sales tax loophole goods services

Will Buying Online Get Taxed?
exemption vat internet sales

Big Holes In the Sales Tax

Sales are not the property of government and don't belong in their tax base. These 2013 excerpts are from (1) The News & Observer, Apr 29, on Carolina loopholes by D. Kane and (2) Huffington Post, May 17, on internet taxes by Polly Cleveland.

by Dan Kane and by Polly Cleveland

Over the years, some groups have won breaks that allow them to pay no tax, or a lesser rate.

Manufacturers, for example, pay a 1 percent tax on equipment purchases that is capped at $80. Utilities can sell to businesses and residences at a reduced rate of 3 percent. Many charitable nonprofits, including hospitals, pay little or no sales tax.

Loggers, computer software makers, NASCAR racing teams and some air carriers avoid at least some of the sales tax on some of their purchases. Newspapers and broadcasters escape sales taxes on some of their purchases.

Each time the state raises its sales tax on goods, it does so on a shrinking base, getting less and less revenue over time. The state’s economy has flipped from two-thirds goods and one-third services to one-third goods and two-thirds services.

Two beneficiaries of exemptions gave $100,000 a piece to candidate, well above the $4,000 maximum, but no charges were filed because the contributions weren’t discovered until after a two-year statute of limitations had expired.

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When I visited my brother in London a few years back, I toted a suitcase packed with tennis balls. I paid New York City's 8.5 percent sales tax to help my brother's tennis-mad family avoid the UK's 20 percent value-added tax, or VAT, Europe's big brother to our sales tax.

Only four states, Delaware, New Hampshire, Oregon and Montana, have no sales taxes; southern states generally charge the most. Europe's VAT, introduced by France in 1954, is a national tax. European Union "tax harmonization" rules require member countries to charge a minimum of 15 percent; most EU members charge over 20 percent. (Hungary wins with 27 percent.)

The U.S. Senate just passed a bill enabling state governments to make internet companies like Amazon collect sales taxes from their customers -- just as local businesses have long done.

Sales taxes are also insidious -- it's always so tempting to politicians to raise them, and hope no one notices. The European VAT has crept so high precisely because shoppers can't avoid it by crossing borders. (Tennis ball smuggling isn't cost-effective).

In recent years, the rise of untaxed internet sales has helped check increases of state and local sales taxes. If the Senate bill passes, it will release that check, and lubricate our way towards European-style VAT taxes! "Fairness" shouldn't mean raising sales taxes on internet merchants, but reducing them on local businesses.

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JJS: Sales taxes, even low ones, hurt people with little money to spend and don’t hurt the wealthy hardly at all. Such taxes also hurt the businesses whose customers are poor, by eating into their sales. The tax also bump up the costs of bookkeeping and shoplifting (by people who can't afford price increases).

Further, many don’t pay sales taxes, either legally such as those who’re well enough connected to win exemptions or illegally such as black marketeers selling taxed items under the table and even big businesses who collect the tax but fail to pass it on to the government.

The problems with taxing sales is another good example of why government should not be taxing at all. What government should instead do to raise revenue is to charge full-market value for the privileges it grants. That is, charge the annual rental value: of a location for a deed, of a mineral deposit for a lease, of a frequency in the spectrum for a telecom license, of a risky business for a corporate charter, etc, etc.

If government were to keep its paws out of people’s pockets, and just charge what its privileges are worth, then people would not have to pay twice. Right now, for example:
* People pay taxes and pay a mortgage for land when they could instead abolish taxes and pay their community a land dues for their location.
* People pay taxes and pay high prices for gasoline when instead they could abolish taxes and charge oil companies fees for extracting and selling hazardous materials.
* People pay taxes and pay high prices for health care when they could instead abolish taxes and charge doctors the full value for licenses and pharmaceuticals the full value of pill patents, etc.
Abolishing taxes and switching to full-value fees would save most people lots of money, and keep government from growing too big.

First, tho’, people must think outside the tax box. If you’re reading this, you’re doing that. Kudos to you.


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

Taxes Force People to Make Sub-Optimal Choices

What's the Fair Price for Land Rent?

In 2011 Investors' Bids on US Land Up 128%

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