Saturday, August 05, 2017

Ravenous Republican Revenue Rampage (Internet Sales Taxes)

Internet Sales Tax Collections is the subject here. The two traditional parties in this state just insist on passing new laws to collect sales taxes on online purchases made from out of state vendors. This even though the 800-pound gorilla of online sales, Amazon, voluntarily collects Arkansas sales tax. In spite of their stated reasons, I think that Wal-Mart's positioning on the issue is an important factor. They are pushing a model where you order online but go pick up in store. I think that is smart, too bad their e-commerce site is such a mess. But it means they are most directly competing with online retailers, and they want government to move the bar in their favor by increasing tax collections from such retailers, even if it precipitates a lot of other problems for the rest of us.

I recently got into a FB discussion on it with a State Senator who in many ways is one of the top five or ten in the legislature. I will give his provocative post first, then my responses, so you can be ready when you hear the same line....

WINNERS AND LOSERS (about keeping internet sales tax free while forcing local retailers to collect the taxes WE voted for highways, jails, city fire and police, game and fish, and schools)
There are examples such as the name brand chainsaw. The manufacturer sets a MSRP of $149. They sell to both the local Mom and Pop small engine business and the internet retailer at $135. That $135 includes shipping. The Mom and Pop small engine business has the chainsaw shipped to their site, because they will sell it in the community. Because it becomes part of their inventory, they will also pay property taxes on it that support the local school, library, solid waste, roads, city and county government, etc. The internet retailer never owns the chainsaw but has it shipped direct from the manufacturer or distributor anywhere in the country. In Hot Springs, Arkansas, the local Mom and Pop has to collect $14.16 sales tax. They also have to hire a bookkeeper to keep up with the tax and remit it to the state.
I, shopping in my pajamas can order it from the Goliath internet retailer for $149. Or I can go locally and pay $163.16. He gets asked a dozen times a month if he will eat the sales tax and sell it for $149. Sure, he can now sell the chainsaw for which he paid $135, for $136.08. (That does not include the people who came in and asked for his expertise on how it worked and whether it was any good or not, before ordering it via internet without even asking him to meet the price. His time after all doesn't cost anything). Yep, local retailers get to figure those numbers out because the state requires that they collect the exact amount of sales tax on the sale. They must collect the whole amount of sales tax, but they must be careful not to mistakenly overcharge the sales tax. You will be fined or jailed for going under or over.
How do we benefit from that? Let's set aside the macro that there are millions of dollars now not going to schools, libraries, roads, etc. Let's look at the micro.
Anyone who has operated a business, knows that they were only selling that chainsaw to start with, to find that one little bit more of income to make the whole thing make sense. How is the community better off, when he closes the small engine shop and and goes to work for Walmart? How is the community better off, when an ice storm or windstorm hits and instead of running down to Tony's or even Lowes for that matter, you sit and wait. Now you get to live like the settlers did in the plains (and here) when you ordered out of the catalogue and waited. Mean time, we could have been clearing the broken trees off of the roads and our homes.
DO NOT ARGUE, THAT THEY WOULD HAVE CLOSED ANYWAY because they were small and local. I have been told since the 70s that I couldn't compete against the big boys and the local store was on the way out. Well, the Big Boys of the 70s in my business are gone. Sure small mom and pops close all of the time, even if the sales tax were fair and equal. But so do Circuit City and Montgomery Wards.
Buy why do you want me not to offer 25 good jobs in my community? Why do you not want me to pay large amounts of property tax to educate our kids and pay our teachers? Why do you not want me here to donate to every local activity to come along?
Why do you think that we should be punished for being in business, but rewarded if I shut down my showroom and only take orders from people in other states just like you? I can then participate in helping people in other communities starve their schools and other government services because somehow if I sell online rather than storefront I become special.
Don't be surprised when I do just that. We have been headed that way for awhile. If by tax policy you pick on-line retail as the winners, only a fool would not get on the winning side. When I do that, I can pick my business up and relocate wherever I want. No need to support this community or this state for that matter.
P.S. For the number of people who have never operated a business who say "sales tax doesn't matter, they would have went out of business anyway", take 9.5% out of your own budget and get back to me. For many if not most, they will find that paying the mortgage, car payment, and health insurance becomes difficult if not impossible when you take 9.5% out of your budget.
To which I responded...
You have convinced me- that Arkansas sales tax is way too high. Ten percent sales tax is outrageous. I live three mile from the Missouri border and Wal-Mart opened a huge store on the other side of the line and lots of folks around here go there for large purchases to save on sales tax. Heck, the Hendren's had a car dealership right on the other side of the line for a long time. Maybe still do. The root problem is that AR sales tax is high enough to cause real distortions in the market. Solving the problem of government intervention with more intervention is going to cause two problems rather than solve one.
In addition, the "Goliath" in your scenario can only be Amazon, which is already voluntarily collecting the Arkansas Sales tax for you. So you are not really hurting the Goliath when you pass your law increasing collections, you are hurting other, smaller, online retailers. Including maybe your local hardware store if they choose to do that. There is also no reason why they can't have a customer order direct from the factory and not pay property taxes on it if the customer is willing to wait a few days. One only pays it for inventory at the end of the year anyway.

My grandfather owned a hardware store. I would be very sympathetic if that was what this was about. Wal-Mart is pushing an order-online pick up at store program right now. THEY are the ones who would benefit if online sellers from out of state were somehow forced by the Arkansas legislature to collect sales tax. They are more directly competing with online sales than walk-in mom and pop stores because the order is made online. I think enforcement costs of your new tax collections will be greater than the revenue collected but Wal-Mart won't be paying those costs, we will. Whatever you think this is Senator, this is in fact yet another AR-leg indirect subsidy for WAL-MART.

And the Senator answered by asking a series of leading question based on dubious premises.....

Political philosophy, tax policy, etc should be able to be conducted in a vacuum and the answers be the same. Truth is truth.

Should the government pick winners and losers?
Should retailers be treated the same?
If there are incentives should they drive jobs and capital in or out of the state or community?
Does tax policy matter in economic development?
It is interesting that you can see a tax rate difference of 3% drives people across state lines but not that a 10% difference would close down local jobs.

Or are you intentionally arguing for protectionism for certain businesses?

Which I nevertheless attempted to answer....
No, the government should not pick winners and losers, in particular for folks who don't even have a chance to vote against it, and that is exactly what you would be doing with this law: Wal-Mart would be the winner. Small online retailers, in state and out, would be the losers. 
Retailers under your purview should be treated the same- and that is what existing law does. They all operate by the same rules and nothing should prevent any brick and mortar from going online too under the same rules. Now if they choose not to go online as well that is THEIR CHOICE and I do not think the government should try to protect them from the consequences of their choices. It would be like a hamburger chain that refuses to get a drive-through window asking you to tax others that do have one because of the "unfair" competition.

There should not be incentives from government. That is government picking winners and losers as your leading question previous hinted at. Like Big River Steal which I remind you that you and most of your colleagues voted for. Since you swallowed that camel should you really be straining at these gnats? Instead they should tax the least amount possible in the least disruptive way possible to fund essential services. This would not be least disruptive. It involves reaching into other states and attempting to collect from people who you have no just authority over, as they chose not to live within your jurisdiction. All they can do is have their legislatures retaliate AGAINST ARKANSANS. This is taxation without representation, which our founders rightly labeled tyranny.

Tax policy does matter in economic development. Wal-Mart will want this because it is a tax policy which will support what they are doing but it will hurt the rest of us once other states retaliate. What you are doing is basically like an anti-free trade measure between the states.
You wrote: "It is interesting that you can see a tax rate difference of 3% drives people across state lines but not that a 10% difference would close down local jobs. " - Ha! I see both, what you are not seeing is all the potential consequences of your actions. You seem to think that we can step on their toes without them ever stepping on ours. Government is the only winner in this course of action.

As for the "protectionism" I have already explained how what you are doing amounts to protectionism and intervention on behalf of Wal-Mart. Leaving the rules as they are, especially when the largest online retailer is already paying voluntarily, is not protectionism.


Blogger kristina young said...

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4:14 AM, August 10, 2017  

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