On-Line sales Use Tax

Just about every parent knows you can never have enough diapers.  The current price of diapers at Wal-Mart is $24.94 add tax to that you come up with around $26.44  plus all the time and hassle to go to the store buy them.  That comes to about .30 a diaper.  Wal-Mart is kind enough (ok, they have to) collect the 4% state sales tax and the 2% for the city and pay that obligation for you.

Most of us are looking to save a few dollars, and some time, a quick bounce out to Amazon.com and we  find  the same product in bulk for much less, about .20 per diaper,  And you don’t have to go to store, they deliver to your door.   What about that sales tax?  Because Amazon.com does not a physical presence in South Dakota, they do not have to collect it.  However, the $1.89 in sales or use tax is still owed to the state.

What we are suppose to do is keep track what we buy on-line and from catalogs,then on April 15,  pay what is owed to the state.  Most of us don’t,  it took some digging just to find the form.   It would cost the state more than what it collect to track down and collect that $1.89.

According to Representative Hal Wick(R), the state is missing out on about $14,000,000.00 of uncollected sales/use tax. How should the state collect this?

The easiest way on the state’s side is to require on-line/catalog/remote seller to collect the sales tax. The State of Colorado did that, and it didn’t turn out so well,  E-bay, overstock.com, Amazon and several other E-tailers sued Colorado.  Amazon closed the accounts of its partners in Colorado.  Is this a fight we really want to get into?

So far, most people haven’t paid this use tax, why not let people keep it or make it paying optional? Maybe even do away with paper form and have an easy online form with credit card payment.

Of course, there is always the option of the Fair Tax. While this might be a good idea, it isn’t getting much traction in congress.

Coming to a ballot near you this November  is an initiated measure to increase sales tax to pay for education and health care.  Do we really want and need this extra tax, when there is this much uncollected tax?

41 Replies to “On-Line sales Use Tax”

  1. PNR

    No. We don’t want to increase the sales tax, but it’s got nothing to do with collecting this uncollectable use tax.

    In the first place, retailers with a physical presence in the state have a hard enough time competing with on line retailers. Do we think this will be made better by jacking up their prices another 2% (or more)? Do we want to drive more businesses out of the state?

    Besides, the problem in the school system is not a lack of funds – never has been – and so the problem will not be resolved by making more funds available.

    Oh, yes. It won’t make more money available, anyway. What will happen is the legislature will figure in that 2% tax that’s earmarked for education and reduce or restrict the growth of general fund expenditures on education. Earmarks like this are an accounting illusion – like the social security “trust fund” or similar gimmicks.

    1. Stan Gibilisco

      As a sole proprietor (writer) in this state, I must register for sales tax, even though I don’t end up paying sales tax on my income, which derives entirely from out of state and constitutes sales for resale.

      However, the form does require me to enter something for use tax. Ever since 2004 when I moved here, I have paid that tax on Internet purchases or other purchases from out-of-state vendors that I use here. It amounts to about a hundred dollars a year.

      Somehow I don’t mind paying this tax. Beats the heck out of the two or three thousand dollars a year that a state income tax would take from me.

      1. PNR

        In many states that collect an income tax, there is space on that form to report out-of-state purchases and pay the sales/use tax.

        SD doesn’t have an income tax. So Joe Citizen would have to take the trouble to look up the form, recall what he bought on line (or go through his records, e-mails, etc. to find it), add it all up, then send in the check. People don’t often go through that much trouble to collect money they’ve got coming to them. They certainly won’t do it topay it.

        And, if you had a retail business, would you want to be forced to retain that data, match it with the thousands of various sales/use tax rates among the states, municipalities, and other entities that levy such a tax, collect that tax for them, and then send in your checks?

  2. duggersd

    I used to work for a company that sold satellite programming throughout the country. Certain states required us to add the sales tax. This was almost 20 years ago.
    If South Dakota has a sales tax of 4% and Sioux Falls an added tax of 2%, I do not see why retailers cannot be required to collect the tax. BTW, whenever I purchase something from B & N online, they collect sales tax. I guess we need to decide whether a “physical” presence is the same as a “virtual” presence.

    1. anon

      If South Dakota has a sales tax of 4% and Sioux Falls an added tax of 2%, I do not see why retailers cannot be required to collect the tax

      Therein lies the problem. How is a mom-and-pop outfit in Maine supposed to figure out what my sales tax even is, given the patchwork of taxes. Do I need to prove that I live in Aurora, and don’t have to pay the extra 2% to Sioux Falls? Why should the retailer have to hire accountants to figure this out and lawyers to protect them when they guess wrong?

      1. duggersd

        That information is readily available. You charge the tax based upon the delivery address. With the easily available data, I do not believe it would cost a bunch to have a program that figures sales tax by state and city. As for the mom and pop in Maine, why should they have the competitive advantage?
        I am not a major fan of tax increases, but I do believe states should have the right to collect what is owed.

        1. PNR

          Couple problems: 1) the SD legislature has no authority over the retailer in Maine (or any other state except SD) so as to require them to collect the tax or to force them to send it to us in the event they do; 2) interstate commerce is the province of the Congress not the several state legislatures; 3) the variations in the amount of business done with a particular state’s residents will be significant and the overhead cost imposed on small businesses to not only collect, but track and remit the various city, county, and state sales taxes levied around the country would be excessive; 4) the business doesn’t owe the tax – the individual does – and we cannot force a business in another state to become the tax collecting agent for this one.

          1. duggersd

            1) When I worked for a company that sold satellite programming in other states, some states required us to collect taxes. They sure seemed to think they had the authority. The company I worked for did not argue it.
            2) You may be right about the interstate commerce. As I was writing the comment, I was thinking about that. Yes, I believe Congress should be acting on this.
            3) Probably not excessive, but not the problem of the state. It is part of the cost of doing business. I would think the receipts could be sent to the states and let them figure it out.
            4) When I go to the grocery store, the business collects the tax and then they damned well owe the tax. If you do not believe me, run a grocery story and fail to remit the tax and see what happens.

            1. PNR

              1) If you have a physical presence in that state, then yes, you must collect that state’s tax.
              2) I am right. 🙂
              3) Given the tax reporting rigamarole most states impose, the tracking and paying paperwork, accounting issues – yes, it would be excessive.
              4) The store is just a collection agency for the state. The tax is levied on you, not the store. Yes, having collected it, the agent must forward the tax to the state, but you owed it and you paid it – the store is just the pipeline. We have no legal authority to require a citizen of another state to function as a tax collector for this one.

    2. MC Post author

      Barnes and Noble has a physical in South Dakota. They are NorthWest of the intersection of 41 street and Louise in Sioux Falls.

      1. duggersd

        I am aware of that. And I know that is the reason they charge me sales tax. I am just saying if B & N can do it, most anybody else can figure out how charge sales tax.

    1. duggersd

      That is a laugh coming from you. You like Big Brother. How is this more “Big Brother-ish” than that monstrosity of a health care law?

      1. LK

        Will one of you dyed in the wool conservatives please explain to me why you all rail against the health care package is the epitome of big brotherism but never mention the ill-named Patriot act that allows the executive at his discretion to imprison American citizens for any reason?

        If you’re going to rail against big brother at least rail against the big brother who is going to imprison you without trial rather than the one that’s going to make you buy health insurance.

        1. Stan Gibilisco

          Whether a hurricane wind comes from the east or the west, whether Big Brother slaps you down from the left or the right, I rail against them all.

          Quite frankly, as a lifelong conservative, I fear the ramifications of the Patriot Act a lot more than the ramifications of the Affordable Care Act.

          I think both of those names are quite ridiculous anyway. In my opinion, the Patriot Act has nothing to do with patriotism, and the Affordable care act has nothing to do with affordability.

    1. duggersd

      “Too ?big brother-ish.?” You like “big bother” for some things, but not others? The context is not what is important, it is the concept. Appropriate.

  3. Bill Fleming

    There is no comparison to making sure everyone gets adequate health care to making sure everyone pays sales tax on everything they purchase. None.

    1. Les

      Our state has an empty retirement health care fund Bill.

      That 14mil in uncollected isn’t even close to the real tax loss for uncollected sales tax revenue. Internet sales have done as much to take down main street as Walmart.

      Piece of software cake to rectify the situation as it already happens in several states with recip agreements.

      1. Bill Fleming

        There is probably online Federal government capability of tracking all your internet purchases and mandating that the vendors who sold you goods via the net report any sales they made to your state. Then the State could send you a bill for the tax.

        But it would have to be the Federal Government doing it via an act of Congress wouldn’t it? (State’s can’t regulate commerce from one state to another. Only the US Congress can. Hence people telling Colorado to go stick it.)

        Sounds like a big mess to me, Les.

        1. Les

          I’m not sure how the recip works right now. Most interstate transactions are charged no sales tax.

          All sales tax collections have been at the labor of the retailer. No big deal, just tell them to send the tax where the tax is due and when they are audited by their own state which happens with regularity they are held accountable at that point.

          Before computers sales tax took many hours, now it is a push of the button and another 50 accounts doesn’t slow that puter a bit.

          The subject of city taxes and other such stuff, Verizon manages to charge most the proper tax, though my address is a PO in a city I am charged City tax while living in the rural, I can accept that.

          Interstate commerce being federally regulated is the only fly in the ointment in my opinion aside from interstate agreements set up by the states themselves..similar to recip on concealed carry laws.

  4. springer

    I thought the streamlined sales tax all states had to pass several years ago had to be done so the internet tax could be applied. What happened? Of course, at this stage of hefty taxes and rising taxes on everything these days, and the coming taxes with Obamacare and repeal of tax cuts, etc, and the fact that the govt just keeps growing and growing and doesn’t cut a thing, I am glad this internet tax never got going. When the gov’t can show it is being responsible with my tax dollars and can truly cut spending, then and only then maybe I’ll be willing to contribute more than I already am!

  5. Joe the Shitters Full

    I think there is an easy answer. All internet businesses are based somewhere. Let the business pay the taxes that are imposed from the State they do business; i.e. where the main office is located. That is where the transaction really takes place. That way it makes it easier for the business. Think about it, you do not pay SD sales tax when you shop while on vacation in another state, you pay that state’s taxes, same goes for internet business. SD should stop trying to tax businesses that are in other states. Why doesn’t the state try to encourage existing SD businesses to do more business on the net or SD based start-up internet businesses and collect from those.

    1. Les

      Well Joe, if you ever come out from under that shi**er, you might hope you have a local retailer left to provide you some of those immediate service or supplies you need.

      I assume you are a plumber who can’t stand to work on your own stuff. Say you need a $5000 pipe threader, rather than going to Northwest Pipe in Rapid you go online. That’s $400 tax savings in your pocket Joe, but wait it doesn’t stop there, you buy it $500 cheaper because the internet reseller doesn’t have to stock it with his factory direct orders. Now where ya gonna go when you need the parts NW Pipe doesn’t supply because they’ve gone out of biz?

      This is about keeping our state on an even playing field more so than the tax we never see. We lose much larger dollars with our economy in the shi**er Joe.

  6. Anonymous

    Congress put a moratorium on states collecting across their borders until a large number of states adopt the SST legislation. Currently their are over 6600 taxing jurisdictions so it has been a long drawn out process for the complying states to conform their tax code so that the software that is supplied to merchants can calculate that persons rate and where it should go.
    This isn’t a new tax it’s one that nobody pays but should be.

  7. Doug Wiken

    The real problem that real conservatives should be concerned about is the huge database of purchasers and sellers and everything sold that would be required and shared among all states in any concord. That could be a huge intrusion into privacy and would make possible all kinds of big brother abuse. That is big brother abuse from the small brother states.

    If there is to be a tax on remote sales, it should apply to all remote sales including stocks and bonds or mail sales between cities in states.
    It should be a federal tax paid by sellers and 90% rebated to states on the basis of population rather than sales. That removes the need for huge intrusive databases which would require constant updates.

    If it isn’t a federal tax on remote sales, it shouldn’t be a tax.

    1. Les

      There are at least five major wireless carriers who manage to do just fine in getting taxes back to the locals Doug. Software no different than US postal rates and zip’s. Not perfect, but it works.

  8. Clay Bill

    The “uncollected tax” that MC refers to has a serious affect on South Dakota, a state with limited revenue sources. While some commenters think that collecting sales tax from internet sales is “too big brotherish,” we need to remember how internet sales affect the Main Street businesses of every community in South Dakota.
    Every small hardware store, gift shop, book store, clothing store, etc. that make our small communities great places to live must compete with large corporate businesses that have a strong presence on the web. Sure, shopping online is convenient, and you end up paying no sales tax on your purchases. At the same time, you are slowly contributing to the death of your home communities.
    Of course, what makes it worse is our local governments must rely mainly on sales tax and property tax as sources of revenue — two of the most regressive types of taxes that exist. Don’t get me started on how a state income tax would be a much fairer way for our state to fund its government. And, yes, I realize that such an idea doesn’t have a snowball’s chance in SD.

    1. Bill Fleming

      Clay Bill, collecting taxes from out of state internet vendors doesn’t help local retailers. Neither does shopping at your local WalMart.

  9. Clay Bill

    Bill, I know … there’s no way to force every single citizen of every single community to spend every single dollar at their home town retailers. Before the interweb, the big problem small town retailers faced was from people driving to nearby bigger towns and cities to shop. Granted, if they stayed in state, some of those dollars, through state sales taxes, made it into the state’s revenue stream.
    Today, local retailers must face the double-whammy of out-of-town shopping layered with out of state internet sales that return no sales tax revenue either to local communities or to the state. We still like to have our streets plowed after it snows, though. We expect our communities to provide us fire and police protection, parks, libraries, etc. along with a reasonable quality of life. We scream when the services we like get cut … and we wonder why that is happening and why we can’t find the things we need in our downtowns any longer as we log on to the web and make another purchase from Amazon, or drive out of town to do the bulk of our shopping.

    1. Bill Fleming

      I hear you, Clay Bill. I miss the old days too. What is the political remedy when the big national and international corps have a license to suck small communities dry and redistribute the collective wealth elsewhere? Is this even the right blog to have such a discussion?

      I thought this was the blog where folks were all for that kind of free market action, and where they didn’t mind if foreign interests can buy their way into our state and nation’s politics. Where a handfull of billionaires can buy up all the available radio and TV air time in any given market any time hey want to and call it “free speech.”

      Good luck collecting that sales tax from the internet, guys. You don’t get to vote on the way things are. You already did.

      1. duggersd

        You do not need a “political” solution. Just don’t go to WallyWorld. Don’t go to K-Mart, or Walgreens, or Shopko or anyplace else that is not a local business. Get enough of your fellow friends to do that and the next thing you know there will be all kinds of local businesses and no more WallyWorlds.

  10. Doug Wiken

    Les, the current system based on city and zip does not work. Even though we have a rural address outside city limits, we end up paying city sales taxes on the few internet orders we make when they are required to collect sales taxes.

    South Dakota newspapers were required to collect sales taxes on buyers outside of their printing location based on the sales tax rate of the buyers address. That turned into such a complex mess that the legislature changed it to the tax at the printing location.

    The other real problem with all sales taxes on non-residents is that they are taxes collected without representation…one of the reasons colonials rebelled against England.

  11. Les

    As I stated above Doug, not perfect but it works, kind of. I pay Verizon city tax on all my cell phones because of a PO Box not showing a rural addy.

    I’m having a little problem getting my mind around this representation thing Doug….Is that something we are supposed to have?

  12. Jason

    As a small business owner it is very frustrating to have customers pick an online site over my business because they dont pay sales tax. Like I like charging sales tax. This state looses millions of dollars and our local towns struggle to pay for basic needs! Its very easy… A flat tax on all internet goods payed to the state and then the state breaks down the dollars per capita…. EASY! Get it done!

  13. MC Post author

    This is turning out to be main street retailer vs. big box stores vs. e-tailers.

    To keep the playing field level everyone doing business in South Dakota is to pay the use or sales tax.

  14. Doug Wiken

    People buy stuff on the internet because internet sellers know how to market. They also buy because local merchants refuse to stock many items because the critical mass for specialty stuff does not exist in small communities. A remote sales tax would only make local marketers less interested in providing variety or quality service.

    Most “local” businesses buy at least some of their merchandise off internet sites anyway.

    The “level-playing field” idea is hypocritical BS. What those desiring a level playing field really want is for government to provide them with a bulldozer to knock down bowling pins.

  15. Les

    Doug you obviously have no retail experience and little to no internet buying experience.

    I am no longer a retailer and it doesn’t benefit me personally to want an internet sales tax. That being said you speak of inventory. Let’s say I the local stock 3 laptops and you see an internet marketer with 50 listed. Who do you actually believe stocks the most laptops? It damn sure isn’t the internet seller.

    These are drop ship marketers almost to a tee. They do not have any inventory ownership or overhead such as prop taxes, biz owners liability, large heat and lights, snow removal, water, sewer, lights, building and equipment maintenance and employee payroll to show you around and explain the merchandise. Try and call one and about 1 in 5 might actually have a phone line they regularly answer.

    Sooooo, you deny the level playing field? No 8% sales tax! A $50 dollar internet margin requirement instead of the local merchant needing $100 to pay all the overheads of retail. Right from the get go the local merchant has $40 in sales tax and loss of $50 for a total of $90 out of level with the internet market.

    $50 that will never see your local economy giving your local more reason to add more inventory.

    Please explain the level playing field with more detail if you are going to spout bulldozer BS.

  16. Doug Wiken

    Les, I am willing to pay more for local service if they have the product at a reasonable price. The internet does often provide an idea of what a fair price is even if the comparison is between or among SD brick and mortar stores.

    I see far too much attitude from SD retailers and employees that suggests taking your money for the products they sell is making a terrible imposition on their time. Never mind asking them about some product that hasn’t been obsolete for a year or two…especially if they have kept their price too high to sell anything.

    There is an old joke about cutting prices below costs and making it up by volume. It is not a joke that setting prices so high that nothing is purchased is also not going to work.

    I remember Bill Janklow ranting on this issue talking about some imaginary businessman in some remote SD town losing business to an internet seller because he did not have a yellow dress or some such. Even if the sales tax applied to every remote sale, that businessman would never have had that product on his shelves.

    I have read too many bank institutional type ads about supporting local businesses and just getting a level playing field to work on. Meanwhile they lobby the legislature and banking commission to prevent any competition in their area for them. Then they may also be putting local money into risky banks to make a few extra dollars while they deny local farmers and businessmen credit.

    I have had local businessmen telling me that they couldn’t offer a good price because of the shipping prices involved…while the catalog they buy from says there is free shipping on the quantity of products you see sitting in front of you.

    Make sure all products draw sales tax in violation of the US Constitution “commerce clause” and you will only see local businesses increasing their prices.

  17. Les

    I was involved in econ development for many years. I had a saying many didn’t like Doug. A business going out of business could be great econ dev by putting that biz in an able person’s hands at a price that would work.

    There has been and always will be biz owners that should look for their true calling as it darn sure isn’t retail.

    I’ve also said, I’m glad everyone doesn’t take advantage of the internet sales like I do or these retailers would go crazy. I find the best internet price, go to my local and say match it to sell it. I also find it odd how many will sit on that product rather than making a known profit be it less than they want.

    As far as the tax of preference, I’d like to see the fair tax with a similar smaller tax for state operations. Cheers.