The City of Madison plans to approve a sales tax kickback for Custom Touch Homes at tonight's commission meeting. This kickback fails the smell test on numerous levels: favoritism to one company, transferring public money for private profit, raiding other communities' tax base for Madison's gain.
Here's one more reason to oppose the Custom Touch kickback: Madison is about to undermine the effort to collect sales tax on Internet purchases.
Consider: Normally, businesses collect and remit sales tax based on the point of delivery of their goods and services. Sell a computer and ship it to Brookings, and you collect and remit sales tax to Brookings and South Dakota. Custom Touch has persuaded the South Dakota Department of Revenue and counterpart agencies in other states to let it keep all of its sales tax local. They may deliver a house to Pipestone, MN, or Lincoln, NE, but the tax dollars come back to Madison, SD (except for the million dollars of municipal tax that Madison will hand to Custom Touch as pure profit).
Now imagine you're Jeff Bezos, CEO of Amazon.com. For years you've been fighting fifty state legislatures who all want you to remit sales tax to them for the loot you ship to their states. Fifty different states, thousands of different communities with different tax rates, different reporting rules and schedules... even with Amazon's awesome computing power, that's still a regulatory quagmire.
So you, Jeff Bezos, walk into the Washington State Department of Revenue and say, "Director DelBene! I hear South Dakota lets one business charge sales tax based on point of sale rather than point of delivery. We want the same deal. Every sale we make will collect Washington sales tax. Oh, and we'd like a 50% kickback on our Seattle sales tax. Deal?"
Director DelBene looks at the prospect of boosting state revenue by a few percent of at least $34.2 billion a year and says, "Heck yeah!"
And in a cloud of hasty greed, Madison kills South Dakota's chances to collect sales tax on Internet sales from any out-of-state vendors. Oops.
Goofy tax administration! What else is new? The "right thing" varies from galaxy to galaxy, planet to planet, country to country, state to state, town to town, block to block, house to house, room to room, and in my case, brain cell to brain cell -- both of them.
Goofy indeed. But as I think about it, taxing at the point of sale instead of point of delivery could be a boon for businesses and local governments, even without the tax kickback Madison is offering. Businesses wouldn't have keep track of different tax rates all over the country. Revenue officers from Pierre wouldn't have to try prying money loose from businesses based elsewhere.
There would be winners and losers, depending on the ratio of internet shoppers to internet vendors in each state. I wonder how that might break down?
You'd have to get all the jurisdictions in the country to agree to point-of-sale taxation.
Some states already make buyers who live in the state pay the sales tax on Internet purchases from out of state. Not sure how it works, but they did it in Hawaii when I lived there.
All distant transactions should be covered by a federal sales tax with most of it refunded to states on the basis of population. No need for incredibly intrusive data bases. At least we all have some input on federal taxes. City sales taxes are classic taxation without representation. City and state internet sales taxes are more of the same.
Do away with BS like "user taxes" as a mask for sales tax on distant transactions. Make the federal sales tax the average of all the state sales taxes. Everybody then would know a tax was due, and every merchant would know to collect the tax.
It may be that internet sales "cost" some cities sales tax they should never get, but mostly it is by people buying stuff they can't get locally. Businesses are not losing business because of internet sales, they are "losing" business they never had or never wanted or were unwilling to work on.
For the last several Congresses, there as been legislation to federally recognize the Streamlined Sales Tax and Use Agreement that something like 30 states have agreed upon to administer sales tax on internet purchases. It's an issue that instead of breaking down along party lines, tends to break down along rural/urban lines. Small states agree while large states will not join. It's an interesting ongoing issue.