricks and mortar store and made a purchase. There is nothing different save for the convenience of shopping from home and having a product delivered. I totally agree that government programs need to be cut however arguing that no sales tax is appropriate for on-line purchases moves the discussion in another direction. The intent of the sales tax was to collect an amount for goods purchased. That people buy more on line simply means at this point sales tax revenues are falling. No one is making a new tax we are avoiding the tax and we know it.. To apply a tax for on-line purchases is not a new tax or idea, it is like the change getting music for free which was never right versus having to pay for it now..which the majority of people seem to accept.

There is no reason for artificially bolstering bricks and mortar developments housing retailers who are starting to make more on the internet than in their stores and not collect taxes.. We cannot tax and then suggest we want to support real estate investors. Those tax funds were always intended for State and local financial support. If the real estate industry shifts in accordance with consumer desires and retailer realities, so be it. That is why those who develop are so smart to adapt and reshape themselves to new conditions. That’s how they make the big bucks!!"

To Which Bob Canter responds:

"Very compelling argument, and I understand what you are saying. 
I totally agree the sales tax is meant for state and local governments not to reduce Federal deficits as the gentlemen from Canada suggested. 

Although you make a valid point that there is no new tax being introduced per se, it is changing the way products are taxed in respect to jurisdictional boundaries. 

I have no sympathy for companies whereby the paradigm shift passed them by. 
Look at Kodak…they had to know film was going to be a thing of past.  Should digital cameras be taxed because so few use film any longer.  Same for many camera stores, you can buy digital cameras on-line or blame the Best Buys ,should they be taxed because of a change in the way people purchase products. I know that would be creating a "new" tax. But so is this Tax on internet sales a "new" tax. 

The argument has been to create "Fairness” because the poor ole retailer has to charge sales tax and has overhead as in a retail store while the on-line retailer doesn’t and that gives them a competitive advantage. 

We are talking about 15% of all retail sales have been on-line and the B&M retailers are going nuts along with their trade association ICSC which is really for the developers. 

If they used Lowell’s argument I would find that more acceptable than trying to pretend that sales taxes are the only reason B&M retailers are losing business. 

B&M retailers are not getting it for the most part, it is foreign to them. 
Yet traditional retail is far from being dead.  There are so many types of retail that one must go to and will continue to go to. I won’t go through the list here for the sake of tedium. 

The online retailer also has expenses or overhead, like large IT departments, call centers, fulfillment centers, office space, and shipping costs to their warehouses or to their customers for the most part. 
They have payroll taxes, sales taxes on supplies they purchase, etc. 

Many online retailers ship for free, should they do away with doing that because it’s not fair to the brick & mortar retailer as well.  Substitute shipping as the equalizer to the on-line retailer not charging sales taxes. B&M retailers don’t have to ship 90% of the time to their customers. And on-line merchants have to ship 100% of the time w/out exception, even if you are picking it at one of the B&M stores as Howard pointed out on his Blog. 

Have you looked at your phone bills lately. My office phone is 20% worth of assorted taxes. Our cell phones also have a load of taxes. Look at your cable bill, how many local, state, federal taxes are on that. And we use our cable to access the internet, therefore we are paying a tax indirectly when ordering online. 

Here in Montgomery County they instituted a plastic bag/paper bag fee of 5 cents per bag using environmental issues as their reasoning. It began Jan 1st 2012. 

Bull pardon me, if it was for environmental reasons they would allow for paper, it’s just a revenue enhancer. Should the on-line retailer now have to charge a bag fee for the boxes or containers they ship their goods in to people here in Montgomery County MD? 

The problem as I see it, what all this sales tax discussion is centered around is to prop up the brick & mortar retailers and their landlords under the heading of "Fairness” 
To me it is no different than the bank bailouts. Some Industry is getting hurt and it is up to society to fix a problem which does not need fixing. It’s a natural evolution. Leave well enough alone and if that means the retail landscape changes then so be it. 

You want to level the playing field as I said go with a National VAT and kill all sales taxes as they are probably more discriminatory than income taxes and kill more economic growth."

Man, can that Bob talk.write.  You would think he was an attorney.  I then threw out the idea of combining a Brick & Mortar Sales Tax Moratorium into the discussion and this is how Lowell and Bob responded:

"Howard, not sure if we will see that happen as on-line purchases are not yet equal to the volume of of sales at B&M stores, so overall tax revenue would likely decline. Not sure of how many states and municipalities can afford that. It is a great idea though!"

Bob, in his, not so brief but brilliant style commented:

"……….Thegovernment looks around every corner and crevice to find revenue. Never looks to cut spending. I know a broad and perhaps off topic statement. Indeed as our Country's population grows so do certain aspects of government need to grow along with it to support the population growth. That being said, and I know Lowell will say we are punching at pillows, and he's not really wrong, government/politicians can never calculate a negative. Meaning for example, when this current President was shown empirical evidence that cutting capital gains rates, the revenue on capital gains sky rocketed. His reply was yeah I know but it isn't fair. This comes under the same heading of implementing a tax be it new or not under the heading of fairness. And as I also said their (ICSC) approach is so transparent that it is laughable. Why do I care about Landlords who go out of their way in each and every case to screw small tenants. I know that is the market, they should care more about helping their tenants than picking on internet sales. By not taxing internet sales I say it puts more pressure on the major retailers and landlords to be more customer centric. Helping local and state governments get more money, I would say good less money to force their hands to cut their spending. 

Maybe a compromise would be to give sales tax relief to small B&M merchants who generate a top line revenue of $X. This isn't so radical since many localities have sales tax holidays usually around the beginning of the school year. That has proven to drive sales, gee what a surprise. If that were a compromise than I would definitely back the internet tax, but give something in return to the small merchant who is most affected and who is getting utterly hammered in this economy. It would also spur jobs by small business which has been the biggest creator of jobs over the last 20 years. If ICSC would back such a plan then they would prove something. Look at what DDR just starting doing retail incubators. What a great idea. But if you notice the little helped that is offered to small business is 'Oh we'll give you a tax credit if you hire" That does absolutely NOTHING. If you are NOT generating revenue as a business it doesn't matter how many people you hire since you can't afford to hire them in the first place. How stupid can these politicians be. If we can give certain countries favorable trade status why not give small merchants "a favorable sales tax status" Again the one size fits all doesn't work."

Something to Add?

  • mdifede

    All sales taxes are regressive and fall disproportionally on people of lower income so i am not in favor of sales tax of ANY kind. We already pay income tax on the money we have – why should we be penalized for spending it and have to be taxed again??

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