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2018-01-11 13:06 by Karl Denninger
in Corruption , 156 references Ignore this thread
The Obvious Internet Tax Solution
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Since the 1990s the Internet sales tax issue has revolved around an older USSC decision known colloquially as Quill.

Quill was a mail-order office products company and states came after them for sales tax in their jurisdictions.  The Supreme Court ruled that absent nexus, that is, a significant connection to the state, the firm had no obligation to collect or remit nor could it be sued as there was no jurisdiction.

Amazon tried this crap for years by putting their warehouse operations under separate "captive" LLCs and similar in an attempt to try to claim they had no nexus.  This slowly collapsed on them as states threatened to sue (suits Amazon knew damn well they'd lose too); the bad news is that there was no retroactive payment and nobody went to jail for what was a pretty-blatant act of tax evasion (which is illegal.)

However, Amazon only did a part of it.  They now compute, collect and remit for items they sell themselves but do not do so for "third party" listings on their site -- which is an ever-increasing percentage of their "retail" business.

Here's the problem: Their argument of not having nexus since they're just "listing" someone else's product is demonstrably false and trivially shown to be so.

Why?

Because the money paid by the customer is forced through Amazon's remittance channels.

Consider the case of a company in Alabama that happens to have product displayed in Florida via some means.  Maybe it's on a computer server in Florida or on a banner, or somewhere else.  Doesn't matter.

If the Alabama business takes the order over the phone and processes it on their own payment system -- that is, neither the money or the product's warehousing and shipment implicate nexus, then the Alabama business can refuse to collect and pay Florida sales tax.  That's what Quill held.

However, if to find, examine and buy the product the money must pass through a firm with Florida nexus then you have nexus and tax is due!  Period.

Well Jeff nozzleface Bezos?

All of these Amazon "marketplace" orders in fact pass directly through Amazon's payment system which is how they deduct their commission and, if they provide fulfillment service then the product passes through Amazon's product handling system too.

Amazon has nexus in essentially every State.

Therefore Amazon has a legal duty to assess, collect and remit sales tax on every sale made on their site no matter whether it's "Shipped and sold by" or is a third-party seller listing because they are not just providing an advertising medium (which would not implicate nexus) for a fee but instead are actually handling the money at minimum (and frequently the packaging and shipping too) and that is the definition of nexus.

This applies to eBAY too if the payment goes through PayPal or other "linked" payment system. Only if none of fulfillment and the handling of the money are not done by eBAY can it claim to be merely an "advertising medium" and thus avoid nexus.

Oh, and Bezos and his ilk need to all go to prison for tax evasion at the same time.

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Asimov
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Fairtax would make the whole problem go away, would it not?

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It's justifiably immoral to deal morally with an immoral entity.

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Nevertoolate
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Abso****inglutely!

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Tickerguy
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Quote:
Fairtax would make the whole problem go away, would it not?

@Asimov - No; Fairtax is a FEDERAL tax proposal; it does not implicate sales taxes, other than that the states are basically paid a "kicker" to collect the Fairtax on sales in their state (in other words they're paid for the act of collection.) There will still be state sales tax which is additive to Fairtax, and thus this would remain an issue.

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Village-idjit
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My wife sells on Etsy. She just had a sale to a Washington State resident (Jan 2018) and Etsy charged that WA resident WA sales tax. We live in Montana (where there is no sales tax on anything) and have no Nexus of any sort in WA State. Etsy is based in Brooklyn NY and I doubt has any physical presence in WA State.

Washington State, ever greedy for more and more tax income to the state, passed a new "fairness" internet sales tax law in July of 2017 where it is now required by ANY business in the United States that does more than $10,000 worth of retail sales to WA state residents to collect and remit the sales tax to WA State, with all the correct tax district coding. Either that or snitch on the WA resident and report their name, address, and amount of purchase to the WA Dept. of Revenue so they can come after that resident for "use tax."

Seems COMPLETELY UNCONSTITUTIONAL to me re QUILL decision. I know this WA law will be challenged in court and hopefully defeated, or every state in the USA that has a sales tax will be coming after internet sellers, no matter that the seller has no physical presence in these states.

Any thoughts Karl?
Tickerguy
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Does Etsy process the money?

If so then if Etsy has any sort of presence in Washington state (e.g. employees, ANY subsidiary, captive LLC, etc) then yes, they should be forced to do exactly that.

If your wife took the payment completely outside of Etsy then no, as Etsy in that case is a mere advertising service. But as soon as they insert themselves into the transaction stream then yes, it's not only proper it should be REQUIRED.

The WA State law is unenforceable as you describe it. I had NY try to come after me for a list of ALL my customers in NY State (there weren't many since we served the Chicagoland area) at one point when I ran MCSNet. I have no idea how they got the idea that we had any sort of NY customer base with no presence of any sort there, but they did -- and threatened legal process if I refused.

I sent them back a Xerox of my ass in response. Literally -- I took my pants off, lightly stuck my cheeks on the glass and hit the "copy" button.

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Village-idjit
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Karl, as far as I know, and I did do some internet research, Etsy has no physical presence in WA State. They are based in Brooklyn NY. From Etsy's website...

"On January 1, 2018, Etsy began collecting and remitting Washington state sales tax on behalf of all sellers selling to Washington buyers, per new WA state legislation. No action is required by Etsy sellers and they will no longer be able to collect and remit tax on goods sold to buyers in WA state..."

Etsy is even collecting WA State sales tax from Etsy sellers located in Europe!

So while my wife does not have to deal with the tax issue directly, as Etsy sends it in for her, all this seems bogus!
Need4mospd
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I'm missing something. Why wouldn't the sales tax be due on just the cost of the Amazon's/ebay's fees and services for those third party transactions? The majority of the money is still going between parties in separate states. Just wondering.
Tickerguy
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If Etsy is COLLECTING THE MONEY then if they have any facilities or employees in the state -- even one -- they're on the hook for it.

They probably do; Etsy is not a small company.

That's the entire point of Nexus -- if your company is employing people somewhere or has a facility there of some sort then you have nexus.

As an example MCSNet had Nexus in Wisconsin even though we did not have any employees in the state nor any office space because we did have hardware there in a colo facility cage which we rented. That renting of that space was enough, and thus we had to comply with Wisconsin tax law regarding our operations there.

My rather-good knowledge on this point comes from the fact that I spent a fair bit of both money and intellectual firepower attempting to find a legal way around that. There wasn't one other than "ignore it and hope they don't come after you, and if they do, then try to negotiate."

The problem with that as a small operation is that "come after you" may show up with a pair of handcuffs -- or almost as bad, a seizure order for your equipment!

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Tickerguy
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Quote:
I'm missing something. Why wouldn't the sales tax be due on just the cost of the Amazon's/ebay's fees and services for those third party transactions? The majority of the money is still going between parties in separate states. Just wondering.

Because Amazon has nexus, and they are NOT just selling you advertising (which is the essence of their claim) since they are inherently involved in fully half of the transaction stream -- the processing of the money.

Remember there are two halves of any consumer transaction -- goods or services being the first half, and the money being the second half. Both are equal (by definition) and nexus attaches with any significant connection to the taxing jurisdiction.

Amazon has it, you process the funds through them, and nexus attaches. Period.

Now if Amazon (or eBAY, or whoever) merely charges you an advertising fee then they are completely divorced from the transaction itself. They do not handle EITHER the product or the money. In this case there is a winning argument.

The problem is that none of the business models work without them handling the money so the consumer thinks the product was sold "on Amazon" or "on eBAY". The ENTIRE BUSINESS MODEL is not "Amazon is an advertiser" it's "Amazon is where I got X." It also gets dicey to charge and collect a commission (or eBAY's "Final value" fee) in such a case because the actual transaction doesn't flow through the site -- only the advertising.

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Xkn
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The difference is that Quill went to court, but Etsy won't. It is not only large corporations involved in scams, states are at the forefront. Especially "progressive" states. California explicitly collects tax on *all* out-of-state purchases on their tax form. Sure, taxation of interstate commerce by states is flatly unconstitutional, but they call that "use tax". It is about the same as renaming "theft" with "removal of valuable objects" and getting away with it.
So, despite The Constitution and Quill decision, there is no lawyer willing to take on the state and sue for obvious violation of both. Surprising given that reward (refunds+damages) would be substantial.
Tickerguy
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Sorry, use tax is constitutional unless prohibited under the State constitution in question. The commerce clause protects interstate commerce but does not in any way prohibit a state from taxing the consumption of a good or service within its borders.

The problem is COLLECTING IT from out-of-state sellers, who have no obligation to report or cooperate. Therefore, figuring out how much a person in such state owes (to go after them) is pretty difficult, as you can't force people to incriminate themselves and you can't force the seller to divulge who they are and how much they spent.

That's what Quill held.

The problem is that Quill had one set of offices in one place. Amazon has facilities in the form of data centers, warehouses and people ALL OVER THE ****ING NATION, in virtually EVERY state. Therefore they have nexus in those states and they know it. They've tried to dodge this through their LLC bull**** but it doesn't work; there are perfectly legitimate business reasons to set up captive LLCs and such but if used to attempt to claim a lack of nexus that's tax evasion, since the ownership interest and control of said operation is clear.

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Whitehat
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can we say margin compression?? the collection of sales tax would quash much of scamazon's business model as well as their vendors (third-party sellers) and they know it.

eBay could function as an advertising only model however, they would lose the profits from the PayPal processing fees and other payment fees. they would also be forced to take an upfront payment for the listing which would reduce listings. as it is now, it costs nothing to list, only if a sale occurs. might scare off some sellers, not to mention that ease of payment processing also makes it comfortable for people to list.

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"I sent them back a Xerox of my ass in response. Literally -- I took my pants off, lightly stuck my cheeks on the glass and hit the "copy" button."

Karl, someday we really need to get together someday: I owe you several rounds of drinks for that one alone.....

Tsherry
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>>Karl, someday we really need to get together someday: I owe you several rounds of drinks for that one alone.....>>

He owes me a keyboard!

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Bodhi
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Quote:
the collection of sales tax would quash much of scamazon's business model as well as their vendors (third-party sellers) and they know it.


Absolutely it would quash their business. When I'm shopping on eBay, and after I filter the results, I then organize from low price to high price. I'll then click the buy button for the lowest price listing I'm satisfied with. If I see sales tax charged I'll abandon the purchase and move on to the next to lowest listing. Funny how eBay doesn't include sales tax in the price. So on and so forth until I find the real lowest price listing.
Ptjim
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If I buy something from B&H Photo in NY/NJ and pay with a Visa card, nobody shakes me down for the WA sales tax, even though Visa is facilitating the transaction.

I assume some tendril of Visa has an office in WA; isn't this similar to Amazon processing Third Party Marketplace transactions?

Now that WA has pounded Amazon into submission, the extra 9% immediate cost increase will motivate me to shop more widely - the best total-delivered price gets the sale. Having founded a couple of businesses here (and selling them off after it got to be too much of a pain in the ass to 'comply') I can vouch that WA already steals more than enough from its citizens.

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Tickerguy
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If I buy something from B&H Photo in NY/NJ and pay with a Visa card, nobody shakes me down for the WA sales tax, even though Visa is facilitating the transaction.

I assume some tendril of Visa has an office in WA; isn't this similar to Amazon processing Third Party Marketplace transactions?

No. B&H contracts with a bank, which handles the payment, NOT Visa. That you can use a Visa-branded CARD does not implicate this fact. When I ran MCSNet we took plastic but Visa, Master Card, Amex and Discover were NOT directly connected to us; we contracted with a BANK and executed a merchant agreement with them. THEY were the processing source (in other words, the card companies are a BRAND and own a network over which messages flow for a fee; they don't actually handle the money.)

Now let's assume you lived in NY. You pay tax on B&H sales, because B&H is in NY. Now some other vendor comes along and lists products on their web site. B&H doesn't collect sales tax under the rubric that they're a mere "advertising for money" conduit.

That's legit (otherwise if you bought advertising from Lamar for a billboard you'd suddenly have nexus!)

BUT if B&H were to then handle the money for a sale made as a result of said advertising through their payment processing systems THAT would be nexus, because the test is met -- A SIGNIFICANT CONNECTION TO THE TRANSACTION ITSELF (in this case fully HALF of it since HALF of any consumer transaction is ALWAYS the payment of the money) *AND* that entity has a material presence in the state.

The ultimate test of involvement is this: When the payment is sent WHO GETS IT? Further, if you dispute the transaction WHO GETS THE CHARGEBACK FROM VISA? In the Amazon "Marketplace" case AMAZON DOES FOR BOTH CASES, and that they would then charge back the merchant (or pay them less some commission) doesn't matter.

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Winding it down.

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