Friday, May 10, 2013

A New One Percent

Last year protests against the one percent, the fat cats on Wall Street, failed to gain much momentum.  Now we have a new 1%.  According to a recent CNN Money report:  “Consumers who shop online and don't pay a sales tax at the time of purchase are supposed to pay the tax to their home state. But estimates are that only about 1% of buyers comply with those widely unenforced laws.”

A bill passed in the U.S. Senate on Monday (69-27) is expected to put a stop to that.  If the House agrees and the President signs it into law, 45 states with a sales tax could require online retailers with annual sales of over $1 million to collect tax on purchases made by their residents.  This will amount to an estimated $12 billion in additional annual tax collections for those states.

All along residents have been required to report online purchases as use tax on their state income taxes, but 99% didn’t bother.  Perhaps they considered it a benefit of shopping on line, or perhaps they considered it an offset to the shipping charges.  For many, it was a conscious choice.  “Close to 30% of online shoppers surveyed by advisory firm AlixPartners recently said they would shop more at brick-and-mortar retailers if the tax became reality.”  In any case, the free ride is coming to an end.  The government is stepping in with another law. 

Paying the tax was never rocket science.  The first step in income tax preparation, whether you are doing it yourself or taking it to a tax preparer, is to get your records together.  A computer is both a communications tool and a filing tool.  I like to shop on line, and every time I do I received an acknowledgement through e-mail with all the necessary information.  How difficult is it to store or print that page?  Instead online companies must track all state and local sales tax rates (along with any changes) and calculate that into their bill.  Who do you think will pay for the extra costs involved?

One of the recurring lessons of responsibility is that when we don’t do our jobs, someone else, often the government, will step in and do it for us.  Understanding the economic process teaches us that additional costs imposed on businesses will eventually find their way back into our pockets.  So it's no surprise that avoiding the $12 billion in taxes likely will cost us more in the future, the tax itself plus the price increases to cover added administration on the part of the sellers.  In addition, we will have reinforced the government's assumption that we are not capable and that they must fix things for us.

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