Sony Online Tax Question

Hello,

Almost a year ago, Sony closed the only sonystyle store here in AZ. I was under the impression if they didn't have a store front in the state you are ordering from, they were not allowed to collect sales tax.

They collected tax on my order a few days back.

Any thoughts?

 

I'm sure as long as they operate a facility in your state, they are obligated to collect tax. Fry's charges tax in like CA, NV and Ohio (they have a few warehouses there). My roommate gets charged tax from Amazon and he's from Kansas

 

Achusaysblessyou is correct, and more generally, a company like Sony probably has some facility, operation or form of legal "nexus," which is what triggers the requirement to collect sales tax from residents, in pretty much every state in the country. Same goes for most major manufacturers such as Dell, HP, Apple, etc. That said, the party will soon be over for online buyers and sellers who have been getting an unintended and truly unlawful benefit vs. brick and mortar retailers and their customers, not to mention the dozens of states with multi billion dollar deficits, that are significantly worsened by ever shrinking sales tax revenues they have long depended upon to keep schools, public safety and other essential state and local government run services.

So, as I thought about and did a bit of research about this I concluded there ia a great deal of misunderstanding of this issue and its truly broad and fundamental impact on the very survival of the most essential state and local government services. Add to that, we are about to see an avalanche of lobbying and "issue advertising (anyone remember "Harry and Louise" from the 1993 healthcare reform debate?) as the issue winds its way through the US Congress. For these reasons, and since my day job is tangentially involved in financial and economic analysis, I decided to essentially write a blog-type post of my own (you can find thousands of them if you Google the topic!) and deposit it right here, in this new and barely recognized thread that Maven has importantly brought to our attention.

***Note***If I lost your interest early in the preceding paragraph, by all means, scroll right past the rest of this post. If you are interested in learning some facts about the issue, its economic and political importance, and how it will be affecting you in the near future, and you have strong feelings and convictions about the issue, please do read on and comment, disagree (with my opinions, not facts!) and point out any areas where I have gotten the facts wrong. Maybe this post and thread should be moved elsewhere, but I have found Sony Forum people to be some of the smartest and most intellectually curious people on NBR, so I think this is a great forum in which to discuss this surprisingly important and complex issue.

So here goes:

The whole area of online vendors collecting and remitting sales tax to every state, even if they don't have the legal nexus that requires it, is going through the courts and the US Congress now, and Amazon and other large online-only merchants is pouring tons of legal and lobbying bucks into preserving its "right" (there is no such right, IMO, as you shall hear about below) to not tax purchases from residents of the many states in which it has no legal presence, as defined by current law. The crux of the issues are:

1) Sales tax on applicable purchases is always due the state for such purchases from its residents; the vendors are merely acting as agents, collecting and sending the tax on to the states' revenue departments, but if the vendor doesn't collect and remit the tax, the resident is legally obligated to file and pay it to their state themselves - though as a practical matter virtually no citizen complies (nor are the majority even aware of their obligation) with this requirement and no state has found it economically practical to enforce.

2) In addition to the basic state laws described above, there are both constitutional and federal trade law grounds to require all merchants to tax all purchases and remit the proceeds to the states, on esoteric legal grounds related to economic equality and fair trade practices. The fact is, neither the Constitution nor any federal trade construct meant to give certain (in this case, online and "catalog") merchants an effective 3-10% competitive price advantage solely because their business operations are concentrated in just a few states, nor is there any current law (there were temporary ones in the early days of ecommerce, see further below) that intends to subsidize online purchas es and/or purchas ers, though this too is widely misunderstood. The whole situation is nothing but an unforseen and unintended consequence of current law and practices which were instituted long before anyone had foreseen the advent of digital retailing, and the states are now aggressively lobbying congress and going to courts to explicitly end the ambiguity because...

3) ...in these times of massive budget deficits in every state, and an increasing share of retail sales happening online, the lost sales tax revenue has become a major financial problem in virtually every state; the lost revenue is something in excess of $10 billion nationally, apportioned across all the states according to their residents retail purchases (see independently sourced data, below).

For all these reasons, most predict that federal law will soon be enacted to put a permanent end to the issue and require all merchants operating in the US to collect and remit sales tax on every sale delivered to any state in the country. There are some strong forces working to prevent, or at least postpone the action because both certain wealthy consumers and certain massively powerful vendors - Amazon being by far the largest single beneficiary of the current "loophole" - stand to lose a great deal if this free ride is ended. I personally spend at least $5,000 - $15,000 per year in purchases from Amazon and other non-taxing online merchants, and it saves me $300 - $900 annually in sales tax while giving Amazon and others a 6% price advantage over, say, Costco, and causing my state to have to cut services or increase taxes elsewhere to cover their deficits.

But don't just take my word for it; google it and you will find many articles such as this one: The REAL Numbers Behind the Internet Sales Tax Debate which states:

" If every state imposed a tax on all online sales, they would receive an additional $10 billion in revenues per year. That would reduce the average state’s budget deficit by 17%."

the article sums up the issue in this way:

"In the upcoming Fiscal Year 2012 (for most states, that’s July 1, 2011 – June 30, 2012) 31 of the 44 states that face a budget deficit could reduce their budget shortfall by 9% or more by collecting sales tax on all online purchases made by their residents. Indiana and Iowa could close more than half of their budget deficits, and the six states with balanced budgets would run a combined $500 million surplus."

So yeah, this is a really big deal. And you will soon be hearing a great deal of advertising (some accurate, some as deliberately deceptive as most political advertising) from the groups with the most to gain or lose, and this cacophony of "communication" and "education" about the issue will go on until the Congress or the US Supreme Court ends the "debate."

Whew - didn't mean to write an editorial on the subject, but it falls into my professional purview (I'm a financial/economic consultant) and I believe it is a widely misunderstood issue and a very polarizing one, as many people feel it is their "right" (which, as noted above, legally it is absolutely not a right in any state in the US) to make tax-free online purchases. And of course, through political and media distortions, many view this as a "tax and spend liberal" vs. "free market capitalist" ideological debate, when in fact it is nothing but a massive loophole that has grown so large that it is literally the direct cause of teachers, police and fire fighters losing their jobs because the states are bleeding so much red ink. But that doesn't make it so different from all the rest of the political bloviating on the subject of taxes. No one honestly (as if honesty is a significant value at the heart of any political discourse over the past 10-30 years in the US!) believes that hedge fund managers should pay lower tax rates on their income than the chauffeurs who drive them to meetings, but any change from the status quo tax system - even if it is just the closing of an unintended loophole in current laws - is seen as a tax increase, which many people in and out of the political system oppose without any regard whatsoever for the reason or the impact. The online sales tax "debate" is in no way immune from this duplicitous reasoning.

Final point: in the early days of Internet ecommerce, there were actual laws enacted federally and in many states to explicitly exempt online commerce from a variety of sales and excise taxes as a way to help stimulate what was then an embryonic industry that was considered important to subsidize in its early stages so that a major new industry and source of economic and employment growth would be fostered. It worked, and the most of those laws have "sunseted" out of existence, though there are still many people who believe the Internet is some kind of economic "commune" in need of special protections and exemptions - kind of like native Americans' reservations - when it has for over a decade been a massively sized and hugely profitable sector of the economy.

So, it's death, taxes or both; the only sure things in, er, life, that you really can't escape - at most you can postpone them a bit!

(I know this was an entirely unconventional and massively overwritten piece for a post in a small thread in the Sony Vaio computer forum. Perhaps it will be pulled by a mod [if you must, could you possibly let me know and I will re-post it in the remote wasteland known as "off-topic?"]and very likely passed over by most of you. But this is a "pocketbook" issue that will affect you more than the average person (because Sony Vaio owners are definitely way upscale peeps and spend 2X - 10X more money online than the average even computer enthusiast) and because I find the Sony membership has some of the brightest and wittiest people of any on NBR. And though I write pieces like this usually for blogs and publications that deal with the intersections of business and tech, it just felt right to both educate and stimulate thought and debate among my peer group here - successful, well educated, heavy online purchaser (and, likely, news browser), who has an economic stake but also potentially some genuine intellectual curiosity about an issue that touches a number of bases, but isn't too heavy or political or opinionated as to be off-the-wall inappropriate, just this once. Depending on responses [and how long before the mods take it down!], maybe I'll start a thread where NBR-ers can talk about political/economic/societal issues that dovetail with technology. Thanks for reading - to all three of you! Jeff Bellin. Arlington, Va.

 

^Well put.

In the case of computers, sales tax is as high or higher than a retailer's profit on most models. Companies like amazon that don't charge sales tax immediately have a huge and unreasonable advantage. Internet sales tax will certainly help level that playing field and help local retailers to better compete.