Tuesday, July 26, 2011

Amazon Avoids the Tax Man, You do too…

Amazon Avoids the Tax Man, You do too…

Christopher Caldwell misses the point in his Financial Times article: “Why Amazon’s tax-free landscape needs bulldozing”.

  • Do I work with my CPA to reduce my tax burden? (Yes, I do). 
  • Do I make decisions about where, when and how I conduct financial transactions based on tax consequences? (Again, yes). 
  • Do I think that the Government will continue to try and find new ways to take my income (and savings) for their pet projects? (Yes, they will).

I also suspect that businesses worry a lot about changing tax regulation – heck, I worry about changing regulation. To offer any support to the federal, state or local government to collect more taxes begs the questions: 
  • Did Mr. Caldwell pay all that he should, could or might pay? 
  • Did he make EXTRA contributions out of the kindness of his heart? 
Without waiting for a response, I suspect that Mr. Caldwell tried to minimize his tax exposure employing the tax code where appropriate, and did not send in extra money to soothe his sad feelings for government debt (aka stupid government spending).

Why not criticize that individual tax payers that are not disclosing their online purchases -- which is were the actual burden lies?

Finally, a few notes about tax collection on the web. I have installed and updated tax systems by Vertex and Sabrix. The number of taxing jurisdictions in the US is not 50, it is not the sum of the counties, parish or boroughs (more than 2000), or even the total number of zip codes (+4!). Hint: try multiplying these factors... it moves beyond ludicrous and well into plaid (Thanks Mel).

The complexity of tax collection forces many resources to be directed at compliance, and many resources (dollars) to be reserved for penalties. The government makes a tidy sum on penalties for rounding errors, issues between products and services (different tax structures) and issues about customer addresses that sit in multiple jurisdictions. If I buy from Texas and Amazon ships from Arizona to my Mom in Kentucky, in which state are taxes due? If a company throws in a free widget with purchase, am I liable for the value of the widget in addition to the item?

Here is solution #1

If each state set a single rate (a single percentage) based on State used for the final shipping address, then every company would have a single 50 line lookup table to collect taxes. Simple, easy, fast, and accurate.

Monthly sales per state * state tax rate = check to the state.

Of course, that is still a disadvantage to those high tax states that border low tax states, and local companies still have the burden of local taxes, blah, blah blah…

Simple solution #2

Online retailers should issue the equivalent of a 1099-Online$ form to purchasers of over $500 annually, then let the states force them to pay up. Of course, some families might spread purchases over different people in the household... blah, blah blah (are you beginning to see the problem?).

I think I like my original “keep the government out of my wallet” position.

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