Why does Michigan have the right to tax internet sales?

[booksenkatz]

I am not anti-tax at all, but I firmly believe in fair taxation. If I purchase something online from a guy who lives in Maine, then what business is it of Michigan's? I am sending my money elsewhere, away from Michigan, so it has nothing to do with Michigan. The item that interests me is not in Michigan, it is in Maine. If Michigan had that item here, I would buy it here and happily pay sales tax. If I physically travel to Maine, Michigan isn't allowed to follow me and to poke its nose into what I'm buying there; I don't have to declare anything when I fly back home to Michigan. So how is the internet sale different?

Help me to understand the fairness of an internet sales tax... what am I missing?

Michigan is about to come down hard on this issue, although I don't see how they can do it in any way that makes sense or is equitable:

http://www.freep.com/news/mich/tax1e_20051001.htm

[knitter4democracy]

1. I don't like it, personally.

I don't mind paying my taxes, as they're the dues we pay to be citizens, but this one bugs me. I think it comes from the fact that the Republicans keep lowering taxes and then realize that they don't have enough in the bank to pay for all the corporate welfare and pork they want. That's when they start looking for old tax laws on the books to say that they're merely enforcing the law, not raising taxes or getting a new tax out there.

How can they possibly enforce it? How can they even begin to know how much will come in? This may be about Michigan getting its own back and at least keeping some money in the state, but I think it's more about how our state government needs money badly but can't raise taxes.

[booksenkatz]

4. A couple of other thoughts

I don't see how any seller can be expected to handle tax bureaucracy for all 50 states! That is absurd. His own state, sure, but why should he care about the other 49?

Secondly, when you think about it, the money you pay for shipping sort of acts as a tax to the state from which you're purchasing an item. Shipping is a profit center, so a portion of it will be paid as taxes by the company from whom you purchased the item.

I mean, this whole idea that those of us who shop online are trying to "get away with something" is unfair, I think.

[napi21]

11. You're right about shipping being a profit center, and

I wonder if these tax hungry folks ever think about the consequences of significantly reducing internet sales, which I think would happen if ST was added to all internet sales? How much profit does UPS, FedEx, USPS, etc make on all those shipments? How much tax is paid on the profits from those businesses? Sounds like a lot of moving the deck chairs around.3

[MaineDem]

2. I'm undecided

I'm on the fence on this one. Local business suffer because people buy online instead of paying local taxes from a local business. But, on the other hand, the item isn't being used in the state it's purchased from so is it fair for one state to tax it but not another?

States are losing a lot of tax revenue from not taxing internet sales. In Maine there's an honor system on our income tax form to allow a taxpayer to declare the amount of internet purchases and pay the tax ont hem - or pay a flat amount. I have a feeling the honor system isn't working.

Like I said, I'm on the fence on this. I was never in favor of internet sales tax but I'm kind of leaning toward the states getting some of that lost tax revenue.

[booksenkatz]

6. Another way of looking at it

If Michigan had the item, I would have bought it here and gladly paid the tax on it. But Michigan didn't have the item; Maine had it. So in a way, Michigan should be "punished" for not having the item I wanted. Why should Michigan get the "glory" (tax dollars) for an item they failed to offer me?

My gosh, that paragraph made me sound like a consumerist Republican, LOL! But I'm just trying to make a point.

Currently, Michigan also has an honor system on its tax form, and I try very hard to abide by it. But it feels like I'm carrying the burden for the others, know what I mean? It just doesn't seem fair.

[MaineDem]

10. That could be valid

But, to be honest, most of what one buys on the net COULD be purchased in the home state. Maybe the cost is higher - or not - but unless those are lobsters you're buying (and then it's food so not taxed in many states) almost anything is available in Michigan.

I'm not arguing with you. I understand what you're saying; I just think that situation could be rare.

[napi21]

3. As far as I know, a seller only has to charge state sales tax if they have

a presence, or what the law calls nexus, in that state. That's why when you buy an item from Amazon, you don't have to pay ST, but if you order something from sears.com, you do have to pay it.

I've not heard about any individual states that have been successful in changing that, even though they've all been fighting fror it for many years. All your brick & mortar retailers have also been pushing for that as well, saying it gives unfair advantage to out of state sellers.

[knitter4democracy]

7. I know yarn shop owners are upset.

Their biggest problem, though, is that the internet shops have a lower overhead (usually no rent, no heating bill, fewer clerks, etc.)and then charge lower prices for the items. Taxes don't enter into it, as most knitters I know have figured that shipping and sales taxes are about the same much of the time. Sales tax can even be cheaper if the purchase is low enough.

These businesses can't make the internet compete on an equal playing field, even with a sales tax. If they work at getting people in their shops and show them how much better their shop is than any internet shop, they'll make more than enough in sales. I know many knitters who would shop close by if they could--if there were a good shop to buy from.

[MaineDem]

12. I know exactly what you mean

I do a lot of knitting and embroidery. Those make up the bulk of my online shopping.

The are no local shops near me. I try to give my in-state shops my business but sometimes it's a lot easier to call or order online and have the things shipped. Many local shops don't carry the color or thread count for the linen I'm looking for or the type of yarn.

In fact, I order online from an in-state shop a lot. Especially now, it's cheaper to pay shipping than spend the money on gas.

[Skink]

8. There should be a federal internet sales tax....

This way money collected could be redistributed to the states. I for one am sick of an 8 percent sales tax and it will keep rising if more and more money flows out out the states into cyberspace. The internet is unfair competition. Also regressive in that mostly only the affluent take advantage of it.

[booksenkatz]

13. Yeah, that's the way it is NOW, but.........

Michigan is going guns-a-blazin' on this issue. Read the article, you'll see what I mean. This state has been drooling and fretting about this issue for years, and it's coming to a head now.

From my experience (I do quite a bit of buying online), shipping costs are much higher than sales tax. If I can find an item here in Michigan, believe me, I want to buy it locally! But if an item cannot be found here in Michigan, I am punished by brutal shipping costs when I buy the item in Maine. So I think that's a b.s. argument from the brick & mortar retailers, myself.

I mean, are they trying to say that if I can't find an item locally, but can find it in Maine, I should refrain from making the purchase in Maine because it would somehow be disloyal to Michigan? The real advantage to the out-of-state seller is simply carrying an item I can't get locally in the first place. As I stated earlier, I'd rather get it locally.

[bee]

5. Heres some good info on the "use tax"

Michigan's Use Tax (Remote Sales Tax)

The remote sales tax (use tax) applies to purchases when Michigan sales tax is not charged. Use tax of 6 percent is due on the total price (including shipping and handling charges) of all taxable items brought into Michigan, purchases by mail from out-of-state retailers, and purchases made on the Internet. It applies to purchases made in foreign countries as well as other states. Use tax can be paid on the Michigan Income Tax Return.

Facts on Internet and Mail Order Purchases

Every state with a sales tax has a companion tax for purchases made outside the state. In Michigan, that tax is called the "use tax" but might be more aptly described as a remote sales tax because it is a 6 percent tax owed on sales made remotely (i.e. outside of Michigan.)
The use tax is not a new law; it was enacted in 1937. With the birth and rapid growth of Internet sales, revenue lost from non-reporting of the use tax is becoming substantial.

more: http://www.michigan.gov/treasury/0,1607,7-121-1748_1904_1989-5781--,00.html

[mwooldri]

15. NC has been pushing on the Use Tax on their tax returns...

... and it started last year IIRC. The tax return even has tables for you to enter in something if you do not know how much you purchased from out of state. So you're almost encouraged to pay it even if you haven't purchased anything online or from out of state.

Mark.

[newyawker99]

17. Hi mwooldri!!

Welcome to DU!! :toast:

[zalinda]

9. Okay, I'll weigh in here since my business is online

It is going to happen in New York, too so I called and talked to someone here is what I found out. The states are going after the BIG companies because they have been thumbing their noses at the states. The rules are, if you have a brick and mortar in a state, then you have to pay sales taxes in that state even if the sales are over the net. The big guys have not been doing that. They have been trying to not pay sales tax by doing all sorts of things, legal and illegal.

Now, when I talked to the woman from the tax agency she said that IF they were going to require ALL net companies to charge sales tax from across the states, then they would provide software to track the different tax rates. I had called to complain about an article I read on the net, saying that it would break the backs of small business. She gave me the above info, and said that nothing is set in stone as yet.

zalinda

[Snotcicles]

14. I thought the consumer paid the tax.

Why would the seller care if that is the case?

[zalinda]

16. A lot of paperwork

makes all the difference in the world. You do realize that every county in every state could have a different sales tax percentage. If they had a flat rate that every one collected then that would make it much easier. Otherwise, I am looking up each city, in each county to find out their tax rate. And, the sales tax people consider it a favor if they send you the tax forms, or remind you that your taxes are due.

Plus, if the big guys can sell online without charging tax, they have a leg up on the other brick and mortars. Some will let you buy online, but pick it up at their store.

zalinda

[Sgent]

18. many

areas don't have uniform sales tax rates -- they can differ not only state to state, but county to county and city to city. The last I looked there were approximately 3,000 tax jurisdictions in the US.

Its not only the rates, but what they tax. Some tax everything, some exempt certain non-profits (but not others), some exempt all. Some don't tax food or drugs -- other's do. Some don't tax service contracts (like extended warrenties)... You get the point.

Use tax in my state has been on the books for decades. Anyone in my state who buys from out of state, and brings an item here, must pay the use tax -- no doing so is tax evasion and a felony when you don't report the use on your tax forms. Use taxes have not been historically enforced -- especially on individuals.

Finally, most states that have Use taxes, give you credit for taxes paid. So in theory, if I buy from tennessee (5%), and bring it to Mississippi (7%), I'd have to pay 2% uses tax on the item.