Internet Sales Taxes and Government Fairness

The cash-strapped California government wants to collect sales taxes from Internet-based businesses.

For the third time in three years, California lawmakers are pushing for legislation to make it harder for Internet sellers to avoid collecting sales taxes, and prospects for getting it passed are stronger than ever.

Passing the bill is a question of “e-fairness,” said Assemblywoman Nancy Skinner (D-Berkeley), who is sponsoring one of several Internet sales tax bills.

I find it quite interesting that elected officials are framing this new Internet sales tax around the issue of “fairness.” Skinner continues:

“Out-of-state online retailers designed their business model to avoid collecting sales tax,” she said. “This puts our Main Street businesses, which play by the rules, at a competitive disadvantage. It’s not fair to hurt California businesses that are struggling to keep their doors open.”

Of course, behind this statement Skinner implies two things:

  • Collecting and paying sales tax puts a business at a competitive disadvantage. (I agree.)
  • The only way to make it fair is to penalize online retailers so that they must collect and pay sales tax like brick-and-mortar businesses do. (I disagree.)

The issue of fairness is being used to manipulate citizens into going along with the new Internet sales tax. But if Skinner, et al, were really interested in achieving fairness, they could simply eliminate sales taxes for brick-and-mortar businesses.

Of course, we all know that will never happen.

That’s because the issue is not really about fairness — it’s about greedy politicians putting more money into their own pockets.

The author of this article — Rescuing Internet Entrepreneurs from Tax-Hungry States — agrees.

Small businesses are the engine room of the U.S. economy, responsible for most of the job growth in this country for years now. The Internet has helped small businesses hum along, and small businesses are coming to the rescue in helping to create jobs for the 15 million people now chronically out of work, as the U.S. unemployment rate stays stubbornly higher than 9%.

But since states blew a gaping estimated $125 billion to $140 billion hole in their finances with reckless spending and lax oversight, the small business Internet guy or gal on Main Street is now in their focus.

Increasingly, states are slapping new taxes on small online businesses, including demands to collect and remit sales taxes for out-of-state online purchases.

So instead of cutting the waste in their budgets, states have lazily mimicked the federal government in hiking taxes on the entrepreneurs who can create jobs.

Internet Sales Taxes Could Backfire

Ironically, if California or any other state tries to collect sales tax from Internet businesses, it may actually backfire and result in a reduction in tax revenue.

For instance, if California passed the bill referenced above, online retailers could simply choose to no longer sell products to people who live in California.

After all, it would be much easier to cease selling to California than it would be to try to comply with the sales tax law. Plus, it would send a clear message to any other states considering similar measures.

I greatly respect Amazon.com because they’ve been willing to stand up to state governments who’ve tried to bully them into submission. For instance, in March 2010 Amazon.com cut off all affiliates in Colorado because of a new law intended to force Amazon to pay sales tax.

While I was disappointed that I would no longer be able to promote Amazon as an affiliate, I was glad they stood up to Colorado legislators. (In fact, first chance I get I’ll vote against every person in office who supported the bill.)

More recently, Amazon announced it would close its distribution center in Texas because of the state’s efforts to force the retailer to pay hundreds of millions in back taxes.

Rather than comply, Amazon is pulling out. What’s more:

In his e-mail to staffers, Clark said Amazon also is scrapping plans “to build additional facilities and expand in Texas, bringing more than 1,000 new jobs and tens of millions of investment dollars to the state.”

California should pay attention to what’s happening in other states. Their efforts to tax online retailers could ultimately result in lost jobs for Californians and less tax revenue.

A Lesson Governments Need to Learn

What governments need to learn that many individuals have already learned is that… You must live within your means. You can’t keep spending money when there is no money to spend.

Furthermore, when you discover that you’re overspending, the first thing you need to do is find ways to reduce your spending. It’s a simple concept that almost anybody can understand. And yet most elected officials fail to grasp the concept.

But there is at least one bright spot: Wisconsin. Many politicians there recognize the gravity of their state’s financial crisis and are trying to reduce expenses.

Most reports about the recent political upheavals in Wisconsin have been oversimplified. Many of them have tried to paint the union members as poor government workers who barely make enough to get by. But the reality is far different that what the mainstream news reports.

In his article Wisconsin Teacher Salaries in Context, Dan Collins says:

On average, including benefits, Wisconsin teachers earn about $78k per year. I’m going to leave aside the “for nine months work” part of this, because I think it’s been hammered enough. The average household income in Wisconsin is about $52k per year. So, teachers earn about 1.5 times the average household income in Wisconsin when you factor in the benefits, and many of those households are two-income households.

More shocking still, Robert Stacy McCain reports that 859 Wisconsin public school officials made more than $100,000 per year in 2010. From the article:

Calvin Dodge employs spreadsheet software to calculate that these 859 individuals collect a combined $97.9 million a year, with an average annual salary of $114,000.

And yet the protesters in Madison say it would be grossly unfair to expect these public servants to contribute more toward the cost of their pensions and health insurance.

You know it’s a sad state of affairs when Wisconsin teachers make 1.5 times the average household income (for 9 months of work) — and still act like spoiled brats at the prospect of a reduction in benefits.

Public Sector Unions vs. Taxpayers

It’s overpaid teachers like the ones in Wisconsin (and the unions that represent them) who are the driving force behind governments that try to take even more tax-money from private businesses.

You’ll have to pardon me for not wanting to participate in this nonsense. The answer is not in collecting sales tax from Internet businesses, but rather in reducing government spending and bringing public salaries in line with the private sector.

The author of the above-referenced article “Rescuing Internet Entrepreneurs from Tax-Hungry States” sums it up nicely.

State tax increases that often come after pressure from government sector unions, who use their taxpayer paid for dues to lobby for tax and spending hikes that cost taxpayers a lot of money, hikes that they hector for to cover their benefit demands.

The public sector unions want you to think that their fights with governors who aim to pare back their cushy benefits the private sector doesn’t get — and that you pay for — is an Erin Brockovich moment. But it is not.

It is not the altruistic public sector union against an evil company. It’s the public sector unions against taxpayers, taxpayers who pay for their cushy benefits via higher property, income and sales taxes. And now many states want their Internet companies to help foot their bills, too.

Time to queue up the music…

“We’re not gonna take it, no, we ain’t gonna take it, oh, we’re not gonna to take it anymore…”

-Ryan M. Healy

P.S. Here’s an important update on the “aftermath” of Governor Scott Walker’s efforts to end collective bargaining among Wisconsin’s public school teachers. This was originally published on another blog I read in a post titled: Results of the new Wisconsin law that caused heated demonstrations last summer

Remember the violent and disgusting demonstrations over Wisconsin Gov. Scott Walker doing away with collective bargaining for teachers’ unions? The results are in. Some school districts went from a $400,000 deficit to a $1,500,000 surplus as a result. They are even hiring new teachers, not firing like the Liberals said would happen. Why?

It seems that the insurance company that provided all the “so-called” benefits to the teachers was an insurance company owned and operated by the teacher’s union. Since the outfit was guaranteed to get the insurance business from the teachers, and the State had to pay for it (not the teachers) the insurance company was increasing annual costs every single year to become the most expensive insurance company in the state. Then the company was donating millions and millions of dollars to its favorite democrat politicians who, when they got elected, guaranteed to keep funding the union’s outrageous costs. In other words, the insurance company was a “pass through” for Wisconsin taxpayer money directly to the democrat politicians.

Nice racket, and this is the racket that is going on in every single State that allows collective bargaining. No wonder the States are taking it away. Now the State of Wisconsin is free to put the insurance contract out for bids and, lo and behold, they have saved so much money it has turned deficits into surplus amounts. As a result, none of the teachers had to be laid off, everyone got a raise, etc., etc., and the taxpayers of Wisconsin don’t have to pay more taxes to fund the union’s political ambitions.

Ryan M. Healy

Ryan Healy is a financial copywriter and the author of Speed Writing for Nonfiction Writers. Since 2002, he has worked with scores of clients, including Agora Financial, Lombardi Publishing, and Contrarian Profits. He writes a popular blog about copywriting, advertising, and business growth, has been featured in publications like Feed Front magazine, and has been published on sites like WordStream.com, SmallBizClub.com, and MarketingForSuccess.com.

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