I am a Tax Director for a large retailer in TX. More of an income tax guy, but I am also responsible for all of our sales tax filings. I am also no fan of Strauss. However, I believe I can shed some light on the legal aspects of sales / use tax.

In general, the sale of tangible personal property is taxable unless specifically exempted from tax by statute, code, etc. An example of statutory exemption is the purchase of goods for resale.

Whether a retailer has physical presence in the state has nothing to do with whether something is taxable. All phyiscal presence determines is who collects and remits the tax.

If a retailer has a brick and mortar store, they collect and remit tax on the consumer’s behalf. If a consumer purchases something over the internet, they are responsible for self accruing and remitting use tax to the state. Generally all companies do this but individuals do not. Why? Because individuals aren’t registered with the state.

Several states are now adding line items to individual income tax returns for collection of use tax from internet purchases. I know OK has done it and I think SD recently did as well. Texas cannot do this as they do not have a personal income tax.

My family and I buy something from Amazon every week. Around Christmas, we get several packages a day. Do we remit our tax on the purchases? No. Is this the right thing to do? No. Technically the state could come audit me and assess me tax, fines, and penalties. Will they? No. They don’t have the manpower or mechanisms in place to do it. Is this crappy that I don’t file? Yes. I’d like to apply the “Nobody else does it defense” but that doesn’t make it right.

Is Texas trying to circumvent the Constitution? No. They are trying to collect the tax (whether sales or use tax) that is due under state statute on the sale or use of tangible personal property in the state.

Is this the best way to do this? Maybe not, but short of requiring each citizen to file monthly or annual use tax returns, I’m not sure what else they can do.

Apologies for the double post

States have been using the economic nexus argument in relation to income taxes for years (e.g., Geoffrey in SC). The commerce clause requires physical presence while due process doesn’t. That’s how they’ve gotten around it on income tax. A simple search of Quill v. North Dakota will give you more than you ever need to know about sales tax nexus.

The thing being missed in the argument is that Texas is not creating a new tax. The tax has existed long before the internet. The question is who collects and remits the taxes. Either the retailer or the consumer. Rather than requiring consumers to file periodic use tax returns as businesses do, they’re trying to collect from a single person, i.e., the retailer.

Does what they’re doing jive with the commerce clause? It will take some high priced lawyer with more talent than me to figure that out.

That I agree with you that it drives out businesses, creates higher costs, may lead to unemployment, etc. I’m not trying to support it. As I said earlier, I stand to pay a boat load more in sales tax.,

I’m merely making the technical observation that the consumer’s use tax existed long before the internet. The states are just trying to catch up the collection mechanism.. Possibly in an unconstitutional way.

http://www.dallasnews.com/business/headlines/20110412-amazon-hasnt-closed-its-irving-distribution-center-as-it-threatened.ece?action=reregister

Probably didn’t post the link right, but it’s from the front page of the DMN business section from last month.

I’m the chief tax officer of a national retailer based in DFW. I deal with this garbage everyday. Use tax and sales tax are generally the same thing. The difference is who remits the tax. If a company buys a product from out of state and isn’t charged sales tax, they must self accrue and remit use tax to the state. My friend’s company is in the middle of a messy audit right now because of this issue.

The state has three choices when it comes to use tax enforcement.

1) Status quo – continue to only collect and audit companies registered to business with the TX Secretary of State (brick and mortar shops). The brick and mortar guys get chapped and are doing some serious lobbying. They are taking legitimate hits (e.g, Borders books).

2) Collect from the customer – The politician that votes for mandatory use tax returns for individuals in TX is committing political suicide. This will never happen.

3) Collect from the online vendor – This requires manipulating the rules, Commerce Clause be damned. This is the road they’ve chosen. I don’t believe it is Constitutional, put they likely view it as the least painful of the options. Unfortunately its bad news from you and me.

I’ve been a lurker for since back when it was redstate.org, but rarely post. Haven’t been around much lately because I started a new job 4 months ago.

Tonight is just my inner tax dork emerging. For obvious reasons, I try to prevent this as much as possible.

After years of following red state, I actually have a chance to use what I’ve learned in business to help explain something technical things to others.

Tax is not an exciting profession, so I thought I’d take advantage of the opportunity. Nexus is a complex issue. I just want to make sure we are making our arguments using facts.

I’m sure it will be another year before I post again.

I think we pretty much agree. The original use tax laws stem from when catalog sales became popular years ago. Before that, traveling salesmen would enter states to pitch their wares.

When catalogs came along, states brought suit trying to claim companies sending catalogs into a state created nexus. That’s when the physical presence arguments stemming from the Commerce Clause emerged.

You are somewhat correct in that the fact the sale did not “occur” in state does not matter, but only to a limited extent depending on the state. Most states have a rule that says if you buy something in another state and bring it immediately into your current state, you owe use tax in your state. Hence the term consumer’s use tax (tax remitted by user) rather than sales tax (tax collected by seller).

For example, I think Louisiana allows 30 days. Usually they allow a credit for tax paid in the other state. This is fairly standard practice in business. We usually have 4 or 5 sales / use tax audits per year where we have to defend this issue.

The bill is required because the state has no mechanism to collect tax from the consumer (you and me) who according to existing law owe the tax based on our use of newly aquired goods brought into the state.

This is new tax revenue to the extent it has never been enforced before. Thus my arguement. It is an increase in tax revenue without a tax increase. Just a change in enforcement. No matter what you call it, it doesn’t mean what Texas is doing is right.

I believe they lack authority to push the current bill, but do have authority to force the consumer to pay the tax. Businesses have to do it now and statute does not differentiate between business and individuals. However, there is no way this option will happen (thankfully).

just honest. I don’t pay it and I can’t claim I didn’t know about it.

“The use tax is a companion tax to the sales tax. Use tax of 6% must be paid on the total price (including shipping and handling charges) of all taxable items brought into Michigan or purchases by mail from out-of-state retailers. Credit is given for tax paid to another state. Use tax is also applied to certain services such as telecommunications and hotel/motel accommodations.”

So the answer is yes. In theory you owe tax. In Oklahoma, you have to report it on your individual tax return. My mother-in-law lives there and I had to do it on her taxes this year.

In theory, sales tax only applies to the end user of the product, while a VAT hits anybody in the lifecycle that adds value to the product. It seems to spread the tax more throughout the lifecycle. I’m not sure whether it adds more overall tax to the government coffers. In my mind, I could see it adding to the administrative burdern, but that just depends on how it it’s instituted.

One of VAT’s problems is that it seems to get buried in the cost of goods, meaning it doesn’t just pop out on the register when you buy something. To me less visibility into how much tax you pay is a bad thing,

I don’t see states replacing sales tax with a VAT on their own. I do see liberals trying to create a national VAT in addition to existing Federal income taxes. They just can’t keep their hands out of our pockets. That would be a killer on the economy. This is what brings me a shudder.

National VAT as a replacement for income tax and state / local sales tax is something I haven’t given much thought to. I just don’t see it happening. Too many liberals will say it is regressive.

Merely pointing out that current law requires the consumer to pay the tax. New law requires online vendor to collect tax from consumer and pay on their behalf. The consumer is still responsible for paying, no matter which method is used. The fact that some people choose to report and others don’t is between them and the taxing authorities.

Erick’s original message stated Texas decided to “impose taxes on internet purchases” when there has always been a tax on internet purchases. It’s just that only businesses are paying them because they have no way of enforcing it on individual taxpayers.